
Dropbox jumps more than 40% in trading debut - jnordwick
https://www.cnbc.com/2018/03/23/dropbox-dbx-ipo-stock-starts-trading-on-the-nasdaq.html
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mabbo
Why do stocks have to sell at one given opening price? I ask this honestly- I
don't understand how public markets work in this respect.

What if instead, a giant silent auction occurred. All potential buyers would
submit how many stocks and the price they want to pay for them, then the
submissions could be sorted from most to least expensive and sold at that
submission price until there are no stocks left. This would maximize the
income for the founders/investors and achieve a market rate that is fair and
accurate.

~~~
kolbe
The auction you mentioned would not be a good one. If bidders don't know that
they will be protected by a single clearing price, they will drastically
reduce their bids. It would basically guarantee that everyone who won the
auction would be immediately under water. This risk aversion leads to people
bidding under their expected value of the stock, and instead results in them
choosing a price that they're much more (e.g. 90%) confident will be good.

Generally speaking, the highest single price that clears the entire demand is
best, and would result in bidders submitting their most honest and aggressive
bids.

The problem with IPO "auctions" is not that they're at one price, but that
they aren't really auctions at all. It's just a private negotiation wrought
with many conflicts of interest. Dropbox, for example, had 25x more demand to
pay $21 a share than actually traded. And instead of raising the price further
to clear the market at a fair valuation, banks instead used this archaic
matching system to give shares at below-market valuation to themselves and
their friends in hedge funds.

~~~
charleslmunger
> It would basically guarantee that everyone who won the auction would be
> immediately under water.

That's why you'd use a second price auction, or similar structure - accept a
list of buy offers (price + quantity of shares), sort by price, and then
choose bids in order until you've raised all the money you want to. Charge all
bidders the price of the lowest offer that you satisfied. I don't think there
would be a 40% pop if they'd sold shares initially like that.

The reason people use this system is that it enriches the banks that recommend
which system to use.

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brianbreslin
I think most people don't understand that if your prices shoot up so high that
means your bankers underpriced it too much and their clients made a boatload
and the company missed out.

~~~
maxerickson
They only sold ~10% of the company.

So pre-IPO shareholders still get most of the upside. $250 million to the
float, $2.2 billion to the rest of the shareholders.

It can still be a mispricing, but it isn't so drastically painful if you look
at it that way.

~~~
discodave
You could argue that the existing shareholders, who own 90% of the stock are
better served in the long run if the stock has positive momentum.

The calculation for if it's better to sell the other 90% into a hot market
would be: 40% of 10% is only 4%. So if the initial pop has a long term
positive impact of 4.4% on the price, then the existing shareholders come out
ahead.

It's debatable, but I think there are two sides.

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moomin
Were I a pre-IPO stock holder, I'd be extremely annoyed with the advisers
right now.

~~~
zng00
Seems they would be happy with the bump?

~~~
kolbe
What are you talking about? The "bump" off of the fake price that got made up
yesterday?

Dropbox was worth $12b yesterday, just like it is today. And a few banks
suckered Drew into screwing himself, his investors and his employees by
selling shares at a $8b valuation.

~~~
zethraeus
They mean the set of people who actually sold to institutional investors at
that price, in the process of listing.

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hbcondo714
While Dropbox rose, Box shares fell 8% today even though their annual report
released yesterday states YoY growth, delivering their first full year of
positive free cash flow. They only mention Dropbox as a competitor "to a
lesser extent"[1] in comparison to Microsoft and Google

[1] [https://www.last10k.com/sec-
filings/1372612/0001564590-18-00...](https://www.last10k.com/sec-
filings/1372612/0001564590-18-006572.htm/#ITEM_1A_RISK_FACTORS)

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colinbartlett
Congrats to Dropbox and to Y Combinator for their first IPO.

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rossdavidh
So, basically they set the price wrong?

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iooi
No, the bankers set the price perfectly. They just made $360M in a day.

~~~
rossdavidh
For the bankers, yes. But Dropbox appears to have set the price wrong, and
left a huge amount of money on the table for somebody else (the bankers) to
take instead? Or does this 40% jump help Dropbox the company in some way I'm
not understanding?

~~~
iooi
The bankers will sell this as building "momentum" for the stock.

It does not benefit Dropbox directly in any way, it is literally $360M that
could have gone to Dropbox but went to the bankers and their clients.

~~~
simula67
Banks would make money even if stock goes down, through "stabilization"
[https://www.bloomberg.com/view/articles/2016-11-25/appeals-c...](https://www.bloomberg.com/view/articles/2016-11-25/appeals-
court-concludes-that-ipos-are-legal)

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thebiglebrewski
Would you buy their stock? What are their opportunities to grow market cap the
next 5-10 years?

~~~
nartz
They have a good product, no doubt - also interesting that "Box" stock has
dropped some as of this hour.

However, to become the next giant, I would imagine they need to branch out and
gain traction for tangential products. They've tried (dropbox paper) but not
sure it has enough market share to make a dent just yet.

~~~
brightball
I really enjoy Dropbox Paper fwiw. I use it for just about all of my note-
taking now, which the calendar integration makes even better.

Off the cuff, I can see a few things that they can expand to from where they
are:

1\. Give better central visibility into tasks/action items created in Paper
docs without having to open them.

2\. In my opinion, they should attempt to purchase Remember the Milk. It's an
extremely polished to-do system that IMHO would be well served as a rebranded
Dropbox Todos/Tasks product. If that were to happen, then it would also become
the ideal destination for tasks created within Paper. The ability to share
task lists would also align nicely with shared folders.

3\. Get into the voip fax space by allowing users to sign up for a number,
route the documents to specific folders or select an existing dropbox document
and fax it to a number.

4\. Get into the Docusign/Ecosign/Rightsignature space by allowing a user to
select a document and send it to people for signing. They already have all of
the tools they need to make this work in terms of sharing and view tracking.
They've also got built in version control, so all that's really needed is the
interface to designate complete-able fields and actually go through with the
signing. It might make more sense to acquire one of those.

5\. 3-4 could very easily create tasks in the task system, with direct
document links and the ability to auto-complete them once the document was
viewed or the task was completed.

6\. This one might be a bit more of a long-term stretch, but if they completed
those steps they'd have a system that combined document management and task
tracking...and at that point they'd be very well positioned to break into the
BPM game for small businesses. I've believed for a long time that a more
accessible BPM solution could be big...and if you've addressed the passing
docs around with tasks, then tracking completion and responses part you've got
90% of the human interaction side of a BPM system covered. Maybe even just
direct integrate with Camunda?

~~~
sjg007
Also they could take over handling county and government forms. So much email
or fax that it hurts. Imagine you fill out a form, scan it and Dropbox it into
the right folder (or form upload or even email the Dropbox link as a stepping
stone).. basically replacing fax and email for secure document sending.

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Edmond
The pressure is now on to match that price with quarterly revenue/profit,
should be interesting.

Too bad crystal balls are only a thing of fantasy, I remember seeing Google's
post IPO stock price @ ~$81 and saying how absurdly over priced...oh well :)

~~~
regulation_d
Interestingly enough, Google's initial share price wasn't set by the banks,
where they took the Dutch auction route.

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jedberg
Meanwhile, Box is down 6% with a market cap 1/6 that of Dropbox.

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kolbe
Add losing $300mm to friends of Goldman, JP and DB by letting them screw Drew
&co on their IPO pricing to the long list of ways Dropbox has found out how to
lose money.

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nunez
Much congrats to the Dropbox team. I know they've been wanting this for a
while.

~~~
mtgx
Maybe now the public stockholders will finally kick Condoleezza Rice out of
their board.

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nikolay
Honestly, Dropbox was interesting years ago. Now it doesn't offer much if
anything unique.

