
Dropbox says it is cash flow positive, in no rush to IPO - uptown
http://techcrunch.com/2016/06/14/dropbox-says-it-is-cash-flow-positive-in-no-rush-to-ipo/
======
Razengan
I wonder what features Dropbox can offer that won't inevitably be surpassed by
Google Drive, iCloud Drive, and OneDrive.

To me, their main strength seems to be that they have the best cross-platform
UI/UX right now, but even that may not be the case for long.

Maybe they could evolve/branch into a general-purpose file hosting service,
where people can use it to publicly share images (like imgur) and music (like
Soundcloud) with the appropriate UI for each case (or spinoff site, e.g.
Imagebox and Musicbox) except people would just need one account to
comment/vote on everything. Who knows, maybe they can even become an
alternative to YouTube..

Let independent developers publish their games and apps from there, bypassing
Steam and the other app stores, optionally charging a fee per user, with
Dropbox taking a cut.

Maybe even offer a chatroom/messaging system, to compete with Slack/Skype etc.

~~~
_razvan
The long term game for Dropbox is in having businesses outsource storage to
them. While consumer cloud storage is a tough market (due to it being a race
to the bottom), the vision of getting businesses of all sizes to replace their
legacy file servers with Dropbox sounds very compelling.

You can already see Dropbox has transitioned its focus to businesses. Mailbox
and Carousel shut down. That is because a single consumer can easily switch to
another service based on price alone and can afford to spend his/her own time
on figuring out how to migrate their files.

On the other hand, once you have 100 business users which got used to Dropbox,
switching to another solution has a real cost for your business. That's why
Dropbox is focusing on businesses: they are stickier in the long run.

However, Dropbox will still maintain a strong consumer presence because
familiarity is one of the key points for selling Dropbox to businesses.
Moreover, every business starts small and every founder is a consumer at
heart.

The promise of Dropbox for businesses is in outsourcing the complexity of
storage in exchange for a monthly/yearly subscription. Consumer cloud storage
is just a step in executing a bigger vision.

~~~
swampthinker
I can attest to this. I do some tech support for a growing construction
company nearby, and I just tossed out their aging server. Moved all their data
to Dropbox and set it up on the PM's laptops. Took me about a week of
answering questions before they were all happy and smooth again.

~~~
wcfields
Agreed. We had a SMB share on our network that had grown increasingly unused.
Since there wasn't a business processes in place users organically started
using Dropbox to communicate with clients.

Eventually they have you because then you realize that you have so much
business information in them that you can't let employees walk out the door
with.

------
cylinder
More companies should disavow growth and aim to be stable cash generating
entities. Dropbox is a utility. Unfortunately VCs don't like this.

~~~
vadym909
If they didn't take VC Money it would be great. For a VC, a startup refusing
to go IPO is like a bank that takes your money offering you a high interest on
your checking account, but when you go to get it out, says oops sorry, it went
into a fixed deposit.

~~~
OnlineCourage
Actually, it's more like a nice shiney bank which gives a huge interest rate
on your deposits, but you go to the bank and the doors are locked, and you
can't get in to make a deposit...but you can kind of see opaquely through the
window that there are a lot of amazing bankers in there making tons of money,
but they won't look at your or acknowledge you, because they are too busy
making money on the money they already have.

~~~
rattray
That's only true if Dropbox is really growing revenues at a fast pace.

If they're growing revenues at a slow pace – or have a low profit margin –
it's more like looking in through an opaque window at bankers doing less with
your money than other bankers could. You'd much rather withdraw that money and
invest it nextdoor.

------
bing_dai
I am surprised that Dropbox' investors would allow it. It also indicates that
Dropbox likely does not have a Redemption Clause in their term sheet.

Redemption Clause basically says "if the company does not IPO or get acquired
in X years, the company has to pay the investors back their money, plus a
hefty interest".

It is a relatively unusual term, but not rarely-seen.

(Source: I used to work for a VC.)

~~~
Brushfire
Note to entrepreneurs: this is a really, really bad term if you see it early
on in a companies life.

It allows nasty investors to put a gun to the head of the company to either
bankrupt the company or (in reality) force a crazy negotiation for more equity
when an exit isnt found within enough time.

Avoid like the plague.

So, good for Dropbox.

~~~
bing_dai
I have a _relatively_ less negative feeling towards the Redemption Clause.

I somewhat empathise with VCs who put the clause in the term sheet, as VCs
themselves have huge and constant time pressure to make money for their
investors (LPs), which likely can only happens when their portfolio companies
has a big liquidation event (IPO or acquisition).

Yes I agree that the Redemption Clause does not align with entrepreneurs'
interest, but I understand the reason behind it.

~~~
frakkingcylons
I think you meant to say empathize as opposed to emphasize.

~~~
bing_dai
Oops. You are right. Thanks!

------
post_break
Dropbox is the one service that I just can't replace. Nothing comes close to
the ease of revisions/version control, restore, and sync. I sound like a bot
but I've tried everything to find a replacement and I just keep coming back.
It worries me because I don't like it when there is only one game in town.

~~~
Cyph0n
OneDrive is an absolutely solid alternative. I've been using it for a few
years and haven't looked back.

With Office 365, it's a steal.

~~~
colemickens
I'm sorry, I really can't take a service seriously that can't even show me my
file extensions in the web client. That combined with the horrible idea to
release a Sharepoint client branded as "OneDrive for Business", the buggy
clients integration in Windows 10, and the number of times they've changed
messaging around "unlimited" storage... I don't see any reason to trust
OneDrive with my data.

Oh and there's the nonsense "magic" it does with OneNote notebooks. In fact,
I'm pretty sure I accidentally deleted a OneNote notebook earlier today when
scrolling through my OD account with the Mac client.

~~~
tacos
The web client is the only reason I still use the damn thing -- it's really
quite great. Full text search includes text contained within image files,
FAXes, and wonky old PDFs.

It shows file extensions for me.

~~~
colemickens
>It shows file extensions for me.

Wow, this is a new development in the last 4-6 weeks. A very welcome one and
I'm happy to have been wrong. Thanks for the heads up.

------
refurb
Profitable or cash-flow positive? Those are two different things.

 _Cash flow positive - normal situation where the cash inflows during a period
are higher than the cash outflows during the same period. Positive cash flow
does not necessarily means profit, and is usually due to a careful management
of cash inflows and expenditure._

~~~
jackgavigan
Yes, his words were chosen very carefully. One has to assume that they spent a
_lot_ of money building Magic Pocket and migrating off of Amazon S3. That
investment will be amortised (and the hardware will depreciate) over several
years ()during which time it will show up as a cost in the P&L Account) but
because the cash has already been spent, it doesn't show up in today's
cashflow. Stock-based compensation also doesn't show up in the cashflow but it
certainly impacts P&L.

So, while bring "cash-flow positive" means that the company's cash balance
isn't decreasing, it doesn't mean that it's profitable.

~~~
stvswn
This seems right to me. A cynical view of why he wouldn't want to go public
would be that neither growth rate nor profitability paints a rosy picture, and
filing for IPO would force disclosure -- the hope is to accelerate growth
using the higher margins they realize after having implemented Magic Pocket.
If/when they prove that Magic Pocket was worthwhile, they'll look to IPO.

I think they _have_ to IPO, and they would have already if it were good news.
Not that _every_ tech company needs to IPO, but Dropbox customers have no
switching costs and little feature differentiation, so at some point low
prices or great support is going to win the market -- implying scale to me. To
achieve competitive scale (of operations, not userbase), you need financing,
and Dropbox isn't going to issue AAA rated bonds or anything, so it's a matter
of time.

------
TeMPOraL
I'm happy to hear that. As a Dropbox _user_ and paying customer, it reassures
me that they won't get acquihired or otherwise fuck up the product in a
typical startup fashion any time soon.

~~~
electic
There is still no guarantee that they won't get acquired and fuck the product
up in the end.

~~~
TeMPOraL
Sadly, there's never a guarantee. But it doesn't seem like they're looking for
an exit strategy, which is reassuring.

~~~
electic
How do you know they are not looking for an exit strategy? They have stopped
aggressively hiring and buying startups. Their new product launches and
innovation has been minimal. Their market is largely commoditized.

Secondly, they have raised a ton of VC cash and those VCs are looking for an
exit. So keep the company cash flow positive makes it look very attractive for
larger companies and especially PE firms.

~~~
pm90
From what I've heard, they have been more focused on selling to
Enterprises...as they should. There are only so many people who can be paid
customers; Enterprises provide a much more predictable (and larger) stream of
revenue.

------
tacos
> Dropbox says it is cash flow positive, in no rush to IPO

This means the fundamentals are a shitshow and that they couldn't even if they
wanted to. Investors believe they can get a better valuation via private sale
than risk letting the public market provide a reality check. (See also: Sam
Altman.)

They're getting bought; it's just a matter of when and how bad things get
first.

~~~
notatoad
>They're getting bought

by who, though? There's not many companies that could acquire dropbox unless
their valuation drops dramatically. Microsoft, Apple, and Google, and Amazon
all have worthy competitors already, and don't seem too interested in
investing a lot more in them. I can't see why facebook would be interested.
Who else out there is acquiring companies with multi-billion dollar valuations
- Maybe yandex or alibaba?

~~~
tacos
I don't think it sells for anything close to $10B. At the $3-5B range there's
no shortage of people who'd snap them up. EMC, Cisco, IBM. My money's on
Microsoft.

------
KB1JWQ
I wonder how their current and former employees view this decision.

I further wonder whether or not people leaving have a 90 day window to either
exercise or forfeit their options.

~~~
elif
Personally, I love working at a startup that purposefully has no exit
strategy. If you can grow as quickly as you want to and stay profitable the
whole time, there's no point in relinquishing control of the company to the
whims of institutional investors.

When the last startup employing me (I was an entry level dev/A-round hire)
exited, exercising my options left me with a paltry sum of money, a giant
corporation i had no intention of being part of, and a product doomed for
eternal stagnation. Overall a really bad exchange.

~~~
lijason
That's fine as long as startups don't sell you that the equity that's part of
your compensation has any value. In other words, they pay you market-rate that
big companies would in salary+liquid equity and/or you decide that whatever
discount they offer is worth the difference in work environment.

~~~
xxbondsxx
...Which is not the case at Dropbox or any startup really.

------
mark_l_watson
I love Dropbox's support for a GNU Linux client. That said, and ironically, I
am no longer a paying customer since they put Condi Rice on their board of
directors. If Rice quits their board, I will immediately become a paying
customer again.

Annoying that Google and Microsoft don't have official Linux clients for
GDrive and OneDrive, but at least their web based support is passable.

~~~
SpaceRaccoon
> I am no longer a paying customer since they put Condi Rice on their board of
> directors. If Rice quits their board, I will immediately become a paying
> customer again.

Curiously, why?

~~~
mark_l_watson
I am unhappy with her, Dick Cheny, etc. for steering the USA into invading
Iraq. Turned out badly for us, and they should have been able to predict the
bad outcome.

------
mankash666
Just to bust their chops on valuation - box is valued at $1.42B today. Dropbox
better have 10X in revenues and profits to justify the $10B valuation. My
guess is that they don't, and hence disinclined to address public scrutiny of
their financials and/or valuation.

~~~
seanieb
Don't you mean 7X? ... because math.

Also, the logic of directly tying valuations of a private company to the only
public direct competitor in the space is flawed (analysis don't use GOOG,MSFT
for this). Using the current logic; if Dropbox (private) beats the crap out of
Box (public), this would result in reduced growth and reduced quarterly
numbers for Box. However, Box's numbers are then used as indicators/benchmarks
for the cloud storage space, and then used to price Dropbox.

When you look at Box's valuation, you should be aware that the price is
partially because of risk/competition from Dropbox. How much of the price? I
have no idea.

* Full disclosure I am an ex-Dropbox employee.

~~~
mankash666
Fair enough - 7X to be more accurate.

Well, you'd have to apply the same "risk" of [Box, Google ..] that dropbox
faces in it's valuation which effectively cancels out that component. If
anything, given that Dropbox is private, it probably amplifies those risks and
lowers Dropbox's valuation.

Box's P/E is very much a fair indicator of Dropbox's valuation.

~~~
barleyworth
Box has a negative P/E, so I'll assume you're talking about P/S here.

You seem to be suggesting that companies within an industry should all have
the same price-to-sales multiple. (Or at least they'd "better have" the same
multiple. Or else?) This is because, while all the companies have different
quantitative and qualitative aspects, the mutual competition "effectively
cancels out" those differences when it comes to valuation.

Snark aside, here are things that actually matter for valuing these sorts of
companies:

* cost to acquire a customer (Box's S-1 notoriously had sales+marketing which was greater than their revenue)

* customer churn, or relatedly, lifetime value per customer

* subscriber growth

* margins (i.e. storage costs)

Perhaps your conclusion about the relative values of these companies is
correct, but the fact that you're not mentioning any of the points above means
that it's very difficult to give any credibility to your argument.

~~~
mankash666
Fair points. Though if Dropbox were significantly better at any of the metrics
you enumerate, they would've drummed up the media. And, they'd be in a hurry
to go public.

------
PhasmaFelis
It is so bizarre to me that building a business that can make a profit and
stand on its own is considered newsworthy in the tech economy.

~~~
OhHeyItsE
What makes this newsworthy is that they are venture-backed. Investors don't
get paid (generally) until there is a liquidation event.

A company that can "make a profit and stand on its own" is of no interest to a
venture capitalist.

~~~
PhasmaFelis
Exactly. It's bizarre that this obviously dysfunctional, customer-harming
model--building services that are designed from the start to die or be
consumed--has become so accepted that no one even questions it.

~~~
jonknee
> designed from the start to die or be consumed

We're just talking about being publically traded here, a company doesn't have
to die or be consumed to be able to make its investors whole.

~~~
PhasmaFelis
No, but that's exactly what an "exit strategy" is, and an awful lot of
startups are built around finding an exit. More often than not, that means
building enormous hype and growth on a model that you know isn't sustainable,
then selling it off just before it hits the apex and starts to fall, so the
buyer can either dismantle it for parts or pare it down into something more
realistic. Either way, you're leaving your users out in the cold.

------
hueving
I feel bad for the employees. Remember this is another risk when considering
offers from startups. Your shares may be illiquid for a very long time.

~~~
pm90
Why is it bad for employees? If they were granted stock, and the company
thinks it will be a big player, then they have effectively invested in the
company, right? Pretty sure a company like Dropbox has sizeable cash
compensation for employees apart from equity.

I guess I do see your point from a risks perspective. If I was an employee who
cashed out because of IPO and invested all that money in index funds, then my
risks would be greatly reduced.

~~~
hueving
Not being able to turn half of your compensation into actual cash that can be
spent on things like rent/house down payments/etc is a major downside. It
effectively extends the amount of time that the stock is worthless from the
employees' perspective.

------
nathan_f77
Damn, imagine being an early employee at Dropbox, holding onto a lot of stock
that you can't sell until an IPO. This situation is probably your worst
nightmare. If anything, you want the company to struggle a little bit so that
they're forced to raise more money in an IPO.

------
ekiara
Great to hear an alternative story (i.e. a non-exit or IPO story) out of
Silicon Valley.

mega.nz does not have the great desktop/device UI that dropbox has, and also
Kim Dotcom has stated it can no longer be trusted after the company was seized
by the New Zealand Government. But it offers 50GB to any new account. How do
they manage to do this? And what is stopping someone from just registering a
bunch of accounts on mega.nz and using that as their primary cloud backup?
(maybe with the addition of encfs or something)

------
nemock
This is always a cool thing to see in Silicon Valley. Way to go, Dropbox.

------
laktak
I really like Dropbox but I will leave if they force anything like Infinity
([http://blogs.dropbox.com/tech/2016/05/going-deeper-with-
proj...](http://blogs.dropbox.com/tech/2016/05/going-deeper-with-project-
infinite/)) onto us users.

------
erikb
For the users it would be so great to have Google by Dropbox. I use Drive all
day long, but only for Google documents. Everything on the computers is either
hosted in Dropbox or in ownCloud. But I think Microsoft is much more likely to
buy them than Google. What a pity.

------
nstj
> Houston claimed that Dropbox has been cash flow positive, emphasizing that
> this milestone for a business “means you control your destiny. Instead of
> being funded by your investors, _you’re funded by your customers._ ”

Accounts payable for SaaS businesses is the new VC on the block. Gold.

------
rtpg
Glad to hear Dropbox is cash flow positive. I was pretty worried at one point
about what would happen to all the apps relying on Dropbox for sync

<insert platitude about open systems here>

------
sjg007
For me it should be seamless to send and recieve large files on your iPhone.
You can do this in Dropbox but it isn't as simple as send to X via Dropbox.

------
JackPoach
I wish they'd make their finances more transparent, rather than just saying
'cashflow positive'.

------
gadders
Presumably this is against the interests of YC and the other VCs that
invested, though?

------
ajharrison
Sounds like he wants someone to buy Dropbox.

------
gauravagarwalr
This is a bot! Flagged! OTOH Have you tried Google Drive?

~~~
post_break
Google Drive does not run on windows. We need to quickly sync stuff between
machines, capture revisions, all natively within windows. Thousands of files,
daily.

~~~
icebraining
Do you mean Linux? Drive does run on Windows.

~~~
brianwawok
Runs on Linux too. I have it set up on my NAS backing up to the cloud.

That said Google drive is missing some Dropbox features, but it meets my
needs.

~~~
pm90
The real problem I see with ever using Google's product is that their history
with keeping products around hasn't been very good. Now, I'm sure they won't
pull the plug on Gmail anytime soon, but I'm not that sure about Drive.

I realize the same can be said of Dropbox as well. But like Gmail is to
Google, cloud storage is to Dropbox.

