Dropbox Could Be A Bargain At An $8 Billion Valuation(techcrunch.com)
techcrunch.com
Dropbox Could Be A Bargain At An $8 Billion Valuation
http://techcrunch.com/2013/11/18/dropbox-could-be-a-bargain-at-an-8-billion-valuation/
13 comments
This seems like a very convoluted way of coming to the valuation. Revenue != profit. I can easily create business that generates $1bn/month in revenue by selling dollars for 90 cents. Dropbox may be worth $8bn, but surely it makes more sense to assess the valuation based on the growth in profitability?
Indeed. Especially given that Dropbox uses Amazon for the actual storage and the massive scale, I wonder what % of that revenue ends up in Amazon's pockets.
Do they still? I would have thought that by this stage they'd have started building their own (at least mini-) data centers.
They were planning to change at one point, I believe, but Amazon lowered their prices - and later introduced Glacier - which may have dissuaded them.
Their traffic is not even close to Netflix and yet, Netflix runs on AWS.
For computing. For delivery they use various CDN's. delivery is the expensive part, for them
The theory is that since they have high gross margin they are only losing money while they ramp up to scale. In some time in the near future, they should employ economies of scale to have decent operating margins.
Selling dollars for 90 cents would be a negative gross margin business. Any business with negative gross margin should be valued as worthless
Selling dollars for 90 cents would be a negative gross margin business. Any business with negative gross margin should be valued as worthless
You can easily acquire 100 million dollars to burn every month?
The Dropbox board obviously feels that an $8 Billion valuation is appropriate. As rational actors, they want to raise money at the highest valuation possible. They have more information than any TechCrunch blogger, so I highly doubt Dropbox is undervalued.
It's incredible how cynical everyone is in this thread about the valuation of a company that actually MAKES MONEY and how optimistic people were about the Snapchat valuation in the thread from last week, a company that hasn't made a dime.
It seems the only way to really get a massive valuation as a "company" is to make sure you don't start making any actual money, otherwise people will stop harping about "growth is the only thing that matters, this valuation is accurate" and switch to "profit is the only thing that matters, this valuation is ridiculous."
It seems the only way to really get a massive valuation as a "company" is to make sure you don't start making any actual money, otherwise people will stop harping about "growth is the only thing that matters, this valuation is accurate" and switch to "profit is the only thing that matters, this valuation is ridiculous."
Well, when you have no profit to speak of there's nothing to anchor the discussion. The hopeful talk about "growth" with the hazy implication that the company has a "profit" switch they will eventually flip into the "on" position. The cynical see a storm of speculation with no concrete anchor and walk out on what they see as a waste of time.
Which, I guess, is a long way of saying "I agree with you". I think my theory does at least fit the patterns of conversation, though.
Which, I guess, is a long way of saying "I agree with you". I think my theory does at least fit the patterns of conversation, though.
By that standard, how do you justify Amazon's $170B market cap, given it's notoriously low profit margins?
I don't think your comparison makes sense. When Amazon was at the stage Dropbox is at now investors were taking a risk I thought was insane. That risk paid off, but there are countless examples that didn't. Amazon now practically owns their space and has inexplicable license from the market to reinvest in infrastructure or outright avoid profit. Few other companies are in this position, so comparing valuations of Amazon and Dropbox is assuming many things I wouldn't agree to.
My point was about why people get cynical about a company that is actively making money but are more lenient on ones that aren't. When profit is an uninteresting point in the discussion, it tends to not be discussed.
My point was about why people get cynical about a company that is actively making money but are more lenient on ones that aren't. When profit is an uninteresting point in the discussion, it tends to not be discussed.
> That risk paid off, but there are countless examples that didn't
If every risk paid off, there's no such thing as a risk. These investors are making the calculation that DB has some % chance of being in a similarly dominant position as Amazon is today.
If every risk paid off, there's no such thing as a risk. These investors are making the calculation that DB has some % chance of being in a similarly dominant position as Amazon is today.
Amazon has built a logistics machine that could entirely replace brick and mortar retail, books as we know it (ebooks), and so on.
Dropbox stores files. On Amazon, by the way.
Dropbox stores files. On Amazon, by the way.
What you said is correct now, but when Amazon was Dropbox's age, it was "merely" an online bookstore. Over time, it has transformed into the company it is today, which has a justifiable, in my view, market cap of 20X Dropbox's "valuation". But you didn't justify this number in terms of profitability, but rather by the value it adds to the economy.
We don't know what Dropbox is going to be, yet, but it's already far more than a service that "stores files". It's the default way students and startups share files and work together. That's a pretty good market to build on.
How much would a company be worth if it was the default way most people worked together? What chance does Dropbox have of being that company? Those are the factors that justify $8B.
We don't know what Dropbox is going to be, yet, but it's already far more than a service that "stores files". It's the default way students and startups share files and work together. That's a pretty good market to build on.
How much would a company be worth if it was the default way most people worked together? What chance does Dropbox have of being that company? Those are the factors that justify $8B.
My argument is that there is no barrier to entry. Want to compete against Amazon? The amount of cash you would need is enormous. That's Google/Microsoft/Apple scale (and, of course, Amazon).
Dropbox? Very little barrier to entry. Just like them, you could use S3.
Dropbox? Very little barrier to entry. Just like them, you could use S3.
It's not a good argument .. traditional barriers to entry are never as insurmountable as they may seem at first. I doubt Jeff Bezos was concerned with the "amount of cash" needed to compete with Border's or Barnes & Noble.
The real barrier to entry is not competition from other companies, it is building a great product/service/company yourself. If it were so easy to "use S3" to start a Dropbox, why is there only one Dropbox? What's stopping anyone from "using EC2" to build another Facebook?
How exactly do you explain how Google/Apple/MS/etc became Google/Apple/MS/etc?
The real barrier to entry is not competition from other companies, it is building a great product/service/company yourself. If it were so easy to "use S3" to start a Dropbox, why is there only one Dropbox? What's stopping anyone from "using EC2" to build another Facebook?
How exactly do you explain how Google/Apple/MS/etc became Google/Apple/MS/etc?
> How exactly do you explain how Google/Apple/MS/etc became Google/Apple/MS/etc?
The moat is much higher than it was 5-10 years ago. Do you have billions of dollars that you're sitting on that you could use to compete against Google/Apple/MS?
The moat is much higher than it was 5-10 years ago. Do you have billions of dollars that you're sitting on that you could use to compete against Google/Apple/MS?
I think you either meant the "moat" is a lot deeper .. ;) You'd be in an extreme (and incorrect) minority with that view anyway. Clearly it's much cheaper and easier to start on online bookstore today than 5-10 years ago.
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Twitter's and Dropbox's business models couldn't be more different. Heck, everything about their businesses is dissimilar. This comparison is idiotic.
With all of twitter and dropbox and youtube I think about how with ubiquitous IPv6 they might get replaced with P2P protocols. A fancy OceanStore client could eventually do everything dropbox does.
All these operations seem so vulnerable to innovation that is quite likely in the next eight years. I'm skeptical about the super high valuations.
All these operations seem so vulnerable to innovation that is quite likely in the next eight years. I'm skeptical about the super high valuations.
IPv4 and UPnP allows most of the P2P scenarios IPv6 does. Please clue me in as to how a P2P system is going to maintain always-on backups/storage of my personal photos.
> how a P2P system is going to maintain always-on backups/storage of my personal photos.
A client to something like OceanStore.
A client to something like OceanStore.
I read the first paragraphs of the overview[1]. It sounds like a federated service that the end-user would still pay for and treat like AWS. The P2P aspect is inter-company federation of storage (so like AWS and Azure could cooperate).
This isn't P2P in the common sense (end-user devices aren't talking to each other). And it doesn't eliminate the need for AWS-esque providers, even if their backend happens to be federated among multiple companies. To the end-user, there's zero difference.
1: http://oceanstore.cs.berkeley.edu/info/overview.html
This isn't P2P in the common sense (end-user devices aren't talking to each other). And it doesn't eliminate the need for AWS-esque providers, even if their backend happens to be federated among multiple companies. To the end-user, there's zero difference.
1: http://oceanstore.cs.berkeley.edu/info/overview.html
There's no need for anything like AWS or any payments. You offer some of your bandwidth and storage to the P2P network and get bandwidth and storage in return. Any machine on the network can participate. It has nothing to do with cloud providers. It's quite analogous to bittorrent.
Right, so in other words, it doesn't help most users in any way, shape, or form. It's no replacement for AWS or Dropbox or anything of the sort. I'm not going to run it on my tablets. My kids aren't going to run it on their laptops.
Edit: Even the overview says "The providers automatically buy and sell capacity and coverage among themselves, transparently to the users." It's clear from the overview that it's meant as a way to achieve a better availability than a single company, not as some magical free P2P replacement.
Edit: Even the overview says "The providers automatically buy and sell capacity and coverage among themselves, transparently to the users." It's clear from the overview that it's meant as a way to achieve a better availability than a single company, not as some magical free P2P replacement.
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The analysis sounds a bit absurd to me. It does not matter if Dropbox is making $1B or $0.5B, what matters is how much profit are they making and if that method of making profits is scalable.
If a company that is making $1B in yearly revenues is raising a paltry sum of $250m through investments I am not sure if they see themselves in good financial situation.
If a company that is making $1B in yearly revenues is raising a paltry sum of $250m through investments I am not sure if they see themselves in good financial situation.
True, a better way to ascertain value is by factoring in the profits, which is why you have the P/E ratios. However, it is not uncommon to use revenues to calculate value as well.
It is also important to note that they are not making $1B yet, but have just hit a run-rate of $1B. Having $250M in cash is a different thing.
It is also important to note that they are not making $1B yet, but have just hit a run-rate of $1B. Having $250M in cash is a different thing.
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I don't know much of anything about company valuations, but in terms of what the following two companies mean to me and what I believe they means to the world: if Dropbox is valued at $8B, I no longer have any reservations whatsoever with Tesla's valuation based on its stock price. (I do recognize that its price is being corrected this month, but I suspect it will eventually trend back upward.)
From my point of view, Tesla brings me at least ten times the value of Dropbox. I don't even think Dropbox represents a problem that should exist long-term assuming a re-disintermediated Internet, which is where I am optimistic we're heading eventually. Storing and sharing my data using someone else's service is retrograde.
From my point of view, Tesla brings me at least ten times the value of Dropbox. I don't even think Dropbox represents a problem that should exist long-term assuming a re-disintermediated Internet, which is where I am optimistic we're heading eventually. Storing and sharing my data using someone else's service is retrograde.
Social networks are winner take all markets, whereas Dropbox is not in such a market. Twitter, Facebook, and LinkedIn are all trading at 20-40 times revenue based on the fact that they enjoy strong network effects.
Dropbox is very social. Go see how a lot of students in University share files with each other. A lot of them just assume that the other person has a Dropbox account. It's certainly how teams keep their projects aligned.
Dropbox is not a social network, but they still have a (softer) network effect.
For all of my personal syncing I use BitTorrent Sync. However, because a few friends want to share files with me, I'm still a Dropbox customer.
For all of my personal syncing I use BitTorrent Sync. However, because a few friends want to share files with me, I'm still a Dropbox customer.
Anybody have any idea what the distribution is here for consumer vs business?
I've literally never heard of anyone, company or individual, paying for Dropbox.
I've literally never heard of anyone, company or individual, paying for Dropbox.
Almost everyone I work with pays for their dropbox account. You start working with the free account for a few years, and then, eventually, you build a lot of business processes and data management flows - and discover you get $100/year of value out of it.
Also - a combination of Dropbox + ARQ + Backblaze/Crashplan + SuperDuper gives you a pretty rock solid backup system.
Also - a combination of Dropbox + ARQ + Backblaze/Crashplan + SuperDuper gives you a pretty rock solid backup system.
>I've literally never heard of anyone, company or individual, paying for Dropbox
Hi. Nice to meet you.
Hi. Nice to meet you.
You're right to doubt your personal evidence at this point. Almost everyone I know who has a Dropbox account pays for it.
Ok, are they businesses or individuals? What are they using it for?
Once you start to share files with a lot of other people, you very, very quickly use up the initial quota that you get with your free account.
That's the Dropbox strategy - if you use it as an individual, you probably won't use that much. But, once you start using it in a social way - you quickly need to pay for a pro account.
That's the Dropbox strategy - if you use it as an individual, you probably won't use that much. But, once you start using it in a social way - you quickly need to pay for a pro account.
They give out so much free space, right now I have 55GB of free space for life. Then again, I'm not the typical user; I've visited Dropbox HQ a couple times, gone to their recruiting events, and know some Dropbox engineers.
Yes - you would be atypical. I'm guessing that 99% of Dropbox Users have < 5GB of free space based on my rather geeky attempts at adding free space to my account and eventually ending up with 1.51 GB free space in addition to the initial 2 GB.
>install dropbox on VM
>snapshot
>10 minutes of referral link + revert
>???
>45GB of free space for life
>snapshot
>10 minutes of referral link + revert
>???
>45GB of free space for life
And you believe this is something a typical user is capable of, let alone that they would do?
Individuals. Some are using it for business purposes, some for personal use. Most of the personal users have filled their quota with sharing as 'ghshephard' mentioned.
Valuing any company by comparing it to Twitter, a company many consider to be crazily overvalued, seems somewhat inaccurate... I'm sure the Dropbox board has a better idea of what the company is actually worth.
Considering that Dropbox are completely dependant on Amazon for their service and overnight Amazon could sink them "ooops your instances just got deleted, oops"
8 billion is a bit of a joke
Now if they owned their own equipment in their own datacenters...
8 billion is a bit of a joke
Now if they owned their own equipment in their own datacenters...
Why would AWS sink what I presume is one of their biggest customers? This is analogous to claiming that any distributor could go under if their supplier refused to continue to supply them.
Why should Amazon do that? Does not make any sense they need and want to keep businesses like DropBox on AWS.
They are a service provider and want to make money.
They are a service provider and want to make money.
Netflix, with a market cap of 20 billion, has their infrastructure completely dependent on AWS, as well. Doesn't seem to be spooking markets.
...and their own ISPs, and their own operating system developed completely internally...
>Considering that Dropbox are completely dependant on Amazon for their service ...
They aren't. If they switched tomorrow or supplemented AWS with their own data-centers, you'd never notice a difference.
They aren't. If they switched tomorrow or supplemented AWS with their own data-centers, you'd never notice a difference.
That would however permanently damage Amazon's AWS business, which Bezos believes could become their largest revenue generator. Amazon and Dropbox aren't even competitors at the moment. Very unlikely.
You would think an 8billion dollar business would be able to afford a server or two (or datacenter or two) and not be reliant completely on someone else
Are there any plans for Dropbox to move to its own infrastructure? At their scale, I would think it would be much cheaper just going by how much Everpix was paying Amazon for storage.
So ... your argument is that Dropbox's valuation is ridiculous because Amazon could completely destroy AWS and take out Dropbox in the process. Because that is what would happen if they did this. Everyone else who does anything important with AWS would drop whatever they were doing and start migrating off of it immediately.
But, yes, I suppose "my supplier could lose their mind and destroy the product I buy from them" is a concern that needs to be evaluated.
But, yes, I suppose "my supplier could lose their mind and destroy the product I buy from them" is a concern that needs to be evaluated.
A bigger threat would be Amazon competing with Dropbox, not some passive-aggressive slight.
Downvoted? really? for pointing out a huge problem with Dropbox business model?
Are there not several DropBox clones on GitHub?
And several competitors already there (and something called Box that is less consumer orientated?)
Add in the switching costs are low to non-existent (it is just git isn't it?) - surely their competitive most is almost non-existent - in which case their profits are going to constantly eaten by competitors.
What is it I am missing?
And several competitors already there (and something called Box that is less consumer orientated?)
Add in the switching costs are low to non-existent (it is just git isn't it?) - surely their competitive most is almost non-existent - in which case their profits are going to constantly eaten by competitors.
What is it I am missing?
The lock-in with DropBox is huge - I have eleven shared folders that I use to keep other people up to date with files, and I have never had a request to share files with anybody on anything other than Dropbox.
I trust dropbox. Dropbox has a great track record (with me). Dropbox is installed on all my tablets/smartphones/desktops/laptops. And, at $100/year, it's cheap enough that I'm not really inspired to bother price shopping.
This is clearly a case where Dropbox came in and won - and now it's time for them to invest aggressively, and make sure nobody else enters this market.
Now - I am not saying that people aren't using other systems - obviously Microsoft and Google have their products, and both Google Drive and Microsoft Skydrive are excellent products, that are technically comparable to what dropbox is offering. Apple's icloud is just annoying for knowledge workers, so I'm not going to include that in the same class - but, in terms of a generalized folder Sync Product - Dropbox has won.
I trust dropbox. Dropbox has a great track record (with me). Dropbox is installed on all my tablets/smartphones/desktops/laptops. And, at $100/year, it's cheap enough that I'm not really inspired to bother price shopping.
This is clearly a case where Dropbox came in and won - and now it's time for them to invest aggressively, and make sure nobody else enters this market.
Now - I am not saying that people aren't using other systems - obviously Microsoft and Google have their products, and both Google Drive and Microsoft Skydrive are excellent products, that are technically comparable to what dropbox is offering. Apple's icloud is just annoying for knowledge workers, so I'm not going to include that in the same class - but, in terms of a generalized folder Sync Product - Dropbox has won.
>Are there not several DropBox clones on GitHub?
Why do we keep believing that a better, freer mousetrap has anything to do with valuation?
Why do we keep believing that a better, freer mousetrap has anything to do with valuation?
Have you ever told your mom (or any non-technical) person to go onto github and install something from there on a server?
Dropbox makes it dead easy. People now Dropbox files to each other instead of email.
Dropbox makes it dead easy. People now Dropbox files to each other instead of email.
Brand recognition
Can we please redefine what bargain means?
When was the last time techcrunch posted something worth reading?