Digital media repository Dropbox has reportedly raised $250 million in a funding round led by BlackRock Inc. The colossal investment values the 5-year-old company, known for scaling at a sprint, at roughly $10 billion, according to the Wall Street Journal. The likes of SnapChat and Uber earned similarly high valuations recently, prompting fears of bubble-like conditions. Is Dropbox’s reported worth overblown in a fizzy market?
Mega-rounds at meteoric prices speak not just to the growth rate of companies, but to market conditions, which some analysts are beginning to call frothy. Strong IPO markets drive up valuations, as companies hold out for better M&A exits at IPO prices. Though many seem nonchalant and hopeful about rising valuations, figures nonetheless remind of the pre-2000 dotcom bubble, which burst to catastrophic consequences for some investors.
On a PwC press call, founder and managing partner at New Atlantic Ventures John Backus described 2013 as the year of the “unicorn” — private companies with billion-dollar valuations. Average deal size increased from $7.7 billion in Q3 2013 to $7.8 billion in Q4 of the same year, the highest that figure has been since Q1 2007, before the worst of the financial crisis. These numbers, as industry bellwethers, seem to imply something is brewing in market: but whether it’s a boom or a bust depends on who you talk to.
Analysts look to companies like Twitter as proof of the tech sector bubble. The microblogging platform, which debuted on the New York Stock Exchange this November, has not crossed break-even into profits yet — nor is the company close to doing so for the next year. And yet Twitter’s share prices almost doubled in value on IPO day, bringing the company’s market cap close to those of entrenched titans in the tech sector. Valuations, too, get overvalued as they seem based on investor interest and massive VC funding reserves, rather than on a company’s bottom line. Billions of dollars in imagined worth can vanish at the first sign of trouble.
But some argue that the market’s trajectory radically differs from that of the previous tech sector bubble. Even in their excitement, investors remain skeptical of businesses’ potential impacts. Though high price-to-earnings ratios for public companies worry some, these figures were even higher near the new millennium.
The more prudent investors try to nail valuations to concrete features of the company, like its position and revenues. Competition factors into the valuation process, as companies with stronger competitive advantages net higher numbers. Dropbox goes head to head primarily with Box for business users, but also battles the likes of Google Drive and other cloud storage companies (i.e. EMC’s Syncplicity). It has been reported an overwhelming majority of Dropbox’s customer base uses the service for free, while the company has only relatively recently pivoted to target enterprise consumers.
Box, meanwhile, has a jump on Dropbox as it has marketed to enterprises from the get-go. The Dropbox adversary has reportedly raised more than $400 million itself from blue-chip investors like Andreessen Horowitz and Meritech Capital Partners. Though those numbers seem less impressive when compared with the $500+ million numerous sources state Dropbox has received in VC funding, the San Francisco based-company has clear challengers it must fight for market share.
Dropbox singles itself out from the crowd as it has succeeded in converting rapid growth into revenues. Unlike some initiates into the club of companies valued in the billions of dollars, Dropbox has built up solid financials from user acquisitions. The company counts 200 million individuals and 4 million businesses, like Kayak and National Geographic, among its customer base. Sales escalated from $46 million in 2011 to $116 million in 2012, and are anticipated to clear $200 million in 2013, according to the Wall Street Journal. These figures contrast starkly with the zeroes next to revenues from companies like Snapchat and Pinterest at the time of their fundraisings, which both struck up multi-billion dollar valuations.
The company’s assets and trajectory seem to validate astronomical appraisals of its worth, and the industry may have been justified in valuing Dropbox so highly. There are those, however, that remain suspicious of any figure that large in such a competitive market. An IPO may not be far off, with investors hoping for returns on the hundreds of millions they invested. It could be up to the public to weigh and measure Dropbox to see if it is worth $10 billion, or found wanting.
Unicorn hunt
Dropbox is just the latest private company to be valued at over $1 billion, and earn the title unicorn. Here are some of the others.
Snapchat, valued at $2 billion
Multiple media outlets said in November that the Venice, California-based startup, which allows users to send self-destructing images and video, turned down acquisition bids from Facebook and Google that reportedly valued the company at $3 billion and $4 billion, respectively. Most recently, the company raised $50 million Series C at a reported valuation near $2 billion, and seems confident the best is yet to come for Snapchat.
Uber, valued at $3.5 billion
AllThingsD first provided a filing by Uber that proved the private taxi startup received more than $360 million in funding this past August. The round valued the San Francisco company at roughly $3.5 billion. Data leaked to Valleywag.com showed Uber at one point in 2013 raking in $20.5 million per week for all rides worldwide, with the company’s share of revenues estimated by the site between $125 million and $213 million for the year.
Spotify, valued at $4 billion
The unlimited music streaming platform recently raised a whopping $250 million from Technology Crossover Ventures at a valuation topping $4 billion, according to the Wall Street Journal. Spotify, a Swedish company, has upwards of 6 million paying customers and more than 24 million active users.
Square, valued at $5 billion
Small business owners can thank Square for taking them from cash-only to credit-friendly. The San Francisco-based company turns devices like smartphones and tablets into card terminals with their technology. According to reports, Square will process $30 billion transactions in 2014 and okayed a tender offer of 1 million shares at just over $135 each. The share sale values the company at $5 billion.
Pinterest, valued at $3.8 billion.
No revenues have been no problem for the picture-pinning platform. The company, which was pre-revenue as of late October, raised $225 million that same month in a round led by Fidelity Investments. The funding gauged Pinterest’s worth at $3.8 billion. Pew Research Institute recently found Pinterest to be America’s third-favorite social media network, behind Facebook and LinkedIn, as 21 percent of adults frequented the website in 2013 — or 70 million users, consumer insight company Semiocast reported in July.