Dropbox (DBX) S1 Analysis
In 2007, Dropbox was started with a simple idea: “Life would be a lot better if everyone could access their most important information anytime from
any device” with a mission, “Unleash the world’s creative energy by designing a more enlightened way of working.”
Being Product First and not Sales First thinking have been a motto of Dropbox. A simple and intuitive design, open ecosystem that allows user to
integrate with variety of third party tools, viral and bottom-up approach have help them set apart from rest of the players. The sales and marketing
expenditure of Dropbox have been decreasing every year.
Since 2007, industry trends have been growing in favour of Dropbox. The traditional decision makers in purchasing softwares in an organisation
are changing from IT department to individual users who are going to be actual users of the tool thus creating an quick adoption curve as a
individual user to a business user. The other reasons being data and content being scattered as captive centers of an organisation are present
globally. As technology have made modern workforce increasingly fluid and mobile, and so the business partnerships which gives rise to the need
for an unified home of content.
An unified content, global sharing network, new product experience along with machine learning that improves user experience by enabling more
intelligent search and better utility of information results in the flywheel effect thereby increasing user base and content resulting in the need (or
want) of additional services that converts the user from a freemium user to a paying user.
The company has raised about $1.7B of total funding amount in 7 rounds. The first 5 fundings (2 seed, 3 series) were equity rounds.The 5 lead
investors are JP Morgan Chase & Co., JPMorgan Investment, Blackrock, Index Ventures and Sequoia Capital.
Subodh | Product Team 1
In 2014, Dropbox raised $500M of debt financing from JPMorgan Investment. A debt financing shows that the existing investors as well as
founders didn’t want to share the ownership pie with any more stakeholders which can be confirmed again when Dropbox raised the 7th round of
$600M funding from JP Morgan Chase & Co as debt financing.
The IPO is led by Goldman Sachs Group Inc. and JPMorgan Chase & Co.
Subodh | Product Team 2
Dropbox’ freemium model have fostered an organic adoption.They have generated 90% of the revenue from the self-serve channels i.e. the users
who purchase a subscription directly from an app or website. Also, as millions of devices like computer, phone and tablet are actively connected to
Dropbox platform, they have multiple options to inform them about their new product experiences, subscriptions through an in-product with minimal
marketing spend. Of the 11 millions paying users, ~30% use Dropbox Business Team plan. Over 40% of the new Dropbox Business Teams
included a member who was previously was a subscriber to the individual paid plan.
Subodh | Product Team 3
○ Paper. Dropbox introduced Paper in January 2017 as a collaborative surface to bring people and ideas together. With Paper,
users can co-author content, tag others, assign tasks with due dates, embed and comment on files, tables, checklists, code
snippets, and rich media—all in real-time. Paper is designed to be simple and beautiful so users can focus on the most important
ideas and tasks at hand.
○ Doc scanner
● Access and organize
○ Rich previews. Rich previews allow users to easily interact with files across any device without having to open different
applications. Users can comment on, annotate, review, and present files, and see who viewed and edited them.
○ Smart Sync
○ Version history
○ Third-party ecosystem: As of December 31, 2017, Dropbox was receiving over 50 billion API calls per month and over 500,000
developers had registered and built applications on our platform. In addition, more than 75% of Dropbox Business teams have
linked to one or more third-party applications.
○ Folders. There are three types of folders in Dropbox: private, shared, and team folders.
○ Shared links.
○ Showcase: Showcase gives users a way to present their work to clients and business partners through a customizable,
professionally branded webpage. Users can display visual previews of multiple files on the same page and add relevant context
with introductory text and captions and an introduction. Showcase also lets users track how recipients engage with their content,
including analytics on who has viewed, commented, or downloaded content on a per-person and per-file basis.
○ File requests. With file requests, users can invite anyone to submit files into a specific Dropbox folder through a simple
link—regardless of whether the recipient has a Dropbox account. File requests are ideal for tasks such as collecting bids from
Subodh | Product Team 5
contractors or requesting submissions from coworkers and clients. All submitted files are organized into a Dropbox folder that’s
private to the requesting user.
○ Comments and annotations
○ File activity stream
○ 256-bit Advanced Encryption Standard
○ File recovery
○ Administrator controls
○ Sharing permissions
○ Remote Device Wipe
○ Audit Log
○ Device Approvals
○ Tiered Administrator roles
○ Network control
○ Third-party security integrations
○ Data migration and on-premises backup
○ Digital rights management
○ eDiscovery and legal hold
Subodh | Product Team 6
Registered Users: 500Mn+ Paying Users: 11Mn+ Revenue: 1.1Bn+ Content: 400Bn+
2015 2016 2017 Analysis
Paying Users (in
millions) 6.5 8.8 11
Average Revene Per
Paying User ARPU $113.54 $110.54 $111.91
ARPU declined for the year ended December 31, 2016, compared to the
year ended December 31, 2015, primarily due to foreign currency
fluctuations related to the sales that are denominated in foreign currencies.
ARPU increased for the year ended December 31, 2017, compared to the
year ended December 31, 2016, primarily due to an increased mix of sales
towards the higher priced subscription plans, including our new Dropbox
Business Advanced plan
Free Cash Flow (FCF)
Net cash provided by
operating activities 14.8 252.6 330.3
An increase in net cash provided by operating activities, primarily due to
the Infrastructure Optimization, increased sales in the given periods.
The Infrastructure Optimization efforts include an initiative that focused on
migrating the vast majority of user data stored on the infrastructure of
third-party service providers to Dropbox' own lower cost, custom-built
infrastructure in co-location facilities that are directly leased and operated.
In order to host user data on their own infrastructure, they leased or
purchased infrastructure that is depreciated within the 'cost of revenue'
(Capex) -78.7 -115.2 -25.3
A decrease in capital expenditures relating to infrastructure equipment and
leasehold improvements for the office spaces.
Infra. Optimization reduced unit costs and helped limit capital expenditures
and associated depreciation.
Subodh | Product Team 7
FCF( in millions) -63.9 137.4 305
Combined with the concurrent increase in the base of paying users, there
has been reduction in the cost of revenue, an increase in the gross
margins, and thus resuling an improvement in the free cash flow FCF
Sales & Marketing Approach:
Dropbox have developed an efficient marketing function that’s focused on building brand awareness and reinforcing their self-serve model.
Dropbox rapidly demonstrate the value of our platform to their users in order to convert them to paying users and upgrade them to our premium
Dropbox reach their users through:
● In-product prompts and notifications
● Time-limited trials of paid subscription plans
● Email and lifecycle marketing.
Technology Infrastructure and Operations
More than 90% of the users’ data is stored on own custom-built infrastructure, which has been designed from the ground up to be reliable and
secure, and to provide annual data durability of at least 99.999999999%. And AWS, for the remainder of Dropbox users’ storage needs.
Incremental backups are performed hourly and full backups are performed daily. In addition, as a default, redundant copies of content are stored
independently in at least two separate geographic regions and replicated reliably within each region. Data centers co-location facilities are in
Texas, Virginia and California and AWS in USA & Europe.
Subodh | Product Team 8
Research and Development Approach
Research and development department consists of engineering, product, and design teams, representing 47% of the total employees.
Security and Privacy
● ISO 27001 (Information Security Management)
● ISO 27017 (Cloud Security)
● ISO 27018 (Cloud Privacy and Data Protection)
● ISO 22301 (Business Continuity Management)
● CSA STAR Level 1 and Level 2 certifications from the Cloud Security Alliance
● Dropbox supports HIPAA and HITECH compliance. Dropbox signed agreements with the customers who require them in order to comply
with the Health Insurance Portability and Accountability Act, or HIPAA, and the Health Information Technology for Economic and Clinical
Health Act, or HITECH
● Dropbox is certified under the EU-U.S. and Swiss-U.S. Privacy Shield and is working towards compliance with the EU General Data
Protection Regulation, or GDPR framework
600 issued patents that have a large number of inbound licenses to key patents in the file collaboration, storage, syncing, and sharing markets.
Subodh | Product Team 9
The Cohort Stickiness
The cohort is defined as all registered users who signed up for Dropbox in a given period of time.
The chart reflects the monthly subscription amount from January 2013 to December 2017 of all paying users in each quarterly cohort,including those who signed up for our platform prior to 2013.
Now from the above graph, it can be observed that the new user generates higher subscription amounts over time.
Subodh | Product Team 10
Comparing January cohorts from the last three years, at virtually every point in time after signup, the January 2017 cohort generated a higher
monthly subscription amount than the January 2016 cohort, which in turn generated a higher monthly subscription amount than the January 2015
cohort. ALso, no customer accounted for more than 1% of the revenue, shows that the customer based of the Dropbox is highly diversified,
reducing the customer dependency risk.
Subodh | Product Team 11
Revenue Generation Trend
The subscription revenue model, consistent cohort trends, self-serve monetization engine, and large and diversified global customer base resulted
in linear and predictable revenue generation over the duration of the quarters
Subodh | Product Team 12
As of December 31, 2017, more than 80% of the annualized revenue came from existing individual users and Dropbox Business teams who were
on the platform as of December 31, 2016. As of December 31, 2017, the Annualized Net Revenue Retention for paying Dropbox Business
customers was approximately 100%. As of December 31, 2017, the blended Annualized Net Revenue Retention across the entire business,
including individuals and Dropbox Business customers, was over 90%.
Annualized Net Revenue Retention is the percentage of annualized revenue retained over a 365-day period, inclusive of changes in price,
changes in number of licenses, upgrades and downgrades to different subscription plans, and churn. Annualized Net Revenue Retention is
calculated by aggregating the annualized revenue from all paying Dropbox Business customers subscribing to a Dropbox Business plan at the
beginning of the period, then aggregating the annualized revenue from those same Dropbox Business customers at the end of the period. For
customers whose renewal is pending at the end of the period, their annualized revenue is included at the end total if they resume payment within
30 days from the end of that period. Annualized Net Revenue Retention is equal to ending annualized revenue divided by beginning annualized
Consolidated Statement of Operation
Year ended December
31, (in million USD)
2015 2016 2017
Revenue 603.8 844.8 1,106.80 $241.00 39.91% $262.00 31.01%
An annual growth rate of ~35% between 2015-2017.
For 2016-2017, revenue increased $262.0 million or
31% during 2017, as compared to 2016. This increase
was primarily due to a 25% increase in the number of
paying users between periods. The ARPU also
increased slightly between periods primarily due to an
increased mix of sales towards our higher priced
subscription plans, including the new Dropbox Business
Subodh | Product Team 13
For 2015-2016, revenue increased due to 35% increase
in paying users. The ARPU decreased between
Cost of revenue(1)
407.4 390.6 368.9 -$16.80 -4.12% -$21.70 -5.56%
COR consist primarily of expenses associated with the
storage, delivery, and distribution of the Dropbox
platform including depreciation of servers, human
capital expenditure, amortization of develped
technologies,Infra.OptimisationPlan, etc... Excluding
stock-based compensation, COR shall increase as
Dropbox plan to enahce the capability, reliability and
capacity to support the inccrease user growth.
196.4 454.2 737.9 $257.80 131.26% $283.70 62.46%
Gross margin increased year-on-year. 32%, 54%,66%
respectively. It was mainly due increase in revenue and
201.6 289.7 380.3 $88.10 43.70% $90.60 31.27%
Increase in R&D cost due to increase in overhaed
related costs, internal development-related 3rd party
hosting fees, etc.
Sales and marketing
193.1 250.6 314 $57.50 29.78% $63.40 25.30%
For 2016-2017, 25% increase in S&M, due to to an
increase in variable spend related to brand campaign
fees, lead generation fees, and third-party sales
representative fees, app store related cost as a result of
increase in sales, and other overheads..
For 2015-2016, 30% increase in S&M is due to
increase in employee-related expenses was primarily
due to an increase in stock-based compensation of
$24.8 million, which included a charge of $18.8 million
due to the modification of an executive stock grant,
headcount growth, and an increase in commission and
Subodh | Product Team 14
administrative(2) 107.9 107.4 157.3 -$0.50 -0.46% $49.90 46.46%
Other non-income based taxes, employee-related
expenses, Dropbox Charitable Foundation, etc.
expenses 502.6 647.7 851.6 $145.10 28.87% $203.90 31.48%
Loss from operations -306.2 -193.5 -113.7 $112.70 -36.81% $79.80 -41.24%
Interest expense, net
-15.2 -16.4 -11 -$1.20 7.89% $5.40 -32.93%
For 2016-2017, it decrease by $5.4M, as fewer assets
were acquired under capital leasing, and interest
income from money market funds increased.
For 2015-2016, it increase by $1.2M, due to increase in
assets in capital leasing ($1.9M) and offset by $0.7M
from money market funds.
-4.2 4.9 13.2 $9.10 -216.67% $8.30 169.39%
For 2016-2017, Other income (expense), net increase
by 170% or $8.3M due to an increase in foreign
currency gains related to monetary assets and liabilities
denominated in euros and British pound sterling
Loss before income
taxes -325.6 -205 -111.5 $120.60 -37.04% $93.50 -45.61%
Provision for income
taxes -0.3 -5.2 -0.2 -$4.90 1633.33% $5.00 -96.15%
Coz Dropbox was subjected to Alternative Min.Tax in
2016, and not in 2017 due to some Tax Reform Act.
Net loss -325.9 -210.2 -111.7 $115.70 -35.50% $98.50 -46.86%
Net loss per share
basic and diluted -1.18 -0.74 -0.38 $0.44 -37.29% $0.36 -48.65%
Subodh | Product Team 15
shares used in
computing net loss per
share attributable to
basic and diluted 276.8 283.7 293.9 $6.90 2.49% $10.20 3.60%
Pro forma net loss per
share attributable to
basic and diluted
shares used in
computing pro forma
net loss per share
basic and diluted
The negative churn or sticky subscription cohort, a free cash flow of over $300M, revenue growth rate of 35% for 2015-2017 annual compounded,
gross margin of 67% in 2017, a flat ARPU of ~$111 in 2017 shall put Dropbox on the public market sentiment test.
Dropbox have set a price range of $16 to $18 per share, which would raise up to $648 million in the highly anticipated public offering, for
Subodh | Product Team 16