The Dropbox Valuation Is Irrational

At the recent 2015 Launch Festival earlier this year, Fred Wilson of Union Square Ventures commented that:

When the private markets give you a higher valuation than the public markets, it doesn’t make any sense.

So we took a look at our data on private market valuation multiples to see how publicly-traded cloud storage and file-sharing company Box compares to still-private Dropbox. Here’s how they stack up:

Box

• As of market close on 8/28/2015, Box was valued at $1.654B (source: Ycharts).
• This is 7.66x its 2014 revenue of $216M (or 5.74x Box’s projected fiscal-year 2016 guidance on revenue of $286M to $290M. Note: Box’s fiscal year 2016 ends January 31, 2016).
• That multiple has shrank since the widely publicized sell off in the public markets in late August 2015 that hit some tech stocks particularly hard, including Box. In 3/4/2015, when we first performed this analysis, the multiple was a more generous 10.38x.

Dropbox

• Dropbox was reportedly valued at $10 billion in November 2014, when it raised $350 million in its Series C.
• Dropbox is rumored to have had 2014 revenue ranging from $300M-$400M. 2013 rumors pegged revenue at around $200 million.
• If we use the high end of the spectrum ($400M), Dropbox is currently valued at 25x revenue as the screenshot from CB Insights below highlights.

By way of comparison, when Box raised its $150M Series G at a $2.4B valuation, that was at a 13.24x sales multiple.

When Box priced its public offering, the public markets quickly applied pressure to the inflated private market valuations. The company priced its IPO at $14, which valued it at $1.67B or $730M less than private markets’ valuation of Box. The company did pop on day 1 of its IPO but has fallen ~41% since its first-day high of $23.23, as the graph below from Bloomberg illustrates.

So what does this mean for Dropbox?

Assuming Box’s multiple doesn’t expand, Dropbox would need to grow its annual sales to ~$1.4B (or 226% growth from 2014 revenue of $400M) just to justify its private market valuation of $10B. This would mean it would trade like Box at ~10x sales. Our HR news classification algorithms identified early this year that Dropbox had hired Vanessa Wittman as CFO and so it may be that the the file-sharing unicorn and Tech IPO Pipeline candidate may be headed for public markets soon enough.

How easy is it to grow revenue by more than 2x if currently at $400M? Not very.

As an example, Box grew revenue an impressive 111% between 2013 and 2014 but off a much lower revenue figure as can be seen from their S-1 — $58.8 million in 2013 to $124.2 million in 2014.

Given its current valuation, comparable valuation multiples and the very high bar for revenue growth required, it looks like Dropbox is overvalued.

Obvious caveats: Other factors such as margins, future expected sales growth, customers composition, etc. will play into these valuations.  

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