Dropbox could be working to secure new capital at an expensive valuation, using recent financing events in the technology industry as comparable metrics. However, provided that its growth curve maintains past results, the company could be less expensive than first meets the eye.
Earlier indications that Dropbox was on the path to revenue of $1 billion are being contradicted by the Wall Street Journal, which today reported that the company is on track for sales merely north of $200 million in 2013.
$200 million is very different from $1 billion, naturally, which changes the shape of the news that the company is raising around $250 million at a reported valuation of $8 billion. Yesterday, based on the $1 billion revenue assertion, I indicated that Dropbox could be a bargain at $8 billion.
However, at $200 million in revenue, or, say, $250 million, Dropbox is a far more expensive firm to invest into.
As we covered yesterday, when Twitter went public — using a fully diluted share count to derive its real market capitalization — it valued itself at 34.2 times its trailing twelve month’s earnings. The market, when it could buy Twitter shares, sent them skyrocketing, valuing the company at 59.5 times its trailing year’s revenue.
Dropbox, assuming $200 million in 2013 revenue, and an $8 billion valuation, is being priced at 40 times its trailing twelve month’s (loosely) top line. That’s more than Twitter thought was reasonable for itself. Twitter’s stock price has declined from its earlier highs, lowering the revenue multiple that investors are willing to pay for its shares.
So, Dropbox at $200 million is either roughly on par with what investors will pay for Twitter, or valued slightly more richly. The companies are of course incredibly different, but both are large technology firms with nine figure revenue and valuations in the billions, so we can draw some parallels.
For fun, Dropbox with $250 million in 2013 revenue, and an $8 billion valuation, would be priced at a 32x revenue multiple, roughly in line with what Twitter valued itself when it finally went public.
Dropbox could command the $8 billion figure less on what its 2013 revenue will total, and more on its growth curve. Here’s the Journal:
The startup tallied $116 million in sales last year, more than doubling its $46 million in revenue in 2011. The year before, it nearly quadrupled sales from $12 million. Dropbox expects sales of more than $200 million this year, according to one of those people, but it isn’t clear how much more.
If Dropbox can double its 2013 revenue in 2014, as it is likely doing with its 2012 revenue in 2013, its revenue multiple would halve, making it far underpriced when compared to the above Twitter metrics. So, ask your internal investor: Can Dropbox keep up its growth rates? If so, the $8 billion figure could be expensive now, but not come this time next year.
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