Dropbox IPO and Salesforce Investment: Should you Subscribe?

Dropbox, the online file storage company, based in San Francisco company has planned to raise approximately $648 million through its initial public offering (IPO). The company announced that Salesforce.com will invest $100 million in the Dropbox IPO through private placement.

The Dropbox IPO is priced in a price band between $16 and $18 each. Dropbox has planned to sell 36 million Class A shares and is issuing 27 million shares. Further, the current investors, including co-founders Drew Houston and Arash Ferdowsi, are selling 9 million shares.

Additionally, Dropbox has also announced a reverse stock split of 1.5 to 1 for current inside investors, which will make it easier to set a higher share price in its IPO.

In addition, Dropbox will get listed on the Nasdaq exchange under the symbol DBX. Goldman Sachs, J.P. Morgan, Deutsche Bank, Allen & Co., and Bank of America are managing its initial public offering .

Salesforce Investment in Dropbox

Salesforce.com’s investment in Dropbox is one of its largest strategic investments till date. Previously Salesforce’s venture arm had invested $5 million in Dropbox’s Series C funding round.

Moreover, in the private placement, Salesforce will buy 5.9 million Dropbox shares at $17 each, which is the midpoint of the IPO price band $16 to $18.

Due to the product synergies between the two companies, there is a possibility that Salesforce might acquire Dropbox in the long term. However, there is “no chance” of this acquisition happening ahead of the IPO.

Currently, Salesforce Ventures has five active investment funds, which includes $100 million specifically for companies building apps on the Salesforce platform.  The venture has funds of a $100 million for European and Israeli cloud startups and $50 million for Salesforce specific artificial intelligence products.

On the other hand, Salesforce has planned to buy CloudCraze, which is an enterprise e-commerce solution built on its cloud-based customer relationship management platform.

Should you Invest in Dropbox IPO?

If we take the midpoint of the price band of $16 and $18, Dropbox is valued at approximately $7.5 billion, which is 20 percent below the $10 billion it commanded during its last private fundraising round in 2014.

Moreover, on a non-diluted basis, the company is valued around $6.7 billion. Dropbox is considered to have a high-quality asset that was overpriced. At this valuation, it could be more difficult to raise additional capital in the future, or to attract and keep employees with stock grants. However, Dropbox could achieve $10 billion valuation over time, but the investors will have to wait.

Salesforce.com investment in Dropbox IPO may attract more investors. Long term investors must subscribe to the issue with a horizon of more than one year.

 

Disclaimer: The content is provided for informational purposes only and it is not intended to be, and does not, constitute financial advice or any other advice. You should not rely on the content to make an investment decision.