Dropbox and Box are charging toward new rounds of venture capital funding as these red-hot storage operators gun for IPOs in 2014.
The irony is that the storage business has long been considered to be a backwater of the technology industry. It’s generally heavy on the geeky side and also subject to commodiziation. Except for a handful of operators like EMC (EMC), it’s pretty tough to be a leader for the long haul.
But companies like Dropbox and Box have made storage sexy. They have found a way to leverage the cloud as well as whiz-bang mobile apps. Those two megatrends have resulted in standout IPOs, as seen with companies Twitter (TWTR), Workday (WDAY) and Veeva Systems (VEEV).
Dropbox Past, Present and Future
Dropbox is actually one of the pioneers of the mobile space. In fact, just a few years ago, Apple’s (AAPL) Steve Jobs wanted to buy the company — an interesting development considering Jobs generally eschewed acquisitions. But Dropbox bravely rejected the $800 million offer.
Since then, the company has had little trouble raising capital — scooping up about $257 million from investors like Sequoia Capital, Accel Partners, Benchmark, Greylock Partners and even Goldman Sachs (GS).
But according to a report in the Wall Street Journal, Dropbox is seeking another $250 million round of funding — at a whopping valuation of $8 billion, which is up from $4 billion in late 2011.
There is some skepticism, however, as it looks like revenues are starting to trail off. In 2012, the company’s top line was doubled to $116 million, but will only hit $200 million this year. Perhaps this is why Dropbox is moving more aggressively into the enterprise market, which could provide more opportunities to pick up revenues. However, while its revenues are expected to double this year, they will still only be at about $200 million.
As for Box, the company has had to raise a hefty $409 million, just to get to this point. In fact, the company recently raised $100 million at a valuation of $2 billion. With the capital, the company plans to expand its footprint into global markets, such as Japan, Australia and Brazil. So the company isn’t charging ahead quite as quickly as Dropbox, but it definitely has big plans.
But the cloud storage business is facing mounting competition (which has always been the bane of the industry). Biggies like Amazon (AMZN), Microsoft (MSFT) and Google (GOOG) have their own offerings. These companies have the advantages of a huge user bases as well as the ability to offer cheap rates because they can make up the losses from other revenue streams.
And that’s exactly why it’s a good idea for Dropbox and Box to go public quickly. Box has already retained investment banks, Morgan Stanley (MS), Credit Suisse (CS) and JP Morgan (JPM), for an IPO. I wouldn’t be surprised to see Dropbox follow as well.
Even with some of the risk factors, both deals should be fine. Again, Wall Street still has a strong appetite for marquee cloud deals. But over the next couple years, it could get tougher for Box and Dropbox, especially as the competition gets more intense.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
