In our post-Facebook IPO world, investors are understandably weary when it comes to valuations of tech companies that seem hyper-inflated. In this recent discussion that I came upon, the question was raised of whether Dropbox deserves the $250 million that it has thus far raised from investors. The company, valued at $4 billion, maintains a business model where 96% of customers use the service for free and those who pay are only charged around $10 a month.
Those who support the numbers say that the company should be valued on more than just past performance and financial health; growth potential, exit options, etc. are crucial factors in an evaluation of Dropbox. Plus, the numbers aren't that bad. Here's what one response had to say:
Let me do a quick back of the napkin calculation. They have 2 million paid users who pay $120 per year. That gives them $240 million revenue. Then there is a business version that cost upwards of $800 per year. Dropbox claims that they have 2 million businesses signed up. So, their total revenues could be anywhere above $400 million ($240m + 2m*$800) . That's awesome for a 4 year old company.
While the company certainly seems promising, I can't see it being worth $4 billion. An annual revenue of 240 million in 2011 is hard-pressed to equal even a billion dollar valuation, despite the growing potential of cloud computing. Similarly, as the market gets more saturated, it will be exceedingly difficult for Dropbox to keep its client base without gaining a drastic technological advantage over its competitors.
Of course, I'd love to know if you guys think the math adds up.