Many rising stars fade into also-rans. The lucky ones get a late career revival. Elliott Management is hoping its stake in Dropbox can spark a renaissance. The flagging workplace software group is ready for a second act.
Dropbox was once one of the hottest companies in the world. As a start-up privately valued at $10bn it trumped mere unicorns. But its valuation has hardly shifted since its 2018 initial public offering. The pandemic proved that cloud-based file sharing could keep the hive minds of corporate users humming remotely but the share price rise has been modest.
Dropbox has a formidable 700m users. Management, or an acquirer, must be able to monetise this army of file sharers better. About 97 per cent are not paying for a subscription. Yet even Twitter, which has a free product used by 350m people, boasts a market capitalisation of $46bn.
Elliott is likely to face internal opposition to change. Its decision to acquire a stake of undisclosed size makes it the second-largest shareholder behind founder Drew Houston. Houston, citing privacy, recently dismissed an analyst suggestion that Dropbox create an advertising engine atop its free product. The company is instead trying to move into new areas to compete better with the likes of Google and Microsoft. These include password management, digital transfer, esignatures and data backup.
Dropbox has an adjusted operating margin of 20 per cent. It generates enough cash to buy back shares and recently laid off a tenth of its workforce to show commitment to profits. But it will have to wrestle public market investor attention away from companies such as Zoom and DocuSign, seen as the next generation of software high-fliers.
Houston’s super-voting shares mean he retains control of the company. Elliott may simply hope a turnround is imminent. Or it might try to nudge him into selling Dropbox to a user-hungry giant such as Oracle or Dell. Salesforce’s $28bn acquisition of Slack could be the template. Dropbox is no longer glamorous. But that does not mean it is irrelevant.
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