In this segment of the Motley Fool Money podcast, host Chris Hill is joined by Million Dollar Portfolio's Jason Moser, Hidden Gems Canada's David Kretzmann, and Motley Fool Pro and Options' Jeff Fischer to unpack Dropbox's pending public offering, and consider whether or not it's the sort of stock a Fool should add to their portfolio. Its numbers and business situation have Jason a bit reluctant, and he explains why.
A full transcript follows the video.
This video was recorded on March 16, 2018.
Chris Hill: Dropbox, the cloud storage company, is gearing up to go public. Dropbox is pricing their IPO at the low end of the range. Jason Moser, does that get you a little more interested?
Jason Moser: No. No, it doesn't. I think this is really where public markets shine. Dropbox was valued somewhere around $10 billion in the private markets. The public markets are going to put it under more scrutiny, and I think it should. When you look at the company's revenue growth, it's slowing. Paying users represent only 2.2% of their total user base. They have no discernible competitive advantage. They are not profitable. There's a dual class share structure. They're competing with Amazon. And the valuation is still questionable, Chris. It's not to say that this can't or won't be a successful company. But I don't think investors should just give it the benefit of the doubt. Let these guys report a few quarters and really see if the growth that they're forecasting can come to fruition.
Hill: So, you're saying there's a chance?
Moser: [laughs] I am saying there's a chance.
David Kretzmann: That's all it takes.
Kretzmann: They're competing not only against Amazon, but Google Cloud, Microsoft, Box, all sorts of cloud storage companies. To me, it's not really clear what differentiates them, and if they do have any differentiation, how sustainable it is.
Moser: And listeners out there might be saying, "What are you talking about? I use Box every day." Maybe. But do you pay for it? And my guess is, no you don't. And that's the biggest problem. And when you're going up against somebody like Amazon, who just makes a habit of cutting prices, that chance is very small, Chris. There is a chance, but it's a small one.
Kretzmann: Yeah. Dropbox started as a consumer-facing product, and the majority of users would use it for free, and some would upsell to a paid subscription to get more storage. Now they're trying to pivot into enterprise storage, which probably has a bigger market opportunity, but also a lot bigger competitors and a lot more competitors, too.
Jeff Fischer: Yeah, David, and what's interesting about so many IPO's in the last two to four years is, that's the path they're following: consumer first, then try to move to enterprise. How it all shakes out, as you said, is an unseen with so many companies that are serving the same markets.