Dropbox (DBX -0.96%) was a hot stock when it made its Wall Street debut two weeks ago, and it only continued to pad its gains last week. The fast-growing provider of cloud-based storage solutions was originally looking to price its initial public offering between $16 and $18. Underwriters bumped the price up to $21 to keep up with scintillating demand, and that still wasn't enough. 

The dot-com darling would go on to soar 36% on its first day of trading. It's perfectly natural for buzz-worthy debutantes to slump after an initial pop, but Dropbox kept going. The stock would go on to move higher in three of last week's four trading days, moving 9.7% higher in the process.

Dropbox logo.

Image source: Dropbox.

Thinking outside the Dropbox

Data storage may seem to be a commoditized service, but Dropbox is managing to stand out as a leading brand. More than 500 million accounts worldwide have uploaded more than 400 billion files to Dropbox. Most of its users are on the free plan. Just 11 million of those half a billion users have paying accounts, but that's up nicely from 6.5 million in 2015 and 8.8 million in 2016.  

Growth is definitely there, though the top-line gains are decelerating. Revenue rose 40% in 2016, slowing to 31% last year. Slowing growth isn't a deal breaker, though. Box (BOX -1.58%) -- the second-largest player that isn't tethered to a tech giant -- has seen its growth slow dramatically every year, going from 111% revenue growth four years ago to just 27% in its latest fiscal year

Dropbox is making greater strides on the bottom line. It's still posting losses, but the deficits are narrowing. Perhaps more importantly, given the cutthroat nature of data storage, Dropbox turned free-cash-flow positive in 2016, and it remains that way now. Free cash flow clocked in at a hearty $305 million in 2017.

There will be comparisons between Dropbox and Box now that the two companies are public, but Box has been a bit of a disappointment since its initial pop the day it went public three years ago. Box priced its IPO at $14. It opened just north of $20, and that's just where it finds itself 39 months later. Dropbox is a larger company, initially targeting the consumer market instead of Box's enterprise stronghold. Dropbox now is a strong player for consumers and businesses. The blazing market reception to Dropbox has helped it reach a market cap of roughly $12 billion, four times the value that Box is commanding.  

Hot IPOs don't always stay that way. We saw what happened to Box. However, with Dropbox padding its lead in an important niche and close to turning the corner of profitability, it's hard to dismiss the market's initial excitement as a passing craze.