Shares of cloud storage pioneer Dropbox (NASDAQ:DBX) are trading lower Friday, down 4% as of 1:45 p.m. EDT, as lock-up agreements associated with the IPO expired last night. Amid the selling pressure, the stock has set a new all-time low following its March debut. Many company insiders and early employees are now free to cash out their shares.
Considering how long it took for Dropbox to go public, it should come as no surprise that some of those insiders, which Bloomberg estimates collectively hold roughly 18% of shares outstanding, may have itchy trigger fingers.
Other prominent sellers
It's worth noting that there have been other prominent sellers in recent months. George Soros' hedge fund Soros Fund Management briefly took a stake of 75,000 shares immediately after the IPO in the first quarter, according to regulatory filings. That position didn't last long, as Soros sold off his entire position during the second quarter. Activist hedge fund Jana Partners took a relatively larger position in Dropbox -- 202,500 shares -- in the first quarter as well, and also closed out the entire position in the second quarter.
Those Form 13F holding disclosures for the second quarter were filed earlier this month. Neither Soros nor Jana had funded Dropbox in the private markets, so those positions were initiated after the company went public. Dropbox's most prominent private investors before the IPO were Sequoia Capital, Accel, and T. Rowe Price.
Alongside second-quarter earnings, Dropbox announced earlier this month that COO Dennis Woodside would be stepping down after four years at the company, which overshadowed better-than-expected earnings results. Woodside will stay with Dropbox until early September and serve as an advisor through the end of 2018 to ensure a smooth transition.
The company also disclosed at the same time that the lock-up expiration would happen earlier than previously expected, which occurred at yesterday's close.
Dropbox has been one of the highest-profile IPOs thus far in 2018, and its shares have been especially volatile. The company had boosted its valuation range ahead of the IPO, priced above the expected range, and then surged even further on the first day of trading. That all suggested strong investor demand. But investor sentiment seems to have soured in the months since.
Dropbox is putting up strong numbers
While long-term investors should be aware of recent events, the company's ability to execute is far more important. Dropbox continues to grow its rabidly loyal user base, and now has 11.9 million paying users. Analysts had only been modeling for 11.7 million paying users. Gross margin also expanded from 65.4% to 73.6%.
Additionally, average revenue per user (ARPU) continues to march higher, coming in at $116.66 last quarter. As a reminder, Dropbox reports ARPU as an annualized figure. That suggests that Dropbox is still able to maintain pricing power, despite larger tech giants' ongoing price cuts. Alphabet subsidiary Google effectively cut cloud storage prices in May when it introduced Google One, for example.
Woodside's resignation introduced some uncertainty, but if Dropbox can successfully navigate the COO transition and continue putting up strong numbers, investors have nothing to worry about.