Two heavyweight software companies filed their initial public offerings this week.
On February 23, Dropbox finally filed to go public after a decade of business, hoping to raise up to $500 million. This comes on the heels of their rebranding campaign last fall, which sought to make the company less stale and more appealing to a younger demographic with bolder graphics and brighter colors. CEO and co-founder Drew Houston, who owns a 25 percent stake in the company, stands to gain the most from this IPO (venture capital firm Sequoia comes in at a close second with 23 percent).
Dropbox’s revenue increased by $497 million between 2015 and 2017, and although those years ultimately resulted in a net loss for the company, that loss decreased by $214.3 million in that time. From 2016 to today, the company has also gained 4.5 million subscribers to a total of 11 million.
The company’s product is solid and they have a loyal user base, but their challenge will be continuing to find new users as their number of competitors – like Box and Google Drive – grows. While the simplicity of its file syncing software is admirable, Dropbox also hasn’t grown to offer much more than that since its founding in 2007.
Meanwhile, Spotify just today filed their IPO – well, kind of. They’ll be going about it from a more unconventional angle by opting for a direct listing.
If you’re like me, you might be wondering what a direct listing entails. We’ll see, when most startups go public, they have a highly controlled script to go off of for all the moves they make. In a direct public offering, according to Investopedia, “the business sells shares directly to the public without the help of any intermediaries. It does not involve any underwriters or other intermediaries, there are no new shares issued, and there is no lock-up period.”
Basically, the people over at Spotify have a lot of confidence in their company.
In its prospectus, the company warned people of the risk factors that accompany this decision, stating, “The public price of our ordinary shares may be more volatile than in an underwritten initial public offering and could, upon listing on the NYSE, decline significantly and rapidly.”
Spotify’s business model has garnered several critics because Spotify doesn’t have the same one-and-done deal with its content that services like Netflix are able to operate by. Every time a user plays a piece of music, Spotify has to pay the music label that owns that song. Essentially, the more growth that Spotify generates, the more operating costs it has to pay. This is a dilemma that Spotify needs to solve if it’s going to inspire trust in its investors.
Still, CEO Daniel Ek and co-founder Martin Lorentzon, who own 9.3 and 12.4 percent of Spotify respectively, will most likely become billionaires with this listing.
Sony Music, the second biggest music label in the world, also stands to earn a hefty chunk of change, as they currently own 5.7 percent of the company. It will be interesting to see how much of the cash they hand down to the musicians under their label, especially since Spotify doesn’t have the best reputation in the digital music streaming industry for compensating their artists.