What's going on?
On another day of plunging stock prices on Wall Street, data storage company Dropbox bucked the trend on its first day of trading as a public company: its stock rose 35%! (tweet this)
What does this mean?
Dropbox’s timing was tricky: on Thursday, amid a 2.5% selloff in US stocks, it sold its very first shares to investors at a higher price than they were initially marketed (after the market closed, as is typical of an IPO). The market-wide gloom continued on Friday as Dropbox’s shares opened for trading, but investors’ mindsets concerning Dropbox were far sunnier, as they hustled to get their hands on Dropbox’s stock.
Dropbox only sold about 9% of itself in its IPO, which limited the supply of the shares and likely contributed to its very strong first day of performance (perhaps sometimes it’s okay to sell yourself short).
Why should I care?
The bigger picture: Investors like a subscription model.
Dropbox offers its customers data storage (“in the cloud”) for free but charges a monthly fee if users store in excess of the free amount. Investors are attracted to this “software as a service” model because it provides a steady, predictable revenue stream – and, let’s face it, sometimes people simply forget to cancel subscriptions they don’t need! (We’re looking at you, Tinder Plus)
For markets: Dropbox is a growing company in a popular industry.
Cloud-based-software services have been among the darlings of Wall Street in recent years (Salesforce may be the best known example). And Dropbox has spent a chunk of money in recent years beefing up its infrastructure and extricating itself from the cost of Amazon Web Services – leaving it with growing revenues and margins. Also, Dropbox valued itself at a discount to other companies in the space, making it relatively attractive. All in all, it led to a very well received IPO.