Spotify vs. Dropbox: Who Will Be Remembered as the IPO of Early 2018?

The first quarter of 2018 brought two tech giants to the table. Spotify, the Sweden-based music streaming service, and Dropbox, the San Francisco-based file hosting service, both went public this March, helping contribute to the biggest quarter in the IPO market in the last three years.  

Different approaches

Spotify’s IPO drew attention for not drawing attention at all. While traditional IPOs are underwritten by major banks and sell new shares, Spotify opted out. Instead, it made its debut as a direct listing, meaning that only current shareholders could sell their existing shares on the New York Stock Exchange floor and no price was set in advance.

Spotify had no choice but to go public before July of this year. According to Recode, the longer that Spotify delayed its listing, the more shares in the company shareholders TPG and Dragoneer accumulated, according to the convertible debt note they held. Stocks began trading at $165.90 on Tuesday, April 3, after a stormy Monday that saw the Dow Jones and S&P 500 fall three points. It closed at $149.01, a drop of over 10%, but still higher than the original reference price of $132. Spotify now has a market valuation of $26.6 billion.

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The Dropbox IPO, meanwhile, was long-awaited and well-hyped, underwritten by the likes of J.P. Morgan, Goldman Sachs, and Deutsche Bank, among other institutions. Their goal was to raise $500 million at a time when the company was already seeing rising profits and narrowing margins. Their March 22 offering garnered $750 million, thus far the biggest tech IPO since Snap Inc. debuted in 2017. Dropbox shares rose by 36% after its first day of trading. The IPO was initially valued at $21 a share; it closed at $28.50, with a high of $31.43. This brings their valuation up to $10 billion, approximately where it was at its last funding round in 2014.  

This is a tough time for a tech company to go public, especially one entrusted with so many users’ personal data. Dropbox already seems to be protecting its image. In February 2017, a Wikipedia user moved the criticism section of Dropbox’s page to a separate article, stating that it “was getting really long and became difficult to navigate properly.” The criticism article includes privacy issues, data breaches, outages, and the inclusion of Dropbox in the NSA’s national surveillance program, among other controversies. It can only be found by clicking on a hyperlink in a single sentence from the last paragraph of the main page’s introduction. The reception section of Dropbox’s current main page is composed entirely of positive press. The main page receives a daily average of 2,853 views; the criticism page receives 42. As Facebook, Google, and Apple stocks have yet to recover from the panic over privacy in tech, Dropbox still managed a strong debut.    

Measuring growth

Both companies made a splash, and their timing and shared status as tech IPOs are begging comparisons. Beyond the Wall Street data, there are other parameters to look at when it comes to measuring lasting success. Spotify which was founded in 2006, has seen a 68% rise in employees in the past two years. Despite the company’s growth – it now boasts 90 million free listeners and an additional 70 million paying subscribers – hirings have more or less plateaued in the last six months, seeing only a 5% growth in manpower. Those they did bring in are distributed across the specializations. In total, 65% of those new hires were in arts and design and information technology, focusing more on user experience and less on product development.

Spotify's growth. Source: LinkedIn


Dropbox, meanwhile, has only seen a 25% growth in employees over the past two years.  Most of those – 43% – have been in engineering and human resources. As Dropbox acquires more and more companies and integrates their technology into its product, engineers are crucial. While Spotify seems to be positioning itself for growth, Dropbox may be working towards streamlining and efficiency.

Dropbox growth. Source:


Spotify and Dropbox both have mobile apps available, which have proven crucial for the sales of both. Frustration with the free version of the Spotify app seems to drive many users to pay for subscriptions, if Google Play reviews are to be believed. With over 11 million downloads, that means more revenue for the company. It’s also the number one music app on the Apple App Store, despite Spotify’s competition with Apple Music.

The Dropbox app gets largely positive reviews on the Google Play Store, but some users are frustrated that Dropbox Paper – the company’s Google Docs competitor – is a seperate app and not integrated into the service. iPhone users on the Apple App Store leave more negative feedback for bugs and software issues. While users are generally happy with the storage service, they face stiff competition in the cloud service market, facing off with the likes of Amazon, Google, and Apple.

Spotify vs. Dropbox vs. the tech establishment

Not only are both companies squaring off against fierce competition, they’re often squaring off against the same competition. Spotify has nearly double the listeners of Apple Music, but brand loyalty means that the latter is quickly growing. With a little over 20 million subscribers but about 10 million more songs in their library, exclusive releases, and iTunes integration, Apple is working hard on catching up. Amazon Music United has also breached the market, and similar streaming service Deezer is still holding out.   

Spotify vs. its competitors.

Dropbox has been competing against Box since its inception, which remains its most direct competitor. It’s also fending off Google Drive, which is becoming more and more ubiquitous, and whose mobile app allows for a wider range of functions. Other major competitors are Microsoft OneDrive and Amazon Cloud Drive. Apple’s iCloud is also an emerging rival.

Dropbox vs. its competition

Source: Similarweb

For the time being, neither company is profitable. The biggest chunk of Spotify’s profits goes to licensing fees, and Dropbox lost $111 million in revenue in 2017. While Spotify’s profits are increasing, Dropbox’s losses are shrinking, and only time will tell which tech unicorn will come out on top. Interested in investing and want up-to-date insights on companies like Spotify and Dropbox? You can order a report on these and other companies here.

6 Reasons For Overvalued Unicorns

Composed by Aner Ravon, Chief Insight officer and Co-Founder at Zirra


The hot air around young and savvy tech startups is not going anywhere, despite dark prophecies that saw 2016 as the “winter is coming” year. Snapchat and Airbnb are warming up on the sidelines of an IPO, Buzzfeed, Palantir and Uber are snatching hundreds of millions of dollars every couple of months, and young startups with no revenues and almost no users such as Houseparty raise tens of millions from top VCs. The bubble is now an automotive one, pricing an employee at about $10 million (Cruise, Otto), allowing young startups to raise double digit millions before showing a prototype, and top talents to migrate from one startup to another (Uber to Zoox to Bonsai to Deals are quickly concluded, a sign of high demand for startups, and it is clear that the tech bubble is here to stay for a while, driving lower tiers of startups’ valuation up.

But first, let’s take a look at “real” valuation of unicorn companies, or what their value should have been if they were already publicly traded. According to Zirra’s formula, which uses 1,200 comparable private company histories, as well as dozens of current public signals, ranging from web traffic trajectories, investment history, employee growth, google searches and customer reviews, the top 20 unicorns are already overvalued by an average of 27%.

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Zooming in on specific cases, some of the valuations we estimated using public data were even much lower. We estimated Airbnb’s valuation at $14B, half of its commonly estimated price tag of $25B-$30B. Pinterest, according to our formula, can be priced at $4.3B, 61% below the common $11B valuation. Even WeWork, the real estate-meet-startup exploding giant, is estimated by our formula to be valued at $9.1B, 46% lower than market common value, and SpaceX at $8.2B, 32% below the accepted threshold. (See table below).

So, what makes private tech companies rack up such high valuations? Here are the main reasons we found- some trivial, some more significant.

  • When Negative Cashflow meets Perpetual Up Rounds –  To capture market share and manage regulatory campaigns, giants such as Airbnb and Uber need a constant flow of cash. As they add more and more investors, companies need to allocate new preferred shares that artificially pump up valuation. It is enough to have just one stubborn early investor in round A or B demand preferred stocks with extraordinary terms to cause every following investor to demand similar terms or higher. This in turn brings companies to demand higher and higher valuations when raising new money or at IPO.
  • Bullish Public Markets – After a tiny cough at the beginning of the year, the stock market rose to new peaks, bringing NASDAQ to its highest price in history, even higher than before it plunged dramatically at the turn of the new millennium. Apple, Alphabet, Facebook, and Amazon stocks are all enjoying good times, while Snapchat’s IPO in the first third of 2017 looks promising. A bullish stock market dictates a positive investment environment, and as long as it rises, so do the valuations of private tech companies.
  • Artificial Valuation Formulas and Methods used by VCs Firms – A derivative of the previous factor, VCs value companies using pricing methods, passing up on the traditional methods of valuation that take into account discounted cash flow, growth, and risk estimation. These relative methods use relative valuation, pricing companies as a result of similar public and private companies in the market. So, again. When the market is high, valuations of private companies soar.

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  • Talk is Cheap, Money is Even Cheaper – despite the recent increase, interest rates are still low, and alternative investment assets classes such as VCs and private equity are popular alternatives for “high return”. Despite a small decline, total VC investments in startups are still high compared to pre-2014 years. According to NVCA, U.S.-based VCs invested $69B in startups in 2014, $79B in 2015, and $56B this year up to September. Large sums of money, in the hands of more and more investors, some of them seeking high risk and perhaps not as professional as the veterans in the market, will lead companies to take advantage of the trend. In addition, dwindling of public markets in China and other parts of the world concentrates more funds in U.S. rising stars.
  • The herd has turned to a Stampede – The ‘me too effect’: copycat and me-too’s provide the impression that the startup industry is bigger than it really is. It also allows second and third tier investors to nab companies that couldn’t impress top investors.
  • Cut-throat competition between VCs over the more attractive deals drives valuations through the roof and causes VCs to run a much looser due diligence process in order to quickly win deals. This then impacts every financial round thereafter and has a spillover effect on other companies even if they are not as attractive. High demand from investors meets a relatively low supply of good investment opportunity, causing investors to quickly shake hands and open the checkbook.

The bubble will not continue forever. Sectors that used to be super hot such as cloud computing or mobile apps, are not disruptive anymore, and in a few years from now AI and automotive will also lose their shine. It will still take quite a few years for all these innovative companies to meet real infrastructure and cultural change, and the innovation industry is about to crunch. When that happens, consumers will realize they don’t need so many me-too products around them, and as the interest rates begin to rise again  and VC vintages are over- we may see valuations turn the current game much more “interesting”, or perhaps even a much less friendly term.

Image: Fat Unicorn by Faxtar, DevianArt