After learning Dropbox was planning to become a remote-first company with co-working studios in various cities to facilitate in-person meetings, I got excited. Excited enough to read through its annual report (not word by word, page by page but…enough of it).

Obviously, everyone company has circumstances and practices that work best. However, the best work environment is one where people only come into an office if they want to. The “have to” is kind of blurred because you would come in for really important meetings but I’d also assume the company has learned most meetings should be quick calls, most quick calls should be emails and most emails need not be sent at all….so 90% of in-person meetings are irrelevant.

Oh but what about collaboration! What about the post-it notes and the random collisions that sprout ideas! Yeah, well guess what those don’t happen in actually scheduled meetings (at least not the valuable ideas anyway) because most meetings aren’t places where you can actually be innovative and take risks with ideas. Especially when there is a boss involved.

The ideas from random collisions and the building camaraderie actually happen when you are NOT at your work station and you take a coffee break with colleagues or go somewhere managers don’t go for lunch etc…. Places you feel safe to talk about anything. That can be self-arranged by any respectable grown-up…and if you aren’t hiring those then who are you hiring?

Back to Dropbox.

So this is a mature and smart move. Maybe it’s a PR stunt, and if that’s the case, then I’m sure it will become obvious over time. Regardless, I like it. I have pleasant memories of listening to Drew Houston in various podcast interviews and I’ve heard his name mentioned on various occasions as being intelligent. Kind of like the Collison brothers at Stripe.

I’m also a user of Dropbox. The free version of course because combing it with Google I have enough. I’m also a dinosaur that likes USB drives as well. Maybe it’s still trusted issues with security programs.

Admittedly, I’ve considered paying for Dropbox before but the convenience for more storage didn’t push me over the edge. Just like Evernote has failed to gain my premium $$s despite my entire life being built on it for the last 5 years.

But that’s just me and I’m not the ideal customer for most companies. Good to assume this.

So, Dropbox is a ~$8b company. EV is slightly lower and I imagine the capital lease may go down in the future with this move to remote. So practically a debt-free company.

Houston owns ~10% of outstanding shares but the super-voting B shares give him control of the company. I think he has nearly 50% control. Close enough. He’s paid some ~$1-2m annually and got a fat $100m equity bonus when the company IPO’d. I would want that too if I started a multi-billion dollar company.

So most of his A shares (the ~10% on the public markets) are mainly in options I think. No matter. His B shares, if converted should give him north of 30% in all outstanding shares. Remember I’m going off of memory and ruff-stimates.

The shares are split between various family trusts and one for his kids as well. An initial thought is that he really wouldn’t want this company to fail given he would want his generation to benefit from this. This shouldn’t be shocking but honestly, how many people actually believe they’re going to build something that will last even 1 generational transfer?

Obviously, if Dropbox is sold off at even $1B his ownership would still be a solid amount of money for his kids to live off of for the rest of their lives. But the success of this company really matters to Houston and his family.

Software companies growing 50% a year is all the rage now and maybe that’s why Dropbox isn’t examined further because it “only” grew 19% last year. Most public companies would kill for this growth number.

Dropbox generated ~$1.6b in sales at ~75% gross margins. Yes makes sense. What’s interesting is that no single customer makes up 1% of total revenue (if my memory serves me correctly). Then you Google about and learn some 40-60% of customers would be classified as SMBs with ~40% have less than 50 people and less than $50m in annual revenue.

Okay, a champion for small companies that need storage? What’s also fascinating is that much of its sales grow organically. Whether it’s new users or conversions it’s organic with 90% of sales coming from people upgrading on their own website. This is where I got interested. I like things that grow without needing to be sold. I think it’s awful when you need to use social media ads to generate sales.

I actually messaged the customer support team at Ritual yesterday to let them know Uber is giving me so many discount codes I have no use for their service since Uber is cheaper even by $1. Due to sentimental loyalty and desire to see a Toronto company do well, I told them to do something about this. At the end of the day, these are commodities and all the ads they use for traffic aren’t going to work. This should probably show in declining ARPU for Uber/UberEats.

Doesn’t seem like Dropbox does this as ARPU has gone up 5-10% annually for the last 3 years. So I read they did change their pricing options and maybe that’s what is driving this but their customer numbers continued to go up and I’m assuming they have decently high retention. So, people are choosing to upgrade?

Why? I Quora’d this to see and most arguments for Dropbox…there were dozens of points… seemed to be around ease of use. The simplicity factor. This would align with Dropbox’s company mission. But is that it? I admit I hated using Onedrive before and I still don’t get how Google Drive works either.

So is it that Dropbox’s customers are filled with people like me who like the raw simplicities but they just have bigger pockets than I do? There are also many comments on Quora citing that Dropbox is a thing of the past and no one cares about it. A few sites show Dropbox has ~28% market share in file storage with Google at a similar ~28% level and MSFT playing the third fiddle at ~15%. I also read in another article GOOG had 36% and Dropbox had 34% at one point.

Now could the GOOG and MSFT numbers be inflated because most people automatically become users without realizing it? It might not be that they are willing customers or that they even think it’s valuable for their needs.

So one hypothesis for the value of Dropbox could be that companies are actually seeking it out as a solution for file storage needs. But why them and not GOOG or MSFT? Is it the syncing functionality people cite as a differentiator? Because price certainly isn’t and Zapier has noted security on GOOG and Dropbox is comparable.

Growth has declined from ~40% in 2016 to ~20% in 2019 but much of it is organic. So why? Why are people continuously signing up for it? As far as yields go, I estimate owner’s earnings yield to be ~7%. I calculate owner’s earnings weirdly from most investors so to see the pattern you can read my longer essays on some companies on the site.

At the moment, I imagine that companies will choose to use Dropbox due to a mix of trust in the brand, simplicity and minor technical features (like sync) that are material to the user’s needs. Doesn’t mean it’s a decent business. I just wonder if and how it could ever be an $80b business.

If I can’t get it out of my head after a period of time, maybe I’ll dig into it further.