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I don't really know how these numbers are generated, so I really have no idea what I'm talking about - but just back-of-the-napkin: 100*($200 million / $10 Bil

I don't really know how these numbers are generated, so I really have no idea what I'm talking about - but just back-of-the-napkin: 100*($200 million / $10 Billion) = 2% So assuming no growth, the investors are back getting 2% a year? So basically matching inflation... So does this indicate that the market is split on whether they'll continue to grow or not?

bayesianhorse 13y ago
No, the investors are buying 2% of the equity, and by paying $200 million they indicate that they estimate that all of the equity together (the whole company) is worth $10 Billion. Return on investment would mean that the investors expect the valuation to rise, or that they derive some other kind of profit from owning the shares (sometimes patents, knowledge, influence etc).
- benmanns 13y ago
  I think the commenter was referring to the $200 million revenue (not even profit) over the $10B price.
- blah32497 13y ago
  EDIT: "benmanns" pointed out the point of confusion. thanks! I don't think we're disagreeing. Sure they bought 2% not 100% of the company, but that's not really relevant. The $200M/yr they currently make is I assume profit - which is either payed out as dividends or invested back into the company. It's not really important which ones b/c the two are in the grand scheme of things equivalent. An investment increasing the worth of the company and therefore the worth of their share of it. I feel like in the end it still represents an expectation of 2% growth...
  - vasilipupkin 13y ago
    No. The expectation of growth should be roughly similar to growth of similar tech companies. Typical return on equity of an S&P 500 company is about 15-16% per year, so investors should expect probably at least that much and more like twice that
    - blah32497 13y ago
      Well why doesn't that square up with the valuation then? Did Dropbox lowball themselves?
  - clarky07 13y ago
    No. You don't pay 50x revenue for 2% growth. That is a huge valuation and it means they are expecting more like 50-100% growth for a few more years.
cperciva 13y ago
So assuming no growth, the investors are back getting 2% a year? So basically matching inflation... No, because the $200M is revenue. In the long term scenario it's profits which get paid out to shareholders.
gibybo 13y ago
On a long-term broad (across industries) basis, stock market investors tend to expect a 10% annual ROI. This is different for VC investors, but only slightly by the time they get to a $10B valuation. The fact that the $10B valuation is 50x revenue implies an extremely high expectation of future growth. They'll look at future earnings potential (profit, not revenue) and try to figure out the probability for Dropbox eventually earning 500m/year, 1b/year, 5b/year etc and discount it according to how long they think it will take them to get there. Another way to look at it, which is one step removed from valuing on future earnings, is to guess what other people will value it for at IPO. If they think Dropbox has a 50% chance of IPOing at $50B in 2 years, they've made a pretty good bet at the current $10B valuation.
qq66 13y ago
Assuming no growth for an investment in Dropbox is like assuming no air resistance when designing a jumbo jet.

bayesianhorse 13y ago

No, the investors are buying 2% of the equity, and by paying $200 million they indicate that they estimate that all of the equity together (the whole company) is worth $10 Billion. Return on investment would mean that the investors expect the valuation to rise, or that they derive some other kind of profit from owning the shares (sometimes patents, knowledge, influence etc).

benmanns 13y ago
I think the commenter was referring to the $200 million revenue (not even profit) over the $10B price.
blah32497 13y ago
EDIT: "benmanns" pointed out the point of confusion. thanks! I don't think we're disagreeing. Sure they bought 2% not 100% of the company, but that's not really relevant. The $200M/yr they currently make is I assume profit - which is either payed out as dividends or invested back into the company. It's not really important which ones b/c the two are in the grand scheme of things equivalent. An investment increasing the worth of the company and therefore the worth of their share of it. I feel like in the end it still represents an expectation of 2% growth...
- vasilipupkin 13y ago
  No. The expectation of growth should be roughly similar to growth of similar tech companies. Typical return on equity of an S&P 500 company is about 15-16% per year, so investors should expect probably at least that much and more like twice that
  - blah32497 13y ago
    Well why doesn't that square up with the valuation then? Did Dropbox lowball themselves?
- clarky07 13y ago
  No. You don't pay 50x revenue for 2% growth. That is a huge valuation and it means they are expecting more like 50-100% growth for a few more years.

cperciva 13y ago

So assuming no growth, the investors are back getting 2% a year? So basically matching inflation... No, because the $200M is revenue. In the long term scenario it's profits which get paid out to shareholders.

gibybo 13y ago

On a long-term broad (across industries) basis, stock market investors tend to expect a 10% annual ROI. This is different for VC investors, but only slightly by the time they get to a $10B valuation. The fact that the $10B valuation is 50x revenue implies an extremely high expectation of future growth. They'll look at future earnings potential (profit, not revenue) and try to figure out the probability for Dropbox eventually earning 500m/year, 1b/year, 5b/year etc and discount it according to how long they think it will take them to get there. Another way to look at it, which is one step removed from valuing on future earnings, is to guess what other people will value it for at IPO. If they think Dropbox has a 50% chance of IPOing at $50B in 2 years, they've made a pretty good bet at the current $10B valuation.

qq66 13y ago

Assuming no growth for an investment in Dropbox is like assuming no air resistance when designing a jumbo jet.