Tag: independent research on software stocks
Dropbox: Moving from File Sync to Content Management
With trailing twelve month sales of $1.9 billion, a market cap of $8.4 billion, $1.2 billion in cash, and zero bank debt, Dropbox (NASDAQ: DBX) is a leading provider of cloud-based file synchronization, backup, and content management software. Founded in 2007, the inspiration for the company came from CEO Drew Houston, who, as an M.I.T. student, began to conceive of an easier way to backup and share files.
Originally conceived as a way to conduct cloud-based file sync and backup—essentially replacing the need for a flash drive—Dropbox has evolved into a cloud-based content management software company, with subscription and monthly use plans for consumers, and businesses, which range in size from freelancers to the Fortune 100.
Since its inception Dropbox has deployed a bottoms-up freemium sales model, in which users typically sign up for a free service plan, and migrate over time to a paid plan, through either an annual subscription—greater than 50 percent of the time—or a monthly plan. Dropbox’s content management software plans range from free to more than $240 per year, depending on the level of functionality and customer support selected. The company’s unique freemium model has enabled it to reach and serve over 600 million registered users in 180 countries, who manage over 550 billion pieces of content.
At the end of Q3 2020, the company had 15.3 million paid users generating average revenue of nearly $128 per year, as compared to last year, when it had 14 million paid users, who generated an average $123. Roughly 12 million, or 80 percent of the company’s 15 million paid users use Dropbox for work purposes.
Dropbox does not break out revenue by vertical industry, however some of the more popular ones include technology, media and advertising, as well as construction. Other popular verticals include colleges and universities, manufacturing firms, consumer and retail, and financial services. As a content management tool, Dropbox is used by virtually all functional groups, including sales, marketing, product, design, engineering, finance, legal, and human resources.
Paying users as a percentage of the registered total is just three percent as of the most recent quarter. Dropbox believes that as many as 350 million, or roughly 60 percent of its non-paying, registered installed base of 585 million are high value targets, meaning that they exhibit many of the same characteristics as its installed base. By virtue of their existing registration, the company has created a large funnel from which to draw future paid subscribers. It can also reach and sign up prospective users at a fraction of the cost of many enterprise software companies that rely primarily on a direct sales force.
Over the last several years, Dropbox has expanded from a focus on consumers to small, mid-sized, and large businesses and non-profits, including colleges and universities. The company’s software is well-suited to workgroups of all sizes, which must collaborate across multiple functional areas and geographies. The company has been assisted by the growing trend to remote work, as stay-at-home orders mandated by governments, corporations, and non-profits, in the U.S. and abroad, in the wake of COVID-19, has increased the pace with which knowledge workers must collaborate regardless of their physical location.
Dropbox, whose revenues have grown from $1.1 billion in 2017, the year before it came public, to roughly $1.9 billion this year, has grown organically, with the assistance of only a few tuck-in acquisitions along the way. As Dropbox shifts its emphasis from consumer file sync and share to content management for businesses of all sizes, many greenfield opportunities lie ahead.
EverQuote: Rethinking the Insurance Industry
Founded in 2011 by former M.I.T. classmates Seth Birnbaum and Tomas Revesz, and headquartered in Cambridge, Massachusetts, EverQuote is a leading online insurance marketplace. EverQuote’s goal is to revolutionize the insurance shopping experience for consumers and modernize the way insurance providers reach customers. In doing so, the company intends to become the largest online store for insurance policies in the U.S.
Without any acquisitions, EverQuote has blossomed quickly, with a compound annual revenue growth rate of 32 percent over the last five years. Revenue has risen from $126 million in revenue in 2017, to $163 million in 2018, to $249 million last year. Unlike many VC-backed companies that have required multiple rounds of financing in the face of mounting losses, EverQuote was largely bootstrapped, with just $10 million of equity capital raised to fund the business before its IPO in June of 2018. In Q3 of 2019, the company generated its first non-GAAP operating profit, and has demonstrated consistent profitability in each of the last four quarters, with cash on the balance sheet rising steadily from $37 million at the end of Q2 last year, to $54 million this year.
Automotive insurance, EverQuote’s first addressable market, remains its largest, comprising over 80 percent of revenue. EverQuote’s online platform is facilitated by proprietary data and technology, which matches consumers with insurance options offered by carriers and independent agents tailored to their specific criteria. The criteria may include desired demographics, driving history, and the prospective policy holder’s driving track record.
EverQuote has invested heavily in data science, including machine learning, as well online advertising to efficiently match buyers and sellers of insurance policies. The company’s data assets include over two billion consumer-submitted data points that have come from 65 million quote requests, and 178 billion ad impressions, which have been acquired through its more than $650 million in advertising spending since inception. Over time, the company intends to fully automate the bidding process across most of its traffic sources, and is also working to achieve deeper integration with its insurance partners.
EverQuote boasts an expansive network of more than 100 insurance carriers, including the twenty largest property and casualty carriers in the United States, as defined by premium volume. In addition, the company partners with more than 8,000 insurance agencies. EverQuote’s leading partners include Progressive Casualty Insurance Company (which accounted for roughly 20 percent of revenue in 2018 and 2019) as well as StateFarm, Farmers, Esurance, Liberty Mutual, and Nationwide.
EverQuote gives consumers a single point of reference for insurance shopping. While EverQuote’s service is free for consumers, the company generates revenue through the sale of consumer referrals to insurance providers. According to EverQuote’s 2019 consumer survey, customers reported an average annual premium savings of $610 for insurance policies purchased through its marketplace.
EvreQuote has created a self-sustaining business model, having achieved EBITDA profitability and free cash flow generation in each of the last four quarters, although its progress is not reflected in the Street Consensus, which measures GAAP profitability. As an “asset light” business, like Google and Facebook, EverQuote generates more than $1 million in revenue per employee, and over half of its 300 employees are analysts, data scientists, and engineers. The company’s balance sheet is solid, even after the recent Crosspointe acquisition, as it will likely have more than $40 million in cash and no debt at the end of the current quarter.