Dropbox (Nasdaq: DBX) stock hit the ground running on Friday morning, initially trading above $30 per share, a 43 percent gain from its $21 initial public offering price. There’s certainly a lot for technology investors to like about Dropbox, but high-profile technology IPOs haven’t typically worked out well in recent years.
The Dropbox IPO values the company at about $8.2 billion, making it the largest technology company to go public since last year’s March IPO of Snapchat parent company Snap, Inc. ( SNAP).
[Read: Don’t Buy Big Tech IPOs.]
The IPO was reportedly 25 times oversubscribed, suggesting tremendous demand for Dropbox stock. In February, Dropbox reported more than 500 million registered users for its cloud storage service and 2017 revenue above $1 billion. Dropbox reported a net loss of $210.2 million in 2016 and a loss of $111.7 million in 2017.
Tech investors can’t help but think back to Snap, which initially got off to a similarly hot start, gaining 44 percent on its first day of trading. Unfortunately, those gains were short-lived. A little more than a year later, Snap stock is now trading about 3.1 percent below its IPO price.
Snap is not alone among big-name tech stocks that have disappointed early investors. In fact, eight of the 10 largest tech sector IPOs of all time plunged between 25 percent and 71 percent in the year following their first day of trading. Many of these stocks have had big day-one gains only to drift steadily lower from there as investor enthusiasm wanes and insider lock-ups expire.
Still, D.A. Davidson analyst Rishi Jaluria says Dropbox is too good of a long-term opportunity for investors to pass up.
“Given investor preferences today, investors want a combination of high growth and profitability, and Dropbox really crosses off both those buckets,” Jaluria said on CNBC. “It’s one of the fastest software companies to cross $1 billion in revenue, second only to Salesforce.com, and they’re doing that with 16 percent free cash flow margins.”
D.A. Davidson expects Dropbox to turn its first profit this year, projecting earnings per share of 15 cents in 2018 and 23 percent in 2019.
[Read: The 2019 Uber IPO Is Less Attractive Every Day.]
Despite his bullish take, Jaluria says IPOs can be very volatile and difficult to predict in the short term.
D.A. Davidson has a “buy” rating and $22 price target for DBX stock.
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Dropbox (DBX) Stock a Hit, but Tech IPOs Are Dangerous originally appeared on usnews.com
