Dropbox cash flow puts other unicorns to shame

A sighting of positive free cash flow at Dropbox puts other unicorns in the shade. The cloud-storage service is now in the black on that measure, according to Chief Executive Drew Houston. Not needing to tap investors should be the norm for a firm valued at $10 billion in its last funding round. As long as it's considered normal for start-ups to achieve similar valuations while burning cash, though, it suggests there's still too much capital around. Dropbox now has some control over its destiny. The timing is good. Venture capital is, relatively speaking, drying up, at least at heady valuations. Public funding isn't easy to come by either: Only three tech firms have gone public this year, though more have filed with regulators in recent weeks, including Japanese messaging app Line. Houston now has the luxury of expanding via internally generated cash. The business boasts 500 million users, but only a fraction of these are paying customers. Adding features and increasing marketing spending may tempt more people to try the service, and encourage more companies and individuals to shell out for extra storage or capabilities. Moreover, storage is cheaply scalable, so the bulk of any revenue growth may eventually drop down to the profit line. More from Breakingviews : Road-trip IPO takes driver's control to an extreme But Dropbox hardly has it easy. Alphabet , Amazon and Microsoft offer similar services, as do start-ups such as $1.5 billion publicly traded Box. Giant companies have scale advantages and can, if necessary, afford to run their cloud-based storage businesses at breakeven or a loss. Amazon's web-services unit reported $2.6 billion in revenue — more than 60 percent ahead of the same period a year earlier — for the most recent quarter with operating margins above 20 percent. The intense competition helps explain why backers of Dropbox have cut the value of their stakes this year. Fidelity, for example, marked its stake down about a third from the time of its last funding round in 2014. Yet there are still almost 160 private companies worth $1 billion or more, according to CB Insights. On Tuesday, venture capitalist Bill Gurley said on Twitter that, as far as he knew, Dropbox was the only unicorn with positive cash flow. The others will need it, too, if funding continues to become scarcer — or they risk losing their horns. For more independent commentary and analysis from Reuters Breakingviews, visit breakingviews.com

Kieran Doherty | Reuters

A sighting of positive free cash flow at Dropbox puts other unicorns in the shade. The cloud-storage service is now in the black on that measure, according to Chief Executive Drew Houston. Not needing to tap investors should be the norm for a firm valued at $10 billion in its last funding round. As long as it's considered normal for start-ups to achieve similar valuations while burning cash, though, it suggests there's still too much capital around.