03/15/18: TD Ameritrade participating in the Dropbox IPO. Sent email to customers on IPO alert list
Latest news 03/12/18: Dropbox sets valuation as high as $8 billion; announces private placement by Salesforce ahead of IPO
The long-awaited Dropbox S-1 filing hit the SEC feed on Friday marking the beginning of the first big tech IPO for 2018. Prior to Friday, the company filed confidentially under SEC rules. But with this filing, the Dropbox IPO is here and it’s giving IPO investors something to finally get excited about.
Dropbox started as a way to store your files in the cloud and be able to access them from any location on any device. The company has since broadened its scope (or perhaps its messaging) to be a global collaboration platform empowering teams to stay in sync.
Revenue grew 31% to $1.1 billion in 2017 making this one of the top tech unicorns in the private sector. A successful Dropbox IPO combined with a continued bull market could jump start 2018 the tech IPO market. The stock is expected to trade on the Nasdaq under the symbol DBX.
This article takes a look at the various possible ways to invest in the Dropbox IPO based on my experience and feedback from the community of readers.
There’s no guarantee you’ll get access but follow the guidelines below for your best chance to receive an allocation.
Note: As always, a mention here on Access IPOs does not constitute a recommendation to buy or sell the stock. Please read the S-1 filing and future amendments to perform your own due diligence and determine if the Dropbox IPO is the right investment considering your own circumstances.
Where Have You Been Mystical Creature?
The IPO market has been active over the past year, but few IPOs have truly excited investors since the Snap IPO last March. Most of our readers were shut out of the Snap deal.
Redfin is another exciting and disruptive company that went public and many readers received a small allocation (~5%) via the Motif Investing platform.
Those two deals and a number of biotech IPOs have provided IPO investors with profits. But we’ve been waiting for a unicorn like Dropbox for a while.
The Dropbox IPO will be a high demand, tight supply deal with a good chance of reward for those who get access. Access will be tricky so we’ll need to prepare and be nimble once the deal drops.
Dropbox hired two of the largest and most respected underwriters on Wall Street to lead the deal, Goldman Sachs (GS) and J.P. Morgan (JPM). This is good news for readers because many of us have invested in deals previously underwritten by both.
How to Invest in the Dropbox IPO
The most important thing to remember when investing in IPOs is that the issuing companies, underwriters, and brokers don’t owe you anything. If you can get access, consider it a privilege.
Since IPO access is difficult to begin with, and this should be a high-demand IPO, shares will be hard to come by.
But from what we’ve learned from investing in previous IPOs, we may be able to tilt the chances of getting an allocation in our favor. Here are some of the best ideas I have for getting access to the Dropbox IPO.
For a complete guide on investing in IPOs, read my article How to Invest in IPOs – A Guide for Ordinary investors. Most of these strategies are taken from there.
Motif Investing has become the leader in providing IPO access to ordinary investors since the demise of Loyal3. As of writing this today, Motif has completed 77 IPOs, secondaries, and preferred stock offerings on its platform. That’s serious volume.
Not all of these deals are the highest quality companies, but every public offering needs liquidity and Motif has shown underwriters they can provide it.
Motif’s first IPO partner and the one that helped launch the platform was J.P. Morgan. J.P. Morgan has since provided allocations to Motif IPO investors for 12 IPOs including Trivago (TRVG), Dova Pharmaceuticals (DOVA), Zai Lab (ZLAB) since announcing the partnership in 2015.
Goldman Sachs became another Motif IPO partner last year. To date, Goldman Sachs has provided IPO access to Motif customers for Redfin (RDFN), Newmark Group (NMRK), ADT (ADT), and Funko (FNKO – aka “Flunko” to readers who invested).
But Goldman Sachs was a tease for the PagSeguro Digital (PAGS) IPO, stiffing all who requested access.
Since we know both J.P. Morgan and Goldman Sachs have given allocations to investors on the Motif Investing platform in the past, Motif is probably your best chance if you want to get access to the Dropbox IPO if you aren’t a high net worth individual.
You’ll need to open an account and sign up for the IPO News email list to have a chance. Then if and when the email arrives offering shares to Motif customers, act fast and request more shares than you actually want because the tight demand will lower allocations. Redfin investors only got 5% of what they requested.
The Dropbox IPO will have similar demand. But I expect Motif to offer access to fewer customers but give larger allocation percentages to make it worth their while.
Best Brokers for IPO Investing
Another option is to invest through your existing broker or join one of the best brokers for IPO investing. Follow that link to learn which online brokers are best for IPO investing. Then read about the minimum eligibility to get access to IPOs.
Pursuing this route to get IPO access will likely require you have a high asset balance at the brokerage, or you are a frequent trader.
From my own experience and from hearing from readers, the top traditional brokers are Fidelity, TD Ameritrade, and Charles Schwab. I am a customer of both Fidelity and TD Ameritrade, and I receive notifications when they are offering shares to customers. That by no means guarantees access, but the more assets you have with each, the more likely you are to get an allocation.
You’ll still need to watch your emails and act fast if you’re invited to participate. Don’t expect a lot of shares. Readers report getting up to 100 shares for most deals.
ClickIPO is a promising new IPO investing platform that harnesses the power of your smartphone to research and invest in IPOs. The smartphone app interfaces with your existing online brokerage account to give you access to deals.
Whether or not investors receive an allocation is based on a proprietary Investor Score which basically rates your quality as an investor based on your trading history. If you buy and hold, you’ll be more likely to get an allocation. If you flip shares, you’ll be less likely.
The ClickIPO app is live and downloadable from the iTunes Store. However, the back-end tech that enables connectivity to online brokers is still being finalized. Expect to see the app live and fully functional this year. However, right now we don’t know if it will be ready for the Dropbox IPO or not. If it is, ClickIPO will be another way to pursue access for this an most other IPOs and secondaries going forward.
Be a Dropbox Customer
There is a chance, a small chance, that Dropbox could offer IPO access to their paying customers. Nothing in the S-1 filing indicates this is going to happen. However, we should see multiple amendments to the February 23rd filing before trading begins.
Dropbox says they have 500 million registered users of their platform. But only 11 million are paying customers. That’s a big number of customers to invite to invest in an IPO, so I don’t think it’s very likely.
But this has happened in the past. The best example we’ve seen of this kind of invitation was the GoPro IPO on the old Loyal3 platform. GoPro sent an email to it’s 1+ million email list and about 16,000 responded to invest. The same offer was given to Square customers leading up to its IPO.
So there is precedence to this kind of offering. It is a possibility, but don’t hold your breath. And it’s probably not worth signing up to become a paying customer. But existing paying customers may want to watch their email inbox just in case.
Sorry, but there is no magic unicorn horn that guarantees you access to the Dropbox IPO. If you are a wealthy client at your online broker, you are, as always, most likely to get an allocation. Most of us ordinary investors need to be more prepared and nimble to get a slice.
I’ve laid out the best chances of getting IPO access above. If you have any suggestions in addition to these ideas, please share them in the comments below or contact me and I’ll gladly add to this article. Or keep it to yourself to better your own chances of receiving an allocation.
Disclosure: The author is long RDFN
Photo credit: Wild0ne via Pixabay