McCombs Fall Case Competition 2014 - Dropbox

A

.

.

A

A

.

. A

A

.

.

A

A

A .

.

A

A

.

.

A

A

.

.

.

.

A

.

.

A

.

.

.

.

.

.

.

.

A

.

.

A

.

.

A

A.

.

.

.

Fall Case Competition 2014McCombs Undergraduate Business Council

A

.

.

A

A

.

. A

A

.

.

A

A

A .

.

A

A

.

.

A

A

.

.

.

.

A

.

.

A

.

.

.

.

.

.

.

.

A

.

.

A

.

.

A

A.

.

.

.

Gordon Tsai | Jonathan Ong | Keerthan Harish | Robert Ma

Cedar Consulting Group

Background

Recommendation

Support

Risks

Conclusion

Scope

10001010110101001010100101010010101

00101001010101101010010010101001010

11110001000100001001010110100101001

10100100001010111110000101001010100

10001010110101001010100101010010101

00101001010101101010010010101001010

11110001000100001001010110100101001

10100100001010111110000101001010100

10001010110101001010100101010010101

00101001010101101010010010101001010

11110001000100001001010110100101001

10100100001010111110000101001010100

10001010110101001010100101010010101

00101001010101101010010010101001010

11110001000100001001010110100101001

10100100001010111110000101001010100

10001010110101001010100101010010101

The mission of

Dropbox is to

simplify life for

people around the

world.

Where We Are:

Background Recommendation Support Risks Conclusion

Current Locations



Proposed Expansion

Problem


ProblemWhere do we expand?

How do we maximize profit?



Approach

Considerations

Fast-moving

industry

Maximize

market share

Springboard for expansion

Easiest to

integrate with

SMEs


Metrics Brazil Mexico Nordics Singapore UAE

Internet penetration

Ease of doing

business

Alignment with

target market

Regional influence

Strong Weak

Approach


Next Stop: Singapore

Quantitative Qualitative


Why Singapore?

60,000 new

businesses1

Government

policy3Max

corporate

tax 17%2

Personal

tax rate

20%4

#1 ease of

doing

business1

Strategic

location

in SEA3#1 most

politically

stable2

99%

SMEs4


Why Singapore?

OEM

Partnerships

Integration Nation

Challenge

University

Partnerships


Recommendation

Integration

NationSingapore Challenge:


Integration


6-month free trial

Best integration of Dropbox

Tiered Incentives


6-month free trial


Tiered IncentivesDrive

widespread

adoption

Create

switching

costs


Integration


6-month free trial


Tiered Incentives

Integration


Culture CreativityOneness

SecurityEfficiencySavings


6-month free trial


Tiered Incentives

Integration


Tier 3

Tier 2

Tier 1

Additional

6 months

Personal

consultants

Spotlight



Get plugged into local

universities

Partnership with Universities

Expand and improve

brand recognition

Equip students to use

Dropbox post-grad

Long – Term

Solution

Regional

OEMs

Consumer

Focus

OEM Incentive

Purpose


Partnership with

Original Equipment

Manufacturers


Financials


Expense AnalysisDollars in millions, except per share

2014 2015E 2016E 2017E 2018E 2019E

Rent -$ 420,000.00$ 480,000.00$ 540,000.00$ 600,000.00$ 660,000.00$

% Rent of Costs 0.0% -5.7% -4.3% -4.1% -4.0% -4.1%

Marketing -$ 5,500,000.00$ 6,050,000.00$ 6,655,000.00$ 8,318,750.00$ 9,150,625.00$

% Marketing of Costs 0.0% -75.1% -54.4% -49.9% -55.3% -57.4%

Salaries 1,000,000.00$ 1,000,000.00$ 3,000,000.00$ 4,000,000.00$ 4,000,000.00$ 4,000,000.00$

% Salaries of Costs -50.0% -13.7% -27.0% -30.0% -26.6% -25.1%

Other Offices Expenses 1,000,000.00$ 400,000.00$ 1,600,000.00$ 2,133,333.33$ 2,133,333.33$ 2,133,333.33$

% Other Exp. of Costs -50.0% -5.5% -14.4% -16.0% -14.2% -13.4%

Total Rent Expenses (2,000,000.00)$ (7,320,000.00)$ (11,130,000.00)$ (13,328,333.33)$ (15,052,083.33)$ (15,943,958.33)$

Income AnalysisDollars in millions, except per share

2014 2015E 2016E 2017E 2018E 2019E

Number of Corporations 100 600 2,500 8,000 20,000 35,000

Revenue Growth 500.0% 316.7% 220.0% 150.0% 75.0%

Number of Employees 600 3,900 20,000 72,000 200,000 385,000

Avg. Employees per Corp. 6.00 6.50 8.00 9.00 10.00 11.00

Fees 108,000$ 702,000$ 3,600,000$ 12,960,000$ 36,000,000$ 69,300,000$

Discounts (54,000)$ (175,500)$ (450,000)$ (810,000)$ (1,125,000)$ (1,082,813)$

Discount % of Sales 50.0% 25.0% 12.5% 6.3% 3.1% 1.6%

Total Revenues 54,000 526,500 3,150,000 12,150,000 34,875,000 68,217,188


Project Cash FlowDollars in millions, except per share

2014 2015E 2016E 2017E 2018E 2019E

Revenue 54,000.00$ 526,500.00$ 3,543,750.00$ 13,500,000.00$ 38,362,500.00$ 74,418,750.00$

Expenses (2,000,000.00)$ (7,320,000.00)$ (11,130,000.00)$ (13,328,333.33)$ (15,052,083.33)$ (15,943,958.33)$

EBIT (1,946,000.00)$ (6,793,500.00)$ (7,586,250.00)$ 171,666.67$ 23,310,416.67$ 58,474,791.67$

Less: Taxes (389,200.00)$ (1,358,700.00)$ (1,517,250.00)$ 34,333.33$ 4,662,083.33$ 11,694,958.33$

Add: D&A 1,728.00$ 16,848.00$ 113,400.00$ 432,000.00$ 1,227,600.00$ 2,381,400.00$

Less: Change in NWC 540.00$ 5,265.00$ 35,437.50$ 135,000.00$ 383,625.00$ 744,187.50$

Free Cash Flow (1,554,532.00)$ (5,412,687.00)$ (5,920,162.50)$ 704,333.33$ 20,259,558.33$ 49,905,420.83$

Project Value

WACC 11.5% NPV of Cash Flows $35,190,113

LT Growth Rate 3.5%

TV $666,075,382

PV of TV $386,499,597

Enterprise Value (NPV) $421,689,710

Project Value

WACC 14.0%

NPV of Cash Flows $31,034,694

LT Growth Rate 3.5%

TV $507,486,005

PV of TV $263,572,329

Enterprise Value (NPV) $283,022,485


$283,022,485 10% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0% 14.5%

2.5% 457,479,859.84$ 421,225,734.83$ 389,380,678.72$ 361,206,454.08$ 336,120,336.90$ 313,656,235.15$ 293,436,916.46$ 275,153,810.16$ 258,552,078.42$ 243,419,419.78$

2.75% 473,151,617.96$ 434,723,035.71$ 401,100,552.69$ 371,456,780.58$ 345,143,323.29$ 321,644,878.37$ 300,546,772.26$ 281,511,555.60$ 264,261,839.86$ 248,567,516.19$

3.00% 489,942,787.38$ 449,120,156.65$ 413,552,918.78$ 382,310,067.46$ 354,667,586.70$ 330,053,976.49$ 308,012,120.85$ 288,172,050.83$ 270,231,135.90$ 253,939,442.88$

3.25% 507,977,747.13$ 464,510,182.48$ 426,808,663.33$ 393,821,129.30$ 364,736,093.73$ 338,917,620.45$ 315,860,307.82$ 295,157,448.26$ 276,478,073.62$ 259,550,121.86$

3.50% 527,400,011.48$ 480,999,495.87$ 440,948,124.18$ 406,051,632.50$ 375,396,865.88$ 348,273,689.09$ 324,121,557.27$ 302,492,115.56$ 283,022,484.56$ 265,415,831.71$

3.75% 548,376,056.97$ 498,710,239.89$ 456,062,720.26$ 419,071,200.43$ 386,703,745.44$ 358,164,390.21$ 332,829,360.75$ 310,202,919.65$ 289,886,135.06$ 271,554,365.28$

4.00% 571,100,106.25$ 517,783,348.82$ 472,256,930.35$ 432,958,739.55$ 398,717,304.96$ 368,636,897.28$ 342,020,931.08$ 318,319,555.54$ 297,092,968.09$ 277,985,209.96$

Weighted Average Cost of Capital

Long T

erm

Gro

wth

Rate

Project Cash FlowDollars in millions, except per share

2014 2015E 2016E 2017E 2018E 2019E

Revenue 54,000.00$ 526,500.00$ 3,543,750.00$ 13,500,000.00$ 38,362,500.00$ 74,418,750.00$

Expenses (2,000,000.00)$ (7,320,000.00)$ (11,130,000.00)$ (13,328,333.33)$ (15,052,083.33)$ (15,943,958.33)$

EBIT (1,946,000.00)$ (6,793,500.00)$ (7,586,250.00)$ 171,666.67$ 23,310,416.67$ 58,474,791.67$

Less: Taxes (389,200.00)$ (1,358,700.00)$ (1,517,250.00)$ 34,333.33$ 4,662,083.33$ 11,694,958.33$

Add: D&A 1,728.00$ 16,848.00$ 113,400.00$ 432,000.00$ 1,227,600.00$ 2,381,400.00$

Less: Change in NWC 540.00$ 5,265.00$ 35,437.50$ 135,000.00$ 383,625.00$ 744,187.50$

Free Cash Flow (1,554,532.00)$ (5,412,687.00)$ (5,920,162.50)$ 704,333.33$ 20,259,558.33$ 49,905,420.83$

3.6/30/

Years to become

cashflow positive

Percent IRR

Realistic Estimate

2.8/21/

Years to become

cashflow positive

Percent IRR

Optimistic Estimate

Year 1 Year 2 Year 3

Month Q1 & Q2 Q3 & Q4 Q1 & Q2 Q3 & Q4 Q1 & Q2 Q3 & Q4

Integration Nation

6 month free trial

Evaluation & Implementation

University Partnerships

Pilot programs

Potential continuation

OEM Partnerships

Negotiations

Integration with hardware

Expansion into SEA

Start Singapore office

Spread regionally

Evaluations


Project Timeline

Companies

opt out

after 6

months

Medium

probability

High

impact

Additional 3

month

incentive

Low

probability

High

impact

High

impact

Govt

as a

barrier

to entry

Reach out to

Singapore

government


Risks


Conclusion


Conclusion

Where do we expand?

How do we maximize profit?


Conclusion

OEM

Partnerships

Integration Nation

Challenge

University

Partnerships

A

.

.

A

A

.

. A

A

.

.

A

A

A .

.

A

A

.

.

A

A

.

.

.

.

A

.

.

A

.

.

.

.

.

.

.

.

A

.

.

A

.

.

A

A.

.

.

.

for Business

A

.

.

A

A

.

. A

A

.

.

A

A

A .

.

A

A

.

.

A

A

.

.

.

.

A

.

.

A

.

.

.

.

.

.

.

.

A

.

.

A

.

.

A

A.

.

.

.

for Singapore

Background Recommendation Support Alternatives Conclusion