mccombs fall case competition 2014 - dropbox
TRANSCRIPT
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Fall Case Competition 2014McCombs Undergraduate Business Council
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Gordon Tsai | Jonathan Ong | Keerthan Harish | Robert Ma
Cedar Consulting Group
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The mission of
Dropbox is to
simplify life for
people around the
world.
ProblemWhere do we expand?
How do we maximize profit?
Background Recommendation Support Risks Conclusion
Background Recommendation Support Risks Conclusion
Approach
Considerations
Fast-moving
industry
Maximize
market share
Springboard for expansion
Easiest to
integrate with
SMEs
Background Recommendation Support Risks Conclusion
Metrics Brazil Mexico Nordics Singapore UAE
Internet penetration
Ease of doing
business
Alignment with
target market
Regional influence
Strong Weak
Approach
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
Background Recommendation Support Risks Conclusion
Why Singapore?
OEM
Partnerships
Integration Nation
Challenge
University
Partnerships
Background Recommendation Support Risks Conclusion
Recommendation
Integration
NationSingapore Challenge:
6-month free trial
Best integration of Dropbox
Tiered Incentives
Background Recommendation Support Risks Conclusion
6-month free trial
Best integration of Dropbox
Tiered IncentivesDrive
widespread
adoption
Create
switching
costs
Background Recommendation Support Risks Conclusion
Integration
NationSingapore Challenge:
6-month free trial
Best integration of Dropbox
Tiered Incentives
Integration
NationSingapore Challenge:
Culture CreativityOneness
SecurityEfficiencySavings
Background Recommendation Support Risks Conclusion
6-month free trial
Best integration of Dropbox
Tiered Incentives
Integration
NationSingapore Challenge:
Tier 3
Tier 2
Tier 1
Additional
6 months
Personal
consultants
Spotlight
Background Recommendation Support Risks Conclusion
Background Recommendation Support Risks Conclusion
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
Background Recommendation Support Risks Conclusion
Partnership with
Original Equipment
Manufacturers
Background Recommendation Support Risks Conclusion
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
Background Recommendation Support Risks Conclusion
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
Background Recommendation Support Risks Conclusion
$283,022,485 10% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0% 14.5%
2.5% 457,479,859.84$ 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
Background Recommendation Support Risks Conclusion
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
Background Recommendation Support Risks Conclusion
Risks
Background Recommendation Support Risks Conclusion
Conclusion
Where do we expand?
How do we maximize profit?
Background Recommendation Support Risks Conclusion
Conclusion
OEM
Partnerships
Integration Nation
Challenge
University
Partnerships
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for Singapore