Macquarie Group’s US advisory and capital markets arm has been pulled into a class action brought by investors against cloud storage technology darling Dropbox over the billions of dollars of lost shareholder wealth since its 2018 float.
The case, filed in the District Court for Northern California, alleges San Francisco-based Dropbox and the underwriters of its 2018 float, including Macquarie Capital (USA) Inc, made misleading statements during its initial public offering, causing its share price to be artificially inflated.
Macquarie has been named in the legal action as one of the “underwriter defendants”, alongside other investment banks including Merrill Lynch and Goldman Sachs.
Shareholders allege Dropbox misled investors about the company’s ability to monetise its customer base, with documents presented to investors saying it had 300 million customers it could monetise, despite Dropbox knowing far fewer customers would actually pay for its product.
“Less than 1 per cent of the ‘300 million’ registered users were likely to be added to the company’s paying user base in the year following the IPO, and internal Dropbox data had demonstrated that the company was tracking behind its budgeted monetisation targets,” court documents allege.
“Indeed, the company was on track to convert only 1.7 million registered users to paying users in all of 2018, or approximately 0.6 per cent of the 300 million advertised figure,” the claim states.
Shareholders also allege company insiders sold stock and earned more than $184 million through the IPO.
The investors allege the underwriters, including Macquarie, aided the company in misleading potential shareholders.
“The underwriter defendants and their agents and representatives met with potential investors and presented favourable, but materially incorrect and/or misleading, information about the company, its business, products, plans and financial prospects and/or omitted to disclose material information required to be disclosed under the federal securities laws.
“The underwriter defendants also purported to conduct an adequate and reasonable ‘due diligence’ investigation into the company’s business, operations, products, plans and prospects.”
Shareholders allege these misleading statements caused them losses.
Dropbox raised about $US756 million ($1.07 billion) in its float where new shares were priced at $US21 each. The tech darling had a stellar debut on Nasdaq, closing its first day of trading up over 30 per cent to more than $US28.
At one point its market capitalisation was $US12 billion. But Dropbox’s slowing revenue growth has seen the value of its shares fall in recent months to below $US17. It is now worth $US7.4 billion.
Shareholders allege they were also misled in IPO documents about the prospects of Dropbox’s revenue growth, given they highlighted annual revenue growth of 40 per cent in 2016 and 31 per cent in 2017. Its revenue growth has since decelerated to 27 per cent in 2018 and is expected to be just 19 per cent for 2019.
According to the shareholder claim, the IPO registration statement stated: “Our revenue growth rate has declined in recent periods and may continue to slow in the future.”
But the shareholders allege the document, the company and the underwriters “failed to disclose what the company’s own internal analyses were showing that revenue growth deceleration was then occurring”.
Macquarie and Dropbox have been contacted for comment.
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