How To Play Dropbox's Above-Range IPO With ETFs?

Dropbox Inc. DBX, the file-sharing company, priced its IPO at $21 per share and raised $756 million of fund. The company earlier decided to price shares in a range of $16 to $18, but finally increased the range to $18—$20 citing great interest from institutional investors, according to IPO research and advisory firm IPO Boutique, quoted on investors.com.

The IPO was oversubscribed and became the biggest tech IPO since Snap's (NYSE:SNAP) last year. It also marks the seventh largest on a U.S. exchange this year.Many may be spooked by the fate of Snap, shares of which have hardly seen any success in the last one year. But investors should note that Snap was a loss-making company when it went public.

On the contrary, Dropbox hit the market with annualized sales of more than $1 billion, 500 million registered users and 200,000 file sharing/storage clients in its cloud service platform.The company recorded net loss of $111.7 million in 2017, narrower than $210.2 million recorded in the year-ago period.

It has also been profit-generating, excluding interest, taxes, depreciation and amortization, as per Bloomberg. Also, “Dropbox could be one of the biggest U.S. enterprise technology companies to list domestically in recent years,” as per Bloomberg(read: 5 Reasons Why 2018 Could be Good for IPO ETFs).

Dropbox is likely to promote its own cloud which took hundreds of millions of dollars. With this the company reduced its dependence on Amazon.com Inc (NASDAQ:AMZN).’s servers. The move allowed the former fund to cut costs, as noted by Chief Operating Officer Dennis Woodside in an interview last year.

ETFs to Watch

Though the following ETFs don’t presently own any share of Dropbox, the IPO of the company might see its addition in a number of funds in the near future. Below we have highlighted four ETFs that might consider including Dropbox in their holdings after IPO, or at the very least, be in focus given the recent IPO boom:

First Trust US IPO Index Fund (V:FPX)

The product tracks the IPOX-100 U.S. Index, giving exposure to the booming U.S. IPO market. This is a rules-based value-weighted index measuring the average performance of U.S. IPOs during the first 1000 trading days.

The product holds a basket of 100 stocks with PayPal (8.4%), AbbVie (6.0%), and Kraft Heinz (5.9%) taking the top three spots. The product has a nice mix of sectors, with the top four being Information Technology, Healthcare, Consumer Discretionary and Consumer Staples (read: Profit from the Booming IPO Market with This ETF).

Renaissance IPO ETF (TO:IPO)

The fund gives exposure to the U.S. IPO market. The ETF tracks the rules-based Renaissance IPO Index, which includes sizeable new companies on a fast entry basis and the rest upon scheduled quarterly reviews. The product charges 60 basis points as fees.

First Trust Cloud Computing ETF SKYY

This fund provides exposure to cloud computing securities by tracking the ISE Cloud Computing Index. Holding about 30 stocks, it is pretty well spread out across components with none holding more than 6.75% of assets. Software firms dominate this ETF, accounting for about 38% share. Internet Software & Services and Communications Equipment hold the next two spots. It has 0.60% in expense ratio (read: Netflix (NASDAQ:NFLX) Tops $100 Billion on Subscriber Surge: ETFs to Buy).

PowerShares NASDAQ Internet Portfolio PNQI

Dropxbox can also make it to this ETF. Amazon and Alphabet (NASDAQ:GOOGL), both big on clouds, got a place in the 96-stock fund. It charges 60 bps in fees (read: Top Performing Tech ETFs of 2018).

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