Due to the low stock price, Dropbox attracted activist interest from Elliott

Elliott Management already holds more than 10% of Dropbox, making this radical hedge fund the largest institutional shareholder of the cloud storage group.

According to people familiar with the matter, the New York-based hedge fund is in talks with Dropbox and has notified the company that its shareholding ratio is higher than Vanguard’s 9.9% shareholding ratio.

Elliott declined to comment on how it intends to use its large holdings to influence the company’s development direction.

Dropbox became famous at the beginning of this century because its cloud storage service solved the problem of consumers and employees who wanted to access music or files from multiple devices. It quickly faced a competitive challenge because all large cloud computing companies regarded storage as a core part of their extended services.

Attempts to deal with this problem by adding new applications on top of its cloud storage are in trouble. User and revenue growth has slowed sharply. Wall Street expects revenue to grow by about 10% this year.

As cloud software and service companies flourish during the pandemic, this puts Dropbox on the sidelines, causing the Bessemer Cloud Index (of which Dropbox is a part) to double since the beginning of last year.

However, Dropbox’s stock price is mostly lower than the price of its IPO in 2018.

Dropbox uses a dual structure, giving the founder 10 votes per share, which usually acts as a deterrent to activist investors. But Elliott did not shy away from companies with strong founders.

The $42 billion hedge fund last year increased its stake in SoftBank by $2.5 billion in an attempt to tame the massive technology conglomerate, even though he owns 25% of the shares.

Activist investors who bought shares in companies and instigated change have reappeared from the calm 2020, when many people worried that if they targeted companies struggling in the pandemic, they would arouse public outcry.

Cloud service companies that failed to capitalize on the work-from-home trend triggered by the coronavirus pandemic have become obvious targets for activists.

Starboard Value is pushing for changes in Dropbox’s competitor Box, which owns 8% of the shares and is calling for new directors to join the board of directors.

The Wall Street Journal first reported on Elliott’s shares in Dropbox.