Dropbox’s shares closed at US$28.42, up more than 35 per cent in their first day of trading on Friday, as investors rushed to buy into the biggest technology initial public offering in more than a year even as the wider sector languished.
The stock opened at US$29 on the Nasdaq and soared as much as 50 per cent to a high of US$31.60 in early trading.
At the stock's opening price, Dropbox had a market valuation of US$12.67 billion, well above the US$10 billion valuation it had in its last private funding round.
Its IPO priced at US$21 per share late on Thursday, US$1 above the projected range of US$18 to US$20, and was several times oversubscribed.
The solid first-day pop came despite weakness in the wider U.S. stock market. The S&P 500 slid 1.8 percent while Nasdaq dropped 2.4 per cent, adding to losses of more than two per cent each on Thursday. The S&P tech index was down 2.73 per cent.
Dropbox's much-awaited debut ended a long dry spell in the U.S. IPO market for big tech names.
The last so-called tech unicorn to hit the market was Snap Inc last March, and the Snapchat owner is now trading roughly four per cent below its $17 IPO price.
“In the case of Dropbox, investors get a chance to get exposure to a next-generation tech company, which is a proven business model,” said Tom Taulli, InvestorPlace.com analyst.
The pop in Dropbox's price may bode well for Spotify, valued at roughly US$19 billion in the private market. The music streaming service has filed for a direct listing and will start trading on the New York Stock Exchange on 3 April.
"Dropbox is going public at the right time. It has an attractive story to justify its need for financing and the market dynamics are good," said Josh Lerner, professor of investment banking at Harvard Business School.
"But at the same time, the environment is also competitive".
The San Francisco-based company, which started as a free service to share and store photos, music and other large files, competes with Alphabet’s Google, Microsoft and Amazon.com as well as Box.
It has yet to turn a profit, which is common for startups that invest heavily in growth. As a public company Dropbox will be under pressure to quickly trim its losses.
The 11-year old company reported revenue of US$1.11 billion in 2017, up from US$844.8 million a year earlier. Its net loss nearly halved from US$210.2 million in 2016.
"The strong performance of the Dropbox IPO may open the door for more technology unicorns to IPO throughout the rest of 2018," said Sohail Prasad, co-founder and co-CEO of Equidate, a platform for trading of shares in private technology firms.
"If investors had bought Dropbox stock within the last six months, they’d be up over 75 per cent."
(Reporting by Sweta Singh in Bengaluru and Salvador Rodriguez in San Francisco; Additional reporting by Nikhil Subba and Diptendu Lahiri; Editing by Dan Burns and Meredith Mazzilli)