Dropbox Faces Activist Investor Pressure Over Founder Control

Dropbox, the file-storage company, is facing pressure from an activist investor to curtail CEO and co-founder Drew Houston's voting power, according to a report by The Wall Street Journal. Half Moon Capital, a hedge fund, has submitted a shareholder proposal seeking to eliminate Dropbox's dual-class share structure, which grants Houston a supermajority of voting rights.

The proposal, set for a vote at the company's annual meeting, argues that the current structure has hindered accountability and prevented shareholders from effectively addressing management missteps.

"The proposal says the structure has prevented shareholders from holding management accountable after it made ‘significant missteps,’" according to the report.

Half Moon Capital, which holds approximately 40,000 Dropbox shares, highlights the company's slowing revenue growth and concerns about its payment tier strategy. The hedge fund's proposal requires a majority vote for approval, meaning Houston's support would be crucial for its success. However, Houston currently holds a significant voting stake due to his ownership of Class B shares, which carry ten times the voting power of Class A shares.

Half Moon Capital believes that the proposal, even if ultimately unsuccessful, will exert pressure on management and the board to implement changes.

The activist investor's concerns stem from Dropbox's recent performance. The company's paying user count at the end of last year grew by less than 1%, and it has projected a decline in paid users this year. This would mark the first drop since Dropbox began publicly reporting its results.

Dropbox's stock currently trades at around $27 per share, giving the company a market value of approximately $8 billion. The company has undertaken significant cost-cutting measures in recent years, including two rounds of layoffs, totaling 36% of its workforce. Houston attributed these actions to a challenging consumer environment and operational inefficiencies.

In an open letter to the Dropbox board in February 2024, Half Moon Capital urged the company to prioritize its lower-priced family plan. Dropbox had previously indicated its intention to phase out this plan, citing concerns that some business customers were using it to obtain cheaper subscriptions.

Half Moon Capital has been in private talks with Dropbox since the summer, raising concerns about the company's declining market share and its investments in artificial intelligence tools.