DoorDash is expecting to raise more than $3 billion in its ipo. The price for share is $102, but may open $135 per share! Since filing for IPO on November 13, DoorDash, the top food-delivery app in the U.S., has raised USD 2.5 billion from investors. Founded in 2013 by Tony Xu, who emigrated from China at the age of 5, DoorDash’s latest market valuation stands at USD 16 billion. The platform has over 50% market share in the U.S., operates in neighboring Canada and Australia, and has ambitious plans to expand elsewhere.
We are extremely BULLISH on the food delivery/service industry as whole because the coronavirus. The company trades under the ticker “DASH” on the New York Stock Exchange, and its listing is headed by industry veterans Goldman Sachs and JPMorgan.
Is DoorDash IPO A Good Buy?
We have had many advisors and investors ask us if the DoorDash intial public offering (IPO) is a good buy. The short answer is “MAYBE.” Historically IPOs are very risky and often drop at their intial offering price and are also very volatile. This was the case for many tech stocks that were listed in the early 2000s. The industry is a high growth sector, so there is a potential for HIGH return on investments IF you pick the the right company.
Here are six things to know about DoorDash’s initial public offering:
Profitabilty Challenged
DoorDash has been witnessing tremendous growth, and the coronavirus pandemic gave the platform the much-needed boost. The San Francisco, Calif., company’s revenue soared to USD 1.92 billion in the first three quarters of 2020, compared to USD 587 million in the same period in 2019. The company bagged 543 million orders in the first nine months of this year. It 181 million total orders a year ago.
But like many delivery businesses, DoorDash is hemorrhaging money; despite making a profit this year, the company lost USD 149 million in the first nine months of this year alone. Losses mounted USD 534 million in the same period last year. DoorDash stated that it might not be able to maintain or increase profitability due to increased future expenses. Adding salt to the wound—new lockdowns, travel restrictions, restaurant closures, newer outbreaks of the virus, and regulatory actions will diminish the company’s bottom line even further.
Dual-Class Stock Structure
Like most tech companies that have gone public, DoorDash will be very much under the founders’ control even after its IPO. Thanks to the dual-class stock structure, which is the same structure used by Google and Facebook. Under this structure, DoorDash’s stock is divided into Class A and Class B stock. Each Class A stock is worth one vote, whilst one Class B stock accounts for 20 votes. Xu owns most of the Class B shares at 41.6%, while co-founders Stanley Tang and Andy Fang hold 39.1% and 39.3%, respectively.
This stock structure empowers Xu to vote out the shares held by Tang and Fang. However, it’s yet to be seen what portion of the company the three former Stanford students own post-IPO.
Proposition 22 Challenges
Being a son of immigrant parents, Xu has always been vocal in helping immigrant and refugee restaurant owners. Recently, DoorDash spent USD 48.1 million to pass Proposition 22 in California. The scheme will exempt gig companies, including DoorDash, from state laws that stipulate gig companies to their drivers and couriers as full-time employees and assures workers in the gig economy guaranteed wages and health care.
The caveat here is the Proposition 22 only intends to help refugee and immigrant restaurateurs, but nowhere does it mention that there are around one million couriers worked for DoorDash. Most of them being nonwhite and immigrants, according to several studies and the gig companies. Without further clarification, under this state law, gig companies, including DoorDash, will be required to expressively change their existing business models and operations that can have an unfavorable impact on their finances, operations, and ultimately profitability.
Self-Driven Vehicles And Drones
Joining hands with Amazon and Walmart, DoorDash is looking into the prospects of autonomous vehicles and drones for delivery. The company has embarked on a partnership with General Motors’ Cruise and acquired Scotty Labs, an autonomous startup, for USD 5 million in 2019. Furthermore, it’s also exploring the long-term possibilities for drone delivery. No doubt, AV delivery will reduce the need for DoorDash couriers, but the company is still a long way behind to make it feasible.
Other Regulatory Concerns
DoorDash faces various regulatory issues, such as a new California law effective January 1, 2020, that restricts the company from delivering food from restaurants without its permission. Also, the company states its facing concerns regarding its reporting and accounting procedures. Then there is the competition from industry leaders like Uber, which is much larger with deeper pockets.
To stifle competition, DoorDash has been focusing on diversification. The company just ventured into the delivery of other items by launching DashMart. DashMart couriers will deliver a range of items ranging from groceries to Prozac to cleaning supplies from its fulfillment centers and deliver them to customers for a monthly membership fee. Moreover, DoorDash has nurtured partnerships with NBA and retail chains such as CVS Health Corp., 7-Eleven, Walgreens Boots Alliance, WBA, and others. It also introduced a subscription service called DashPass.
With these ventures, it is expected that DoorDash will most likely retain its top position in the delivery space.
