IPO caps year of growth – but still no profit – for DoorDash

AP – DoorDash is capping a year of explosive growth with an initial public offering of its stock, hoping to keep the momentum going even if demand for food delivery eases in a post-pandemic world.

The San Francisco-based company raised USD3.4 billion in its yesterday offering. Late Tuesday, it priced its shares at USD102 each, valuing the company at nearly USD39 billion.

DoorDash will trade on the New York Stock Exchange under the symbol DASH.

DoorDash was born in 2013, when CEO Tony Xu and some classmates at Stanford University set up a website and posted local menus. After a few hours, they got their first order: pad thai with prawns and a side of spring rolls.

Customers have placed more than 900 million orders since then. DoorDash now offers delivery from 390,000 merchants in the United States (US), Canada and Australia. Powering that service are one million delivery drivers, who are independent and not considered DoorDash employees.

DoorDash was already growing before the pandemic thanks to customers’ growing preference for dining at home. Between 2018 and 2019, its revenue more than tripled to USD885 million.

But lockdown orders and the closure of indoor dining have made DoorDash indispensable for many restaurants and diners this year. DoorDash reported revenue of USD1.9 billion in the first nine months of 2020 alone.

The DoorDash app is shown on a smartphone. PHOTO: AP

The company’s growth hasn’t come without headaches. DoorDash has lost money in every year since its founding, citing the cost of developing its platform and expanding into new markets. Last year, it spent USD410 million to acquire Caviar, an upscale rival.

DoorDash had a net loss of USD667 million in 2019 and lost USD149 million in the first nine months of 2020. The company did turn a profit of USD23 million in the second quarter this year, but followed that with a USD43 million loss in the third quarter.

In a government filing, DoorDash said it expects to continue to spend heavily as it tries to expand internationally and add non-food businesses to its platform. DoorDash is also candid about the impact of the coronavirus, saying it expects its growth rate to slow in the coming quarters as the pandemic ends.

Before the pandemic, 63 per cent of US restaurant traffic — including visits to fast food outlets and food trucks — was picking up food to eat elsewhere. In the second and third quarters of this year, that had jumped to 90 per cent, and it may stay elevated even when the pandemic ends, according to Hudson Riehle, a senior vice president with the National Restaurant Assocation.

DoorDash now controls 50 per cent of the US food delivery market. Its chief rival, Uber Eats, controls 26 per cent, while GrubHub holds 16 per cent. That’s a change from 2018, when GrubHub was the market leader with 39 per cent share and DoorDash held 17 per cent.

DoorDash pulled ahead by concentrating on suburbs and smaller cities while its rivals stayed mainly in big cities, said Mark Shmulik, an analyst with Bernstein. Skeptics thought the economics of food delivery would fall apart in less dense areas, because there was lower demand. But suburban families put in larger orders and drivers encountered more predictable traffic and parking so they could deliver more efficiently, Shmulik said.

Davidson analyst Tom White, who has a “buy” rating on DoorDash’s stock, said the company’s strong market share gains and future possibilities, including grocery and retail delivery, outweigh the risk of slower growth once the pandemic subsides. White says DoorDash also has the most variety in its listings, giving it less exposure to any one restaurant chain.

Some independent restaurants have been vocal critics of the company, saying its commissions — which can approach 30 per cent — are too high. DoorDash says it reduced commissions for the smallest restaurants during the pandemic, but the fees will likely remain an issue.

Several cities, including New York and Chicago, and the states of New Jersey and Washington have temporarily capped fees that delivery companies can charge restaurants. DoorDash said those caps force it to charge consumers more.