December 7, 2020 BARRON’S 37
TECH TRADER
DoorDash could be worth $37 billion when it goes
public next week. Its food delivery orders have
tripled so far this year, to 543 million.
DoorDash Delivered
In Covid. Normalcy
Could Be Tricky.
D
oorDash is going
public this week,
and it should be a
blockbuster. But
buyer beware.
The food-deliv-
ery company plans
to sell 33 million shares at $90 to $95
each. At the top of that range, which
was boosted Friday morning, the com-
pany would be raising $3.1 billion.
DoorDash will have roughly 318 mil-
lion shares outstanding after the offer-
ing, but that excludes in-the-money
options and restricted stock units; a
fully diluted count gets you to about
385 million shares, which implies a
valuation of as much as $37 billion.
That’s nearly triple the market value
of ride-sharing companyLyft(ticker:
LYFT) and roughly in line withChi-
potle Mexican Grill(CMG), a popu-
lar source of DoorDash deliveries.
Given the story told in the filing for
the initial public offering, investor
interest will be high. DoorDash reve-
nue soared 204% last year, to $885
million, but that was before Covid-19.
A nationwide shutdown of indoor
dining sent DoorDash’s business into
another gear. For the nine months
through Sept. 30, revenue was $1.9
billion, up 226% from a year earlier.
Investors knew that the food-deliv-
ery business was growing like wildfire
even before the IPO filing.Uber
Technologies(UBER) reported $3.5
billion in revenue from its delivery
business in the first nine months of
the year, up 96% from a year ago.
Uber’s delivery business isn’t a precise
analog for DoorDash—Uber’s opera-
tions are more international, for in-
stance—but it’s still striking that
DoorDash is growing more than twice
as fast. DoorDash claims to have about
half the U.S. food-delivery business
and seems to be taking market share
from Uber andGrubhub(GRUB).
The other big surprise in the filing
is that DoorDash is making impres-
sive progress toward sustainable prof-
its. In 2020’s first nine months, Door-
Dash lost $149 million, narrowing
from a $534 million loss in the year-
earlier period. But the company had
adjusted Ebitda, or earnings before
interest, taxes, depreciation, and
amortization, of $95 million. Neither
Uber nor Lyft have yet reached break-
even on that metric, though both have
promised to get there in 2021.
DoorDash even had an unadjusted,
or GAAP, profit of $23 million in the
second quarter, though that flipped to
a loss again in the latest quarter.
The company’s operating metrics
are impressive, too. DoorDash had 543
million total orders in the first nine
months of 2020, tripling from a year
ago. It reported a contribution mar-
gin—profit after variable costs—of
$433 million in the period, versus a
$190 million loss a year earlier.
All great, right? But I have nagging
doubts. This reminds me of the 2014
IPO for King Digital Entertainment, a
company best known for creating
Candy Crush, the hottest mobile video-
game ever. King came public at what
seemed like the perfect moment.
In 2013, King Digital had revenue
of $1.8 billion, up more than 1,000%
from the previous year, asCandy
Crushwent viral and people started
paying for extra lives and other ways
to extend their game play. King
claimed to have figured out a new
formula for gaming success, but the
market thought otherwise. King went
public at $22.50 a share and two years
later sold itself toActivision Bliz-
zard(ATVI) for $18 a share.
DoorDash is having its ownCandy
Crushmoment. It isn’t going to get any
better than this. The IPO comes just
months before Covid-19 vaccines are
set to reach the masses. I’m a Door-
Dash regular—I’ve downed a remark-
able number of DoorDash-delivered
poke bowls and gyro plates over the
past six months—but I’ll be ordering a
lot less of them once I feel comfortable
in a restaurant again.
D.A. Davidson analyst Tom White,
who last week picked up coverage of
DoorDash with a Buy rating and $93
price target, concedes that the com-
pany’s hypergrowth phase is nearing
an end. He sees revenue growth of
222% this year, 56% next year, and
21% in 2022.
And there are other red flags. The
S-1 filing discloses that DoorDash and
its auditors “identified a material
weakness in our internal control over
financial reporting.” More specifically,
the filing says DoorDash found “inad-
equate processes and controls to en-
sure an appropriate level of precision
related to our revenue to cash recon-
ciliation process.” The company says
it is “hiring additional accounting,
engineering, and business intelligence
personnel” and adopting new pro-
cesses to address the issue.
DoorDash also concedes that differ-
entiation is tough—an admission that
food delivery is, well, uber-competi-
tive. “Within our industry, the cost to
switch between offerings is low,” the
company warns in its filing. “Consum-
ers have a propensity to shift to the
lowest-cost provider...independent
contractors who provide delivery ser-
vices could use multiple platforms...
and merchants could prefer to use the
local logistics platform that offers the
lowest commission rates.”
In other words, each side of this
three-sided market—drivers, consum-
ers, and restaurants—is price sensi-
tive. Uber and Lyft have struggled
with head-to-head competition in ride
sharing, and the dynamic is the same
in food delivery.
N
ext week also brings the IPO
of property-rental firm
Airbnb. My colleague An-
drew Bary has a full analy-
sis of that deal on page 16, but I’ll
make one key point here: Airbnb is a
reopening play, which should see a
surge in demand when consumer and
business travel begins to revive post-
pandemic. DoorDash, by contrast, has
been a Covid-era winner that actually
faces a tougher task in normal times.
Last week,Zoom Video Commu-
nications(ZM) reported 367% reve-
nue growth in its latest quarter. The
stock still sank 15% on the news, as
investors began to worry about mod-
erating growth. Potential DoorDash
investors should pay heed.B
By Eric J. Savitz
I’m a DoorDash regular and have ordered a
lotofpokebowlsinthelastsixmonths—but
I’ll be ordering a lot less of them once I feel
David Paul Morris/Bloomberg comfortable in a restaurant again.