Doordash (NYSE:DASH): The most Comprehensive IPO review

DoorDash IPO filing shows huge growth and lots of risk - CNET
Doordash (NYSE:DASH) filed for an initial public offering.

Doordash, the food delivery company, founded in 2013, by  Andy Fang, Evan Moore, Stanley Tang, Tony Xu, filed for an initial public offering.

The company is expected list on the NYSE and is being underwritten by Goldman Sachs and J P Morgan.

The company is expected to seek a valuation of about $25 Billion and it is still not clear how much it plans to raise (the placeholder value is $100M, but the final amount depends on the interest from large investors). Ed: I expect it to raise about $800M – $1B.

The company’s most recent price of shares were $45.9 (Series H, June 2020), when it was valued at $16B, raising $400M. This means the price at IPO will likely be $80 – $100.

The company has grown quickly and has recorded $1.9B (+237% growth) in revenue in 2020 (9 months, ending Sep), losing $149M in the process. During this period the Gross Order Value (Amount of food purchased & sold through the system was $8.1B – giving it a rough take rate (commissions) of 11%.

That compares to $587M in revenue for all of 2019 with a loss of $533M.

Assessment

Ed: I think this stock will head lower after the IPO if it prices at $80 – $100, unless Uber and Lyft start to trend upwards. This is based primarily on the valuation expected.

The questions around delivery and consumer growth need to be answered only by 2021 and until then I think this business will grow very quickly.

Given that the key story for DASH is that the pandemic has kicked its business into orbit, the key questions will be:

  1. Can the the growth in consumers and consumption be sustained?
  2. Are there good competitive moats vs. Uber, Just Eat (Grub Hub) and Instacart?
  3. Are the take rates sustainable in the future?
  4. What is the autonomous delivery story?
  5. What about the poor economics of delivery businesses outside the major metros?

You should buy this IPO only if you believe the future of restaurants depends at least on 25%-30% of their business coming from delivery (compared to < 12% currently), as opposed to people going back to dining in after 2021 (Post Covid).

Market

The market for “local” business delivery – starting with restaurants (which is where Doordash initially operates) is large. There are over 660K restaurants and over 38K grocery stores in the US alone. Of those 390K are customers of Doordash (Monthly active). Doordash is active in Australia (3 cities), Canada (80 cities) and United States (4000 cities).

Doordash claims to be a “merchant first” business. There are 3 participants in the business.

  1. Merchants: These are local businesses that want to deliver products to consumers, without the overhead of delivery or the cost of owning a fleet of trucks. 390K active merchants use Doordash.
  2. Consumers: Businesses (before Covid) who need catering for their office and homeowners who like food delivered at home from their local restaurant are the main buyers. 18 Million consumers use Doordash.
  3. Delivery personnel (Dashers): These are the on-demand workers who deliver the food (similar to Uber or Lyft and get paid in tips and delivery fees for their work. There are 1 Million Dashers on the platform.
Expected Online penetration of Delivery (Credit: Uber acquisition of Postmates presentation)

Customer Segments

Consumer

1 People cannot cook due to lack of time.

2. Professionals who can’t go out during lunch because time is the constraint.

3. Students who don’t have a kitchen facility.

4. People who don’t know how to cook.

Merchants

1 Food joints that have no delivery service.

2 Restaurants with poor seating arrangements.

3 New restaurants that need a huge customer base.

4 Eateries looking for advertising and marketing.

Dashers

1 People looking for part time or full-time work.

2 People looking for good income via salary and tips.

Product and Value Proposition

There are 3 apps Doordash provides: a) for merchants, b) for consumers and c) for Dashers.

Merchant Value Proposition

  1. Demand aggregation: Provide them orders from customers who want local delivery.
  2. Merchant services: White label logistics service (Doordash drive) allowing merchants to generate demand by themselves & Doordash Work for catering orders

Consumer Value Proposition

  1. Convenience: Stay at home and order food
  2. Wide selection: Food and groceries from 1000s of local food places
  3. Value: flat delivery fee or monthly subscription

Dasher Value Proposition

1. Flexible opportunity to earn

Business Model

Doordash makes money by

a) charging businesses a percentage of their sales. That commission ranges from 10% to over 30% in some cases. Consumers pay a delivery charge and tips to the dashers. As of Sep 2020, over 5 M consumers pay a monthly subscription fee ($9.99) to Doordash for unlimited local food deliveries.

b) advertisement: Any restaurant that wishes to advertise themselves on the DoorDash app has to pay in order to be ranked in one of the top places. This is done to increase the visibility of the restaurants and earn more customers

c) delivery fee: the delivery fee is another source of income for Doordash. The amount is decided during the payment process depending on the distance from the pickup to the delivery point. Usually, the delivery fee ranges from $5 to $8.

Pricing

Doordash charges consumers $5 – $8 as a delivery fee. Consumers can subscribe to a $9.99 Doordash pass which gives them unlimited orders per month.

Doordash charges 20% – 30% commissions from merchants.

The advertisements fee is between $50 – $100 per month on average.

Doordash pays Dashers per delivery ($10 – $25).

Financials

There are many questions about the viability of the model from multiple players, (see footnotes), but Doordash seems to have executed the Covid plan well. They have grown over 200% YoY and are

201820192020
GOV (Gross Order Value)$2.8B$8B$16.4B
Revenue$291M$885M$1.91B (9 mo)
Take rate % of GOV10.39%11.05%11.64%
Profit (Loss)($204M)($667M)($147M)
Doordash quick financials

Growth

Growth for Doordash will come from more merchants (expanding beyond restaurants to other local services), followed by more consumers buying more often (increasing transactions and GOV).

  1. More merchants
  2. More merchant services
  3. More consumers
  4. More consumer engagement
  5. International expansion (beyond .AU and .CA)

Funding

They raised a small round from YCombinator ($120K) in 2013, followed by $2.4 M round from Khosla Ventures. Since that point they have raised over $2 B from over 50 investors. The biggest investors are Softbank (25%+) and Sequoia Capital (20+%), followed by GIC Singapore (9.5%).

RoundDate$ raisedValuationLead
Pre SeedMar 11, 2013120K$2.5MY Combinator
SeedSep 30, 2013$2.4M$17.5MKhosla
Series AMay 22, 2014$17.3M$73.5MSequoia
Series BMar 26, 2015$40M$173MKleiner Perkins
Series CMar 22, 2016$127M$600MSequoia
Series DMar 1, 2018$535M$1.4BSoftbank
Series EAug 16, 2018$250M$4.1BCoatue
Series FFeb 21, 2019$400M$7.1BDragoneer
Series GMay 24, 2019$600M$13BDarsana
Series GNov 13, 2019$100M$13BT Rowe Price
Series HJun 18, 2020$400M$16BDurable
Doordash Funding rounds since 2013

Comparable Valuations

CompanyValuation2020 Rev (E)2020 Growth (E)2020 EPS
$UBER$86B $12 B-15%-$3.4
$LYFT$12.6B$2.4B-30%?
$ABNB$30B (E)$3.7B-12%?
$GRUB$6.6 (A)$1.4B25%-$1.2
$DASH$25B (E)$2.5B212%?
Given the range of valuation I expect $DASH to trade lower after IPO

(A) Acquired, (E) Estimate

Uber, Lyft and GrubHub stock performance

Competitors

The local food delivery space has multiple competitors including Uber Eats, Grubhub (acquired by Just Eat for $7.3B), doing $1.2B in 2019 revenue, Postmates (acquired by Uber for $2.7B), doing $107M in Q1 2020. In addition, Instacart, which does grocery delivery is expected to file for an IPO in 2021.

Doordash has over 50% marketshare in the US (for restaurants), followed by 26% for Uber eats and 16% for Grubhub.

The biggest competition is consumers walking up to a restaurant (dining in), followed by restaurant owned delivery (e.g. Dominos).

Finally, as Doordash expands its addressable market need, it might run into competitors such as Instacart as well. Lyft (in the US) has still not made its plans known for delivery.

Acquisitions

Doordash has made 4 acquisitions to date, including Caviar (competitor) and is likely going to keep acquiring companies in Canada and Australia to expand their footprint.

DateCompany acquired
Aug 21, 2019Scotty Labs
Aug 1, 2019Caviar
Apr 1, 2019Ivi5
Sep 14, 2017Rickshaw
Doordash acquisitions

History

The company was founded in 2013 by the 3 founders as Palo Alto Delivery.

Tony Xu owns 5.2% of the company, while co-founders Andy Fang and Stanley Tang each own 4.7%. The fourth co founder no longer is with the company (Evan Moore).

On January 12th 2013, Palo Alto Delivery was born.

Footnotes

  1. https://medium.com/@DoorDash/the-doordash-story-b370c2bb1e5f#:~:text=DoorDash%20began%20with%20a%20simple,an%20app%20we’d%20built.
  2. https://www.cnbc.com/2020/11/13/doordash-releases-s-1-for-ipo.html
  3. https://www.axios.com/doordash-ipo-filing-32608a73-38c4-4ede-8345-85b7bd3d515f.html
  4. https://techcrunch.com/2020/11/14/doordash-ipo-bets-that-the-pandemic-has-accelerated-change/
  5. https://www.salon.com/2020/01/19/doordash-drivers-make-an-average-of-145-an-hour-analysis-finds/
  6. DoorDash average order size was $37.28, only 20 percent spent more than $50
  7. DoorDash average delivery time was 37 minutes in 2019
  8. The company employs over 7000 people
  9. https://www.restaurantbusinessonline.com/technology/postmates-doubles-revenue-q2-ahead-uber-eats-deal