DoorDash (DASH): Everything You Need to Know After the IPO

10 dic 2020

This is my analysis on DoorDash (DASH), written prior to the IPO. Most of the information below is available from the S1 that the company filed to the SEC.
This is not investment advice. This was written for educational purposes only. You are responsible for your investments and trades. Invest at your own risk.

About DoorDash
- DoorDash (DASH) is America’s #1 delivery & takeout platform, covering over 51% of the market share.
- They currently have over 390,000 merchants, 1.8 million users, 1 million delivery workers (dashers), with an average delivery time of 35 minutes.
- During the latest series H, which took place in June 2020, the company raised $400 million, and was valued at $16 billion.
- Main competitors of this firm include Uber Eats (which acquired Postmates for 2.65b), covering 30% of the market share, and Grubhub, which covers 18% of the market share.

IPO (Initial Public Offering)
- DoorDash priced its IPO price at $102 a share
- There was tremendous buy volume as soon as the market opened, with the stock reaching $195 at one point
- The stock closed at $189 yesterday, after a successful IPO

Business Model
- DoorDash charges restaurants a 20% fee on average, for every order made on its platform.
- On top of that, they earn money by charging customers fees for delivery, which normally ranges between $6-8 depending on the distance and current demand.
- They also offer a subscription service – Dashpass – which exempts its users from paying service fees.
- They have an extremely systematic virtuous cycle involving consumers, merchants, and dashers, in which the cycle creates local network effects, economics of scale, and increasing brand affinity.

Financials
- The company has shown tremendous and consistent growth in revenue over the years.
- Nonetheless, they also continue to spend more and more and sales and marketing costs, as well as general administrative costs.
- DoorDash is also one of the many companies that benefited from the Covid-19 Pandemic.
- In 2019, the company generated $885 m in revenue, and in the first nine months of 2020, they generated over $1.9 b.
- While these are extremely impressive numbers, it’s still important to take into account the fact that the company is still not profitable.
- In 2019, they had a net loss of $667 million, and in the first nine months of 2020, they lost $149 million.
- Nonetheless, a company not being profitable is common with unicorns and startups, as they seek growth as their number one target, keeping in mind that profitability follows easily once they dominate the market.
- Another good news is that they currently have more cash and cash equivalents to cover their total liabilities, and thus won’t suffer from issues regarding lack of cash.
- Given the current momentum in the delivery market caused by Covid-19, experts anticipate 2021’s revenue at $5.2 billion, which is a 93% yoy growth rate, with operating profits of $280 million, which is a 23% yoy growth rate.

Risks
- The company might not continue to grow on pace with historical rates
- There is intense competition within the delivery industry
- Reliance on merchants for the success of the platform
- Their focus on expansion might not maximize financial results, and could result in lagging stock prices.

Precedent
- There are precedents of success regarding delivery & takeout platforms in other countries as well.
- Baedal Minjok, South Korea’s largest food delivery app, is in talks of being acquired by Delivery Hero.
- Baedal Minjok is a unicorn, which recorded a revenue of close to $8 billion in 2019.
- Considering that their 2020 records will be even higher, due to the Covid-19 pandemic, we could expect DoorDash to do even better, since it’s the most dominant company of a bigger delivery market.
- Precedent cases demonstrate that the food delivery industry has significant room for growth.
- Nonetheless, considering that Baedal Minjok’s revenue is 8 times higher than that of DoorDash, and yet is valued at $4 billion is quite concerning for DoorDash, as it indicates that the hype and growth potential is factored into its valuation.

Mike’s Insight
In my opinion, I think DoorDash is a company worth looking into. It operates in a solid industry that benefits from the Covid-19 pandemic, and while the growth rate will slow down once the pandemic is over, precedent cases from other countries demonstrate significant room for growth. Nonetheless, since expectations for future growth seem to be factored into the company’s valuation, I’d be cautiously bullish on this company.

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