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DoorDash Increases Target Ahead Of Its Market Debut

DoorDash Increases Target Ahead Of Its Market Debut

December 8th was the day DoorDash's IPO was priced, and trading on the New York Stock Exchange is set to start today. The latest info is that DoorDash priced its IPO at $102 per share, which means that the company will raise $3.4 billion. This is another increase in the expected range. Under the share price of $102, the company's market capitalization should be around $39 billion. DoorDash, an emerging growth company is seven years old and has been reporting a loss for years, which is typical for startup businesses seeking to expand their userbase. But last year, DoorDash became the largest U.S. food delivery company by revenue.

The San Francisco-based food delivery player previously aimed to raise up to $3.1 billion through selling 33 million shares priced within the range of $90 and $95 per share, which is also an increase from the previous price range of $75 to $85.

Revenue Growth As A Result Of Strategy And The Pandemic

DoorDash's strategy to expand its userbase gave good results as the company's revenues grew to $885 million in 2019, marking a 204% YoY increase. In 2020, revenues skyrocketed another 226% to $1.92 billion in the first nine months of the year as the COVID-19 pandemic was an overall boost for online delivery companies. When we look at the number of orders, in 2019 they saw an increase of 219%, whereas, during the first nine months of 2020, the increase was 200%. So, the value of the average order in 2020 has also increased. The question is if the company can maintain this strong pace, as Grubhub Inc (NYSE: GRUB), another food order and delivery platform, will soon be acquired by Just Eat Takeaway (OTC: TKAYY), leaving DoorDash in second place, size-wise. So, DoorDash's growth is expected to decline in future periods.

Potential Limitation Of DoorDash's Business Model

With the market consolidation, three major food delivery platforms come to mind, namely DoorDash, Uber Eats, and Grubhub. Therefore, restaurants will probably be more selective with their choice of delivery platforms and less aggressive with promotions once the pandemic passes. The fee that the delivery platforms choose to charge to restaurants will be of vital importance and this could be a potential drawback for DoorDash because its business model is similar to one of Uber Technologies Inc (NYSE: UBER) and LYFT Inc (NASDAQ: LYFT). It is based on independent contractors, instead of employees so the negative side of this model is that contractors are not eligible for benefits or worker's compensation. As such, it is the target of many states, including California and New York, who are aiming to switch those contractors to employees. This regulation could significantly affect DoorDash as it would likely force it to make its service more expensive and therefore less competitive.

The December Finale

There are many other big IPO names scheduled for December, including a gaming platform Roblox which already gained the title of an online version of Legos, fintech Affirm, e-commerce platform ContextLogic and Airbnb. Both DoorDash and Airbnb plan to gather over $3 billion each, making them one of the biggest IPOs of 2020. Airbnb has also raised the price of its shares before its initial public offering that is scheduled for Thursday as it expects to price its shares between $56 and $60 each, up from a range of $44 to $50 earlier this month. Airbnb is expected to issue a final share price later today.

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Photo by Griffin Wooldridge on Unsplash


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