What you need to know about DoorDash’s IPO

DoorDash's Financials

DoorDash really wants you to think of it as more than a food delivery company. Its mission is to "grow and empower local economies," it says, presenting a three-pronged approach to do so. It wants to deliver anything and everything; provide merchants with an array of services such as marketing and analytics; and sell a subscription product that will be "a wallet for the physical world." It's your typical world-changing vision.

But despite all the talk, for now, DoorDash is in fact a food delivery company. And, crucially, it's an unprofitable one.

• In the first nine months of 2020, DoorDash's 18 million customers spent over $16 billion on the platform. That translated into $1.9 billion in revenue — but a $149 million loss, thanks to hefty costs of revenue, as well as sales and marketing expenses.
• Those numbers are significantly up from last year, though. In the first nine months of 2019, the company lost $534 million on $587 million in revenue and its total annual revenue was $885 million.

That 226% year-over-year revenue growth is partly attributable to the pandemic. But DoorDash was growing quickly even before then, reporting 204% revenue growth between 2018 and 2019.

And while DoorDash is still loss-making, there are signs of hope ahead. In Q2 of 2020, the company made a small profit of $23 million, a 3% net margin.

• The company also notes that users spend more every year: People who first joined in 2016 were spending 1.57 times more by 2019, DoorDash says. If it can reduce its sales and marketing spend on those groups of users, which it says it can, then that bodes well for the future.

DoorDash thinks it has the potential to get much bigger, too. "We believe we are in the early phases of broad market adoption," it says, noting that in 2019 less than 3% of U.S. delivery and take-out orders were made on its platform.

What could go wrong?

DoorDash's risk factors section is long — really, really long. Of primary concern:

Competition. "Local food delivery logistics ... is fragmented and intensely competitive," the company notes, citing Uber Eats, GrubHub, Domino's and even paper menus as potential competitors. Making matters worse, "the cost to switch between offerings is low," and many consumers, drivers and restaurants use multiple platforms.

• All that means margins are constantly under pressure. "Such competitive pressures may lead us to maintain or lower our commission rates and fees or maintain or increase our incentives, discounts, and promotions in order to remain competitive," it explains, saying that "such efforts have negatively affected, and will continue to negatively affect, our financial performance."
• Every food delivery provider's hope is that eventually the market will consolidate and prices will stabilize, but DoorDash "cannot guarantee that they will stabilize at a competitive equilibrium that will allow us to maintain or increase profitability."

Labor. Unlike GrubHub, which primarily relies on restaurants fulfilling orders themselves, DoorDash handles fulfillment — meaning it has to pay drivers, or "Dashers." DoorDash stresses that it needs to be able to "cost-effectively attract and retain Dashers," which could be easier said than done.

• For one, competition from Uber could lead to wage inflation. Regulation could also increase wages: "There is a risk that Dashers may be reclassified as employees under federal or state law," the company says, explaining how that could materially affect its results. Even under Prop 22, a bill which DoorDash fought for and won, the company is likely to see "an adverse impact" thanks to a new wage floor.
• The company's worried about the supply of Dashers, too. "Changes in certain laws and regulations, including immigration and labor and employment laws, may result in a decrease in the pool," it says.

COVID-19. While COVID-19's been good to DoorDash, the good times can't last forever: "The circumstances that have accelerated the growth of our business … may not continue in the future, and we expect the growth rates in revenue, Total Orders, and Marketplace [gross order value] to decline in future periods."

• Making matters worse, the company may soon need to reckon with the pandemic's economic fallout. "Many of our merchants may not be able to withstand prolonged interruptions to their businesses, and may be forced to go out of business," it says, highlighting the potential impact that could have on the platform's usefulness.

Technology. DoorDash, as with other delivery and transport providers, is betting big on autonomous delivery as a way to improve margins. But "the development of such technologies is expensive and time-consuming and may not be successful," and "there is no guarantee that such technologies can reduce our current costs."

• That's not to mention the huge competition DoorDash faces from the likes of Amazon or Uber, both of which have significantly greater resources to throw at the problem.

Financial reporting. In its filing, DoorDash says that it "identified a material weakness in our internal control over financial reporting," which could have led to inaccurate results being reported. The issue was because the company had "inadequate processes" and "did not have sufficient resources," it said — something which could rear its head again in future.

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Who gets rich?

DoorDash most recently raised at a $16 billion valuation in June. Assuming its IPO is at the same or higher valuation, a few shareholders stand to win big.

• The company's largest shareholder is the SoftBank Vision Fund, which owns just over 22%. At a $16 billion valuation, that's worth $3.5 billion — not bad, considering SoftBank invested a total of $680 million.
• Sequoia is the second biggest shareholder, with a stake worth around $2.9 billion, followed by Singapore's GIC, whose stake is worth just under $1.5 billion.
• The company's co-founders are also set to do nicely. CEO Tony Xu has a 5.2% stake in the company, worth almost $840 million at a $16 billion valuation; CTO Andy Fang's stake is worth around $760 million; and chief product officer Stanley Tang's stake is worth just over $750 million.