DoorDash IPO Confidentially Filed with SEC
A DoorDash IPO appears to be on the horizon. Investors are eager to see this unicorn hit the market. The stock market recently saw some of its biggest losses. And an IPO can test the market’s health.
Food delivery services aren’t new, but they are increasing in popularity. And now could be one of the best times for DoorDash to go public. Here’s what we know…
DoorDash IPO: The Company
DoorDash is a technology company. It provides food delivery services. Through its app, customers order from local restaurants and fast-food chains. Drivers then deliver orders to the customers. It’s a gig economy company, meaning the workers can deliver on their own schedules.
Four Stanford University students founded DoorDash in 2013. And one of the founders, Tony Xu, has served as CEO from the start. The company launched in Palo Alto, California, and has expanded to more than 4,000 cities in the U.S. and Canada. In 2019, DoorDash surpassed Grubhub as the largest third-party delivery service, taking 38% of the market.
In its 2019 funding round, DoorDash raked in $700 million from investors. This brought the company’s value to almost $13 billion, a large increase from its 2018 value of $1.4 billion. And on February 27, DoorDash announced it filed with the Securities and Exchange Commission (SEC) for a DoorDash IPO.
Why DoorDash Is Going Public Now
DoorDash just reached its largest valuation. And a greater value might mean a greater chance of a successful IPO. But now that DoorDash has gained a larger market share, investors are eagerly keeping an eye on the unicorn’s IPO process.
In addition to the company’s recent success, there’s another large factor at play. The coronavirus is trending in media and causing global panic. The number of cases continues to increase. Although it started in China, it has now spread across the globe, including here in the U.S.
Some analysts think the coronivirus’ negative impact on the stock market will set the IPO up for failure. However, others believe that this might be the right time.
People are scared. And it’s understandable. There are rumors the government could order a mandatory quarantine. But as the fear rises, so are food delivery services.
In the last couple of weeks, Blue Apron’s stock fell with the market. But it’s starting to rise again as people start to stay home more. And that same affect is being seen with services like DoorDash. As news of the coronavirus keeps more people indoors, there’s greater demand for services allowing people to stay at home. The company could use this to its advantage for a successful DoorDash IPO.
By meeting this need, DoorDash also helps restaurant businesses. Restaurants are already using third-party delivery services to reach new customers. Now, as fewer people go out, restaurants won’t lose as much businesses. While customers may not be going to restaurants, DoorDash can bring their food to the customer.
DoorDash Talks Mergers and Missions
Another reason the DoorDash IPO is happening is the industry is capital-intensive. For these services to continue, they need money and investors. But the global market is consolidating. Just Eat PLC, a British food delivery company, recently merged with Takeaway.com in the Netherlands. And Uber Eats has pulled out of countries where it’s not one of the top two providers. The company is selling its units in India and South Korea to local companies.
Last year, DoorDash, Postmates and Uber Eats discussed merger options. When it came to talks with Uber, SoftBank encouraged the companies to consider the idea. SoftBank is a key investor and could benefit from a merger.
Furthermore, DoorDash has quietly acquired some other businesses. One is Caviar, Square’s food ordering platform. Another is Scotty Labs. DoorDash acquired the startup to explore the idea of autonomous driving and create a better delivery experience for customers.
Not only is DoorDash expanding its operations, it’s expanding its mission. The company has taken a humanitarian route by launching Project DASH (DoorDash Acts for Sustainability and Hunger). The goal is to tackle hunger and food waste issues in local communities. According to the company’s website…
“The average restaurant has 100,000 pounds of excess food every year but only 1.4% of that is donated; 78% of restaurants cite transportation as a barrier to donating more food, making last-mile logistics the most frequently cited roadblock to increased food rescue.”
You can check DoorDash’s blog for more information on Project DASH.
However, despite these highlights, there are key red flags investors should be aware of before the DoorDash IPO.
DoorDash Faces Legal Issues
DoorDash has been involved with labor controversy. On November 19, 2019, Karl Racine, the attorney general for the District of Columbia, announced he was suing DoorDash. He alleged the company has a “deceptive” tipping model, accusing it of pocketing the money.
“DoorDash misled consumers, who reasonably believed that their tips would go to workers, not the company’s bottom line. We are filing suit to put a stop to this deceptive practice and secure monetary relief for those harmed by DoorDash’s actions,” Racine claimed.
But DoorDash was quick to respond.
“We strongly disagree with and are disappointed by the action taken… We believe the assertions made in the complaint are without merit and we look forward to responding to them through the legal process.”
In addition to the lawsuit, California passed a new law that could reclassify DoorDash’s workers as employees instead of contractors. This could force companies to provide additional health and retirement benefits. DoorDash is joining Uber and Lyft in a $90 million campaign to be exempt from the new law.
Also, the New York City Council announced six bills targeting third-party delivery services. The commission fees charged to restaurants were too high and eating into the restaurants’ profits. So the Council placed a 10% commission cap.
As the delivery market grows, investors should expect to see more regulations. And that could make the DoorDash IPO more difficult.
When Will DoorDash IPO?
There’s no official date for the DoorDash IPO. In fact, the S-1 form isn’t yet available on the SEC website. In a statement, DoorDash said…
“The number of shares to be offered and the price range for the proposed offering have not yet been determined. The initial public offering is expected to take place after the SEC completes its review process, subject to market and other conditions.”
The IPO market has not been friendly to unprofitable startups. Investors saw it with Lyft and Uber in 2019. And 2020 hasn’t been friendly either. In February, Casper went public after its valuation got slashed. The company lost half its worth in six months.
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The food delivery industry will only grow. And unicorn IPOs are always exciting. Whether a success or failure, the DoorDash IPO will tell a lot about the health of the market.
About Amber Deter
Amber Deter has researched and written about initial public offerings (IPOs) over the last few years. After starting her college career studying accounting and business, Amber decided to focus on her love of writing. Now she’s able to bring that experience to Investment U readers by providing in-depth research on IPO and investing opportunities.