DoorDash, a leader in on-demand food delivery platforms, is currently ranked No. 12 on CNBC’s 2020 Disrupter’s 50 list. Earlier in the year, the company filed for an IPO (Initial Public Offering) but it was subsequently delayed due to the impact of the novel coronavirus. However it wouldn’t be surprising to see DoorDash stock hit the markets this year, especially given IPOs have been on the upswing.
So let’s take a look at the company backstory. DoorDash came about in the same fashion as many great startups: the founders were frustrated! In this case, Stanford pals — Tony Xu, Andy Fang and Stanley Tang — didn’t have many restaurants that delivered to their dorm.
Why not build a platform to connect restaurants to customers via independent drivers, like Uber (NYSE:UBER) or Lyft (NASDAQ:LYFT)? It was a pretty good idea and the founders wasted little time making this a reality.
While growth was strong, the founders had little trouble raising substantial amounts of venture capital, but there were still a lot of drama and controversy. In the early days, some food chains such as In-N-Out Burger filed lawsuits against DoorDash for trademark infringement and quality issues.
Then there was a class action suit from the company’s delivery drivers, alleging that they were misclassified as independent contractors when they were essentially employees (the question of worker classification follows Lyft and Uber to this day). DoorDash also came under fire for its tipping policy, when it was revealed that customers’ tips first went back to the company to be applied against the minimum order allocation, not directly to delivery workers.
But DoorDash has been able to manage through all this. The company has also been proactive in bolstering its management team and putting better systems in place.
In a relatively short period of time, DoorDash stock has climbed dramatically in the private secondary markets. No doubt, the key has been its massive scale. This is critical since the margins are low in the food delivery market.
In fact, DoorDash is the leader in the US market, with a network that includes over 5,000 cities across all 50 states. There are also over 310,000 restaurants in the network, which include Mcdonald’s (NYSE:MCD), Chipotle Mexican Grill (NYSE:CMG) and Chick-Fil-A.
Another critical factor in the success of DoorDash has been its cutting-edge technology infrastructure. The company heavily utilizes AI and machine learning, which have allowed for solving extremely complicated logistical problems.
Will DoorDash Stock Be Public?
The food delivery market appears to be in the midst of a consolidation wave. The most notable merger came when GrubHub (NYSE:GRUB) and JustEatTakeaway.com, a top European operator, recently agreed to a $7.3 billion deal. This was after discussions between Uber and GrubHub fizzled.
But of course, Uber looked for a deal elsewhere — that is, the company entered discussions with rival Postmates. And the parties agreed to a $2.65 billion acquisition. Note that Uber Eats has been growing at a robust rate, with revenues up 52% in the latest quarter. By comparison, the revenues for the ride-sharing business were off a grueling 80% in April because of the pandemic.
In fact, the coronavirus has been yet another catalyst for dealmaking in the space. Under social distancing restrictions, restaurants have had little choice but to look at food delivery options.
So to gear up for the growth, DoorDash recently secured a round of funding of $400 million (the total funding will be about $2.5 billion). The valuation? It’s estimated at about $16 billion.
Again, as for the an IPO, this does look like an option for this year. As seen with a myriad of successful offerings like Lemonade (NYSE:LMND), Vroom (NASDAQ:VRM) and ZoomInfo Technologies (NASDAQ:ZI), there is intense interest for new offerings right now.
Besides, in DoorDash’s current round, T. Rowe Price and Fidelity Investments have expressed interest in participating. Of course, these are later-stage investors that usually come into rounds soon before an IPO.
Tom Taulli (@ttaulli) is an advisor and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.