DoorDash IPO: What You Need To Know

Wall Street plans to deliver the DoorDash initial public offering (IPO) soon. Late last week, the company filed its S-1 with the Securities and Exchange Commission (SEC). Keep in mind that the company could raise over $2 billion, making the DoorDash IPO likely to get a strong reception.

Delayed IPOs: Doordash

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Tony Xu, Evan Moore, Andy Fang and Stanley Tang co-founded the company back in October 2012. They got the idea for the business when they talked to a local store manager, Chloe. She said a big problem with the business was the handling of delivery orders.

The co-founders then talked to more than 200 other small businesses, and they also had the same problem. So they decided to create a prototype, which took a few hours. Within a half an hour, DoorDash got its first phone order!

And yes, the co-founders handled the deliveries.  But as the business quickly expanded, they would go on to raise capital and scale the business.  The result was that the company would quickly wind up being the dominant player in the category.

Background on DoorDash

DoorDash is part of the megatrend of the gig economy. The company’s app connects consumers with shoppers (called “Dashers”) who deliver the products.

As of today, DoorDash has more than 390,000 merchants, 18 million customers and one million Dashers. There are operations in the U.S., Canada and Australia.

Keep in mind that DoorDash is more than a marketplace. The platform provides an array of services for merchants, such as customer acquisition, analytics and payment processing. The company calls itself a “merchant-first business.”

As for the consumer side, DoorDash has been aggressive with forging partnerships, which include 175 of the 200 largest national restaurant brands. The company has also created DashPass, which is a membership program that is based on a monthly subscription. There are over five million customers.

Impact of the Covid-19 Pandemic

While DoorDash has been a fast-growing company since its early days, this year has been a major inflection point. The Covid-19 pandemic has led to many restaurants scrambling to provide delivery, which has accelerated growth for the company.  For the first nine months of this year, revenues soared to a whopping $1.92 billion, compared to $587 million over the same period in 2019. True, the company has continued to post net losses. But it is important to note that DoorDash has been generating substantial cash flows. So far this year, they have come to -$149 million, up from -$533 million in 2019.

It’s true that the DoorDash IPO faces some risk factors. First of all, there remain legal issues about whether its Dashers should be classified as employees, not contractors. Although, the company got some good news on this front during the election when California passed Proposition 22.

Next, DoorDash must contend with intense competition. Just some of its rivals include Uber (NYSE:UBER) and GrubHub (NYSE:GRUB). They all have access to enormous resources and have strong brands.

But then again, the market opportunity is enormous. Last year, the amount spent on off-premise consumption for food was $302.6 billion. And the spending is likely to continue to grow, driven by younger generations like the millennials.

Bottom Line On the DoorDash IPO

Given the bullnoses for new offerings — especially fast-growing tech companies like Lemonade (NYSE:LMND), Palantir Technologies (NYSE:PLTR) and (NYSE:BILL) — the DoorDash IPO is likely to get a strong reception.  The offering will also be one of the largest for this year. In the latest round of funding, DoorDash was valued at $16 billion.

As for the timing of the DoorDash IPO, it is likely to be in early December. The company also will list on the NYSE under the ticker symbol of DASH, and the lead underwriters include Goldman Sachs (NYSE:GS), J.P. Morgan (NYSE:JPM), Barclays (NYSE:BCS), Deutsche Bank (NYSE:DB), RBC Capital Markets and UBS Investment Bank (NYSE:UBS).

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling.  He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.

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