Delivery and ride-hailing companies in California won big on Election Day.
The passing of Proposition 22 means that these delivery and ride-sharing companies will be exempt from a new labor law in California that requires companies to classify certain workers, including delivery drivers, as employees instead of contractors. Drivers are the backbone of tech companies like DoorDash, Instacart, Uber (NYSE: UBER), and Lyft (NASDAQ: LYFT). These companies needed this proposition to pass, which explains why they fiercely campaigned and gave millions to ensure people voted “Yes” on Proposition 22. It’s no surprise that it became one of the most expensive ballot measures in California history.
About $190 million were spent to campaign for the proposition. According to the California Secretary of State’s website, about $48 million came from DoorDash and over $27 million from Instacart. Already-public companies Uber and Lyft experienced the good news firsthand when they saw a jump in stock price on Wednesday, November 4. While this might be good news for the companies, both have experienced hardships over the last few months because of the COVID-19 pandemic.
With lockdowns and not many people needing rides to work or a night out, Uber’s and Lyft’s core businesses have been hurting badly. Both companies are currently trading below their IPO prices and struggle to gain investor confidence. “No” to Proposition 22 would have been detrimental to Uber and Lyft, necessitating total re-evaluations of their business models.
Instacart and DoorDash were in much better positions during the COVID-19 pandemic. Both companies deliver food and offer various delivery services. Instacart’s main focus is grocery delivery. The demand for delivery services only soared during the pandemic when people were stuck at home and worried about going out in public. Though Instacart and DoorDash were successful at a time when most companies were suffering, they still weren’t in a position to afford to offer all of their drivers benefits (like paid sick leave and unemployment protection) that companies typically provide employees.
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If Proposition 22 hadn’t passed, it would have put a damper on Instacart’s and DoorDash’s plans to go public in the coming months. Both companies had been contemplating 2020 IPOs, and with less than two months left in the year, those plans could be shifted to 2021. Only time will tell.
It now appears that both companies are more optimistic about the future of their businesses and have been attracting new investors. If Proposition 22 hadn’t passed, these companies would most likely have to reconsider going public since they’d need to adjust their business models to treat their drivers as employees rather than contractors. DoorDash CEO Tony Xu had this to say about the passage of Proposition 22:
Californians sided with drivers, recognizing the importance of flexible work and the critical need to extend new benefits and protection to drivers like Dashers. We look forward to partnering with workers, policymakers, community groups, and more to make this a reality.
DoorDash recently partnered with a Bay Area restaurant brand to open up a brick-and-mortar store called Burma Bites. Burma Bites’ parent company, Burma Superstar, has been a DoorDash partner for over two years. Burma Bites and DoorDash have teamed up to create a restaurant that’s solely based on delivery and pickup orders. With fewer people dining in because of the pandemic, having a restaurant designed for delivery and pickup orders only is an innovative idea. Even after the pandemic, I’m sure there will be a lot of people who still choose this method of dining. In a statement about the new store, Georgie Thomas, DoorDash’s head of regional merchant partnerships, said this:
Empowering restaurants with the tools to connect with more customers and build new revenue streams is in our DNA, and we’re taking our mission one step further by creating a to-go restaurant concept from scratch for one restaurant brand.
With some uncertainties behind DoorDash and new ways of growing its businesses, a December IPO or one in early 2021 is now a possibility for the company. According to Bloomberg, DoorDash was valued at around $16 billion in June when it reported it raised $400 million in funding from private investors. However, the company hasn’t made any official IPO plans. It still needs to file its paperwork with the SEC, but I wouldn’t be surprised if it does that very soon.
If you’re interested in DoorDash’s IPO and other IPO news and research, then click here.
Until next time, Monica Savaglia Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.
