You come home from a long day at work and the last thing that you want to do is make dinner. Or maybe it’s payday, and you plan on doing some self-care, which includes laying down on your couch, queuing up a movie, and ordering some buffalo wings all to yourself. We live in a society in which we have many options. For me, sometimes all those options make it harder to make a decision, especially when it comes to the food I want to get delivered.
Last time I checked, I have at least three apps on my phone that make it easy to order food at home. I have Uber Eats, Grubhub, and DoorDash. I don’t have a particular loyalty to either one, but because I like a good deal, I usually go with whichever has a $0 delivery charge. Somehow, with the delivery charge, that $15 meal turns into a $30 meal by the time I’m about to “complete my order.” If I weren’t so defeated by the end of the day, then I’d probably go out and get something less expensive.
Food delivery companies have taken off in the last few years. Now when I go out to a restaurant, it’s mostly empty. But, within an hour or so, I see at least five people coming into the restaurant to pick up food for one of these delivery services. It’s an interesting shift.
Of course, there are some places where you want to sit down and enjoy your meal and others where you’d rather just eat the food in the comfort of your own home. Either way, the food-delivery market has been embraced by many. Its value is set to expand to a hefty $200 billion by 2025. North America is the home of over 10 online food delivery companies. As the market grows, competition will continue to heat up.
DoorDash Confidentially Files to Go Public
DoorDash is one of the leading food-delivery companies, and soon, Wall Street investors could be a part of its potential growth. Last week, the company confidentially filed with the SEC to go public. According to data tracked by Thinknum Alternative Data, DoorDash’s app has gained more than 2 million new ratings in the Apple Store over the last six months — that’s a 55% growth. Last year, private investors had given DoorDash a $12.7 billion valuation, but it’s rumored that the company lost about $450 million in 2019 with no current profitability.
The IPO market is wary of highly valued companies with no profitability, especially since last year’s disappointing IPOs from Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT). Wall Street is very skeptical of companies that look similar to those failures. On the surface, DoorDash is similar to Uber and Lyft. Asad Hussain, an analyst at PitchBook, said, “We expect DoorDash to see a significant valuation haircut.” If investors on the surface level see that the company is losing money while also operating in a highly competitive market — just those two factors alone would bring some hesitation from Wall Street.
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DoorDash is backed by SoftBank Group, and, in the past year, it has experienced some backlash about how it uses the tips for its delivery people (also known as “dashers”). In July 2019, it was revealed that when a customer tipped a dasher, those tips were being used by DoorDash to make up the difference if a dasher didn’t earn the minimum amount guaranteed by the company. DoorDash claims that it has surpassed that mishap and has intentions to pay dashers their tips.
However, DoorDash and other companies in this market face some risks. Soon there could be a new law — at least in California — that legally makes dashers or drivers of companies like DoorDash and Uber “employees” instead of “contractors.” That could put DoorDash in a tough financial situation, especially since the company is already losing $400 million a year and, as part of a class-action lawsuit the company settled in 2017, will have to pay out $1.5 million to its dashers when the company goes public.
Those few legal hiccups could become big problems for DoorDash and need to be addressed before the company goes public so investors can be confident that the company will be around for the next few years… at least.
With everything that is happening with the coronavirus and how it’s affecting the U.S. stock market, I don’t think DoorDash will brave the volatility and go public anytime soon. DoorDash wouldn’t be able to afford that type of disappointing public offering with everything else the company is facing right now. It needs a market where investors aren’t skeptical.
Until next time,
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.