DoorDash is trying to do the impossible by taking on Uber Eats and Grubhub, in an immensely competitive niche. But, can you buy stock in DoorDash?
Online food delivery service providers have gobbled recent market share, and they are very popular with millennials and work professionals.
Food delivery increases worker productivity, and it could make a new generation of investors filthy rich. Let’s take a deep-dive into DoorDash’s stock return and growth potential!
DoorDash offers tremendous insight and transparency into their company’s core values and mission statement.
“DoorDash is a technology company that connects people with the best in their cities. We do this by empowering local businesses and in turn, generate new ways for people to earn, work and live.
We started by facilitating door-to-door delivery, but we see this as just the beginning of connecting people with possibility, easier evenings, happier days, bigger savings accounts, wider nets and stronger communities.
DoorDash was even so generous surrounding transparency they had an executive craft an original Medium article.
“DoorDash began with a simple mission: to enable every merchant to deliver.
Our story began back in the fall of 2012 at a small macaroon store in downtown Palo Alto. The four of us were working on building technology for small business owners and getting feedback on an app we’d built.
We spent a long time talking with Chloe, the store manager, learning about her day-to-day life. But in the end, our app didn’t solve her most important problems.
Just as we were about to leave, Chloe bursted out, “Well, there is one thing I wanted to show you.” She took out a thick booklet. It was pages and pages of delivery orders.
“This drives me crazy. I have no drivers to fulfill them and I’m the one doing all of it.”
And that was the lightbulb moment.
Over the course of the next few weeks, we interviewed over 200 small business owners all over the Bay Area — from San Mateo to Mountain View — and we kept hearing the same thing over and over again: deliveries are painful.”
Food Delivery Growth
McKinsey, arguably the world’s leading management consulting firm, released their comprehensive, original research surrounding food delivery.
“Worldwide, the market for food delivery stands at €83 billion, or 1 percent of the total food market and 4 percent of food sold through restaurants and fast-food chains.
It has already matured in most countries, with an overall annual growth rate estimated at just 3.5 percent for the next five years.
By far, the most common form of delivery is the traditional model, in which the consumer places an order with the local pizza parlor or Chinese restaurant (although many other kinds of restaurants, particularly in urban areas, now offer delivery) and waits for the restaurant to bring the food to the door.
This traditional category has a 90 percent market share, and most of those orders—almost three-quarters—are still placed by phone.
However, as in so many other sectors, the rise of digital technology is reshaping the market.
Consumers accustomed to shopping online through apps or websites, with maximum convenience and transparency, increasingly expect the same experience when it comes to ordering dinner.”
DoorDash has seized massive market share in recent years, and they are currently the industry leader. Personally speaking from experience, I have ordered from DoorDash many times while working.
My employer (who paid for team meals) would rather have a delivery service transport the food than take one of their workers off the clock.
WSJ has a great piece on the downside of food delivery services from the restaurant owner’s perspective.
“Consumers expect to order books, toys, shoes and anything else they want online and have it show up at their doors quickly and inexpensively.
Restaurants and grocers are rushing to satisfy the exact same demand. They’re having a hard time.
A hungry customer in Denver might order a $9.99 Cuban sandwich from Panera Bread Co., which can arrive at her door in about 30 minutes.
The problem for Panera is that each delivery costs about $5 after accounting for labor, gas and packaging.
Yet to avoid turning away customers, it continues to charge a flat delivery fee of $3 per order in most markets, which means they have to sell a lot more per order to absorb those costs.
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Food delivery is proving to be a thorny, expensive and crucial puzzle for restaurants, grocers, and investors.”
Other than potentially grocery stores, restaurants skate by on the worst profit margins and tight working capital. Any uptick in additional expense can destroy a business’ profitability.
I have family in the restaurant business, and they constantly complain about these delivery services trimming their margins. At some level, it truly is a zero-sum game.
DoorDash Stock IPO
DoorDash announced in early 2020 that they were going to test the waters and take the first step towards a public offering for retail and institutional investors.
DoorDash said it has confidentially submitted a draft S-1 filing to the Securities and Exchange Commission (SEC).
An S-1 provides ordinary investors the first inside look surrounding a firm’s income statement, balance sheet, and cash flows. It is a great gauge for profitability, growth potential, and working capital requirements.
Sources note that Goldman Sachs is in the lead for underwriting the IPO, but this has not been finalized. Certainly, a lot has happened in 2020, and there is always room to maneuver plans for a later IPO.
The DoorDash IPO date is currently unknown. DoorDash leadership has made it decisively clear they plan to make the equity publicly available, so we will be watching for any future updates.
DoorDash Stock Price
Nevertheless, this still begs the question, “What price will DoorDash stock IPO at?”. Obviously, I have no idea, but we can make an educated estimate based on valuation, peer IPOs, and capital structure.
CNN covered the latest round of funding for DoorDash.
“DoorDash said Thursday that it has raised $400 million in new financing led by Durable Capital Partners and Fidelity, valuing the company at nearly $16 billion.
The company was valued at $12.6 billion when it raised $600 million in May 2019.
The financing comes as the platform” has become ingrained in the lives of local communities as an essential service,” said Henry Ellenbogen of Durable Capital Partners in a statement.
The food delivery market is fiercely competitive and may only continue to heat up.”
DoorDash currently has 2.67 million shares authorized and outstanding. There will most likely be hundreds of millions of shares issued in a future IPO. Uber issued 180 million in their IPO.
Based on an estimated $16 billion valuation (and 200 million shares outstanding), DoorDash stock could IPO in a price range from $50-60. Again, this is an educated guess (could be way off).
DoorDash Stock Alternatives
Alright, so you can’t invest in DoorDash stock right now, but what are your other potential alternatives?
- Tesla (self-driving car potential)
Investors have been willing historically to subsidize short-term losses in hope of future growth and profitability. Profitability has never emerged in the industry, so some cautious investors stand by.
Can You Buy Stock in DoorDash?
At the moment no, DoorDash stock cannot be purchased, but this will change in an upcoming IPO. My best estimate points toward a $50 IPO share price.
DoorDash is the leader in market share for food delivery, but I am going to further analyze future financial statements before deploying any capital. I tend to be a more risk-averse investor.
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