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DoorDash files for IPO as it doubles revenue from 2019

Largest restaurant delivery service by market share makes move amid competitor consolidation

DoorDash has started the process to become a publicly-traded company after filing form S-1 with the US Securities and Exchange Commission. According to its proposed IPO, it will offer up to $100M worth of shares of Class A Common Stock. Pricing and availability is yet to be determined on the offering, and previous shares in Class A and B are outstanding. DoorDash plans to list on the New York Stock Exchange under the symbol DASH.

As the third-party delivery company in the restaurant space with the top share of consumers, DoorDash has come under threat from consolidation in the industry. As it turns to a broader strategy of becoming an on-demand logistics company and offering a broad variety of marketing and technology services to retail merchants, it will still need to contend with the growth of Grubhub and Uber Eats. Grubhub was acquired by Just Eat Takeaway, and Uber has made a bid for Postmates to to combine it with its Uber Eats division.

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DoorDash builds revenue, formulates strategy

The DoorDash Pass, a monthly subscription program that reduces delivery fees and services charges, has created some stickiness among its customers. Uber Eats followed with its own monthly membership version. DoorDash now operates in the United States, Canada and Australia, with over 390,000 merchants and 18 million consumers in these markets.

The San Francisco-based third-party delivery service reported it had grown in two years from a 17-percent share of the market to half, eclipsing Grubhub, Uber Eats, Postmates, and Instacart. This year, DoorDash revenue has more than doubled from the $885 million it made in all of 2019. As of nine months indeed in September 2020, it had grown revenues to $1.9 billion. However, DoorDash has produced a net loss of $149 million thus far this year.

Although DoorDash has disclosed 2020 Adjusted EBITDA on the profit side of the ledger, it will take ongoing work to prove itself as a profitable, merchant logistics and services company. Neither Grubhub nor Uber have reported a profit.

Grubhub’s parent, Just Eat Takeaway, has favored the marketplace model rather than the logistics model of third-party restaurant delivery. The marketplace model allows the flexibility for restaurants to deliver their own food through their own operations or contractors.

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COVID-19 helps create demand for DoorDash, but restaurants still hurting

During the initial outbreak of COVID-19 in the spring, DoorDash offered concessions to restaurants to help those businesses that were struggling (independents of 5 restaurants or fewer). With restaurants hurting economically, DoorDash, Grubhub and Uber Eats had been criticized for the commission fees they charged restaurants, which can exceed 30 percent. Cities that included New York, San Francisco, Washington, DC, and Los Angeles passed ordinances capping these commission fees.

Merchants have also complained about exorbitant fees. Furthermore, for both merchants and consumers, a lack of transparency into how delivery fees and service charges are calculated has always been a hot issue. Delivery companies that sign up restaurants tor third-party delivery without their permission have also come under fire. Currently, Grubhub faces a lawsuit for such a practice.

The third-party restaurant delivery model is far from perfect and not fully vetted, but the health crisis has accelerated the demand for delivery. The next 12-18 months should bear out conclusive proof if the model will survive in a way that benefits consumers and merchants.

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Goldman Sachs & Co. LLC and J.P. Morgan will act as lead book-running managers for the proposed offering, which will be carried out via prospectus.

In addition to historical data, this article uses information from the company’s November 13th announcement and its SEC S-1 registration.

Photo credit: DoorDash (featured preview image)

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