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DoorDash Inc. completed one of the biggest initial public offerings of a busy year Wednesday, and ended its first day of trading worth more than $60 billion.
DoorDash DASH, +85.79% stock closed its initial trading session at $189.51, an increase of 85.8% from the IPO price of $102, which raised at least $3.4 billion. The San Francisco company, which launched its service in the suburbs of Silicon Valley in 2013 and now commands half the U.S. market for app-based food delivery, ended the day with a market capitalization of $60.2 billion.
See: 5 things to know about DoorDash as it goes public
DoorDash confidentially filed for a public offering in February, right before the coronavirus pandemic caused the demand for delivery to skyrocket. After becoming one of the biggest beneficiaries of a way of life and economy that has been changed dramatically by COVID-19, DoorDash is the latest company to take advantage of a hot IPO market. The total amount raised tied Snowflake Inc. SNOW, -4.81% for the second-largest IPO of 2020 before accounting for overallotments and private placements, according to PWC data, behind only billionaire Bill Ackman’s $4 billion blank-check company, Pershing Square Tontine Holdings Ltd. PSTH, +1.13%.
For more: On Wall Street, tech companies IPO like its 1999
Now the question is whether DoorDash can keep growing and sustain its gains and market cap. In a CNBC interview Wednesday morning, DoorDash Chief Executive Tony Xu said the company is just getting started.
“We’re in one of the biggest but still most under-penetrated categories,” Xu said, noting that only 10% of restaurant traffic is being delivered today. The company also is branching out to delivering groceries and more.
See: The pandemic has more than doubled food-delivery apps’ business
Tom White, analyst with D.A. Davidson, said in an interview with MarketWatch that he “was not expecting this magnitude of a pop on the first day,” but that investors have a “valid belief” that DoorDash will continue to gain market share even after the pandemic ends. Although White expects the company’s “growth rates to come back down to Earth” once a vaccine is deployed, he believes DoorDash has an advantage because of the market position it established pre-pandemic.
But investors surveyed by Bernstein before the public offering expressed concerns about whether growth will slow — DoorDash’s third-quarter revenue soared 268% year over year — as well as competition and whether consumers will hang onto their delivery habits.
“COVID is simply a unique point in time where consumers aren’t spending on other types of services (e.g. travel),” the Bernstein report said.
Among DoorDash’s competitors in prepared-food delivery are Uber Eats, which just completed its acquisition of Postmates, as well as Just Eat Takeaway’s TKWY, +7.67% GrubHub. In other delivery, which the company is exploring, it is competing with Instacart and grocery stores, including Walmart Inc. WMT, -0.79% and Amazon Inc.’s AMZN, -2.30% Whole Foods.
David Trainer, CEO of private equity research firm New Construct, noted that switching costs for consumers is low.
“The food delivery market is filled with competitors offering the same service,” he said. “You don’t have to be a business expert to understand that businesses without differentiated offerings struggle to charge prices above the cost of the service. In other words, they never turn a profit.”
DoorDash posted a quarterly profit once this year, but lost $149 million through the first nine months, compared with a $534 million loss in the year-ago period.
DoorDash, working with with Uber Technologies Inc. UBER, +1.47%, Lyft Inc. LYFT, +2.17% and other gig companies, recently spent more than $200 million collectively to pass a ballot measure in California to avoid classifying their drivers and delivery workers as employees. On Wednesday, the co-founders were joined by a couple of delivery workers, which the company calls Dashers, and merchant/restaurant partners in a virtual bell-ringing on the New York Stock Exchange.
DoorDash said U.S. Dashers who have made at least 5,000 deliveries will receive “cash rewards” ranging from $500 to $20,000. The amounts will be based on the workers’ number of deliveries and show up in their accounts between now and Friday. Dashers in Canada and Australia will also receive cash based on different criteria. The gig workers will get more cash through this program through May, DoorDash said.
Before the offering, the top shareholders in DoorDash were early investors SoftBank Vision Fund, which held 24.9% in Class A stock, Sequoia Capital with 20.4% and Greenview Investment with 10.5%. Because of the company’s stock structure, which gives 20 votes to each Class B share, Xu and co-founders Andy Fang and Stanley Tang will have 69% voting control. An agreement among the co-founders gives Xu the authority to vote Fang and Tang’s shares, giving him outsize control over the company.
