DoorDash’s IPO delivers as shares surge in market debut

Stock jumps 86% on first day of trading, valuing the food deliverer at more than $US70 billion, higher than many of its restaurant clients.

A DoorDash delivery rider. Some of its workers in the US wonder why it’s worth so much when, they say, they earn a minimal wage. Picture: AFP)

DoorDash delivered for investors, surging 86 per cent in its US stock market debut.

The seven-year-old company ended its first trading day valued at about $US71.8 billion, based on a fully diluted share count and higher than many of the restaurant companies that depend on its couriers.

DoorDash’s shares opened on Wednesday (US time) at $US182 each on the New York Stock Exchange, 78 per cent above its higher-than-expected initial public offering price.

The stock ended trading at $US189.51, giving it a market value that surpasses the combined worth of Chipotle Mexican Grill, Domino’s Pizza and Dunkin’ Brands Group.

The San Francisco-based company has never turned an annual profit, but a surge in demand during the COVID-19 pandemic has helped to transform it.

Revenue and orders at DoorDash more than tripled this year, compared with the year before, as consumers tired of prepping food at home and ordered more meals for delivery. A push into the suburbs also has helped DoorDash become the market leader in U..food delivery.

Founded in 2013 by Tony Xu, who emigrated from China with his parents when he was five years old, DoorDash now must defend its nearly 50 per cent US market share in the competitive food-delivery industry and stoke further growth to satisfy heightened shareholder expectations.

The company believes the ease by which diners can get food delivered won’t be a fad, but demand could slow as vaccines for the coronavirus are distributed and patrons return to restaurant dining rooms they have been avoiding.

“Once people get used to a habit, they tend to stick with it. We saw this with e-commerce, we saw this with booking travel over the internet, “ Mr Xu, a 36-year-old who earned an MBA. from the Stanford Graduate School of Business, said in an interview.

DoorDash has trained its efforts on suburban areas, allowing the company to benefit in part because families there tend to place larger orders.

The company controlled almost half of the US food-delivery market as of mid-October, up from one-third the year earlier, giving it a lead over Uber Technologies’ Eats service, Grubhub and other rivals.

The DoorDash food delivery app. Picture: AFP

The company will be the only public stand-alone US food-delivery company after Grubhub agreed to be acquired in June.

Uber Technologies recently bought rival Postmates for $US2.65 billion, in a move aimed at helping it in delivery.

DoorDash has focused on boosting the number of restaurants from which consumers can choose on its app and expanded into grocery deliveries during the pandemic.

Mr Xu said deliveries became faster during the health crisis, in part because of less traffic on streets and because DoorDash became more efficient.

The pandemic also has resulted in stronger demand for food-delivery companies. Both chain and independent operators have tapped delivery companies to reach customers as they closed dining rooms or limited seating indoors.

“What the pandemic has done and what DoorDash has shown, at least in its filings, is you’re able to hit profitability,” said Evercore ISI analyst Benjamin Black, who covers Uber.

In the second quarter this year, DoorDash generated a profit of $US23 million.

Some restaurant companies have pushed back on the fees and costs that delivery companies charge them. Others, such as Domino’s Pizza, don’t use third-party delivery firms, citing those costs and other factors.

Those battles could intensify in the future. Uber, for example, said merchants deserved transparency on pricing when it completed its acquisition of Postmates in December.

DoorDash faced criticism last year from advocates about how its couriers were compensated, a situation that led it to tweak how it handles tips that diners leave for them.

The company joined with other on-demand companies to fight a California law that sought to reclassify contract workers as full-time employees.

DoorDash’s public offering occurred amid a surging stock market and robust gains among technology companies listing their stocks for the first time.

So far in 2020, more than $US140 billion has been raised on US exchanges, far exceeding the previous full-year record set at the height of the dotcom boom in 1999, according to Dealogic data that date to 1995.

Home-rental start-up Airbnb was expected to price its shares at $US67 or $US68 each, above its already increased targeted range, people familiar with the matter said, in yet another sign of exuberance in the IPO market.

DoorDash’s co-founders, like those from other tech start-ups, have sought to shore up voting control of their company.

Mr.Xu will own a special class of stock through which he will have about 69 per cent of the voting control of the company. Mr Xu said potential investors didn’t ask questions about his voting control.

Major owners of DoorDash stock include entities affiliated with SoftBank Group, Sequoia Capital and the government of Singapore, according to the company’s prospectus for the public offering.

For the quarter ended September 30, DoorDash reported a loss of $US43 million on $US879 million in revenue, compared with a loss of $US152 million on $US239 million in revenue for the year-earlier period.

The Wall Street Journal