DoorDash Reveals I.P.O. Filing

November 13, 2020 

SAN FRANCISCO -- DoorDash, the largest food delivery start-up in the United States, revealed on Friday that it is losing money even as the coronavirus pandemic has spurred a huge surge in orders, according to financial documents released as the company prepares to go public.

The San Francisco company's performance renewed questions about whether "gig economy" businesses, which rely on armies of contract workers, can turn a profit. DoorDash primarily connects restaurants, drivers and customers to facilitate takeout orders.

DoorDash was a clear winner of the pandemic. It reported revenue of $1.92 billion in the nine months through the end of September, more than 200 percent above the $587 million for the same period last year, according to the prospectus filed for its planned initial public offering. It had 543 million orders through September, compared with 181 million in the same period a year ago.

Even so, the company continued losing money. Its net loss in the first nine months of this year was $149 million, compared with a loss of $533 million a year earlier. In the second quarter, DoorDash squeezed out a $23 million profit, but returned to a loss in the third quarter. It also said that the growth in orders spurred by the pandemic would likely slow.

The prospectus did not specify the value of shares that DoorDash would sell. The company was valued at $16 billion as part of a $400 million private funding round in June. It has raised nearly $3 billion in total capital, according to Pitchbook, which tracks start-up funding.

DoorDash's deep losses reflect the dismal economics of the food delivery business, said Len Sherman, an adjunct professor at Columbia Business School.

"There's simply not enough value created in these businesses to reward consumers, couriers, restaurants, employees and shareholders," he said.

In a long letter, Tony Xu, DoorDash's chief executive, outlined the company's plans to expand beyond food delivery into "all local business" in the "convenience economy."

"If we can make possible the delivery of ice cream before it melts, or pizza before it gets cold, or groceries in an hour, we can make the on-demand delivery of anything within a city a reality," he wrote.

DoorDash planned to go public earlier this year, filing confidentially with the Securities and Exchange Commission in late February. But the pandemic halted the I.P.O. market. DoorDash and other delivery companies instead focused on responding to a flood of demand from customers, as restaurants closed and people stayed home because of the pandemic.

In late summer, an ebullient stock market revived tech I.P.O.s, with companies like the data start-up Palantir and the data warehousing company Snowflake making their public debuts. Airbnb is expected to file its offering prospectus next week.

Even so, DoorDash faces challenges, such as its lack of profits. Other gig-economy companies, such as Uber and Lyft, have faced similar questions about whether they can become viable businesses.

DoorDash, however, is no longer quickly burning through cash. In the first nine months of the year, its business generated $315 million of cash; in the same period of 2019, it consumed $308 million of cash.

DoorDash faces labor questions because of its use of contractors. This month, the company notched a political win with the passage of Proposition 22, a California ballot measure that exempted it, Uber, Lyft and others from a law that would have required them to treat their drivers as employees.

The company is also dealing with steep competition and consolidation in food delivery, where customers, restaurants and drivers are not particularly loyal to one competing service over another. DoorDash's prospectus named four major competitors and said its "fragmented and intensely competitive" market was a risk for investors.

In June, rival Grubhub agreed to sell itself to Just Eat Takeaway, a European service, for $7.3 billion. A month later, Uber acquired Postmates, a smaller competitor, for $2.65 billion. DoorDash had entertained deal talks with Postmates, Uber and Grubhub over the last year, but has remained independent.

As social distancing rules have continued, restaurants have struggled to make ends meet on delivery apps. In April, DoorDash temporarily cut its primary fees for independent restaurants, which it said cost it around $120 million. On Thursday, it announced a $200 million pledge for programs to help restaurants and delivery drivers.

DoorDash was created by Mr. Xu, along with Stanley Tang, Andy Fang and Evan Moore in a business school class project at Stanford University in 2013. The company, attracting critics and struggling to raise funding in its early days, has not followed a smooth trajectory.

ImageDoorDash's chief executive, Tony Xu, founded the company with three others at Stanford University in 2013.
DoorDash's chief executive, Tony Xu, founded the company with three others at Stanford University in 2013.Credit...Jim McAuley for The New York Times

"I don't find it that rewarding if this is all up and to the right," Mr. Xu, 36, said in an interview this year.

Mr. Xu owns 41.6 percent of the company's class B stock, which gives holders 20 votes per share. The prospectus did not say how much of DoorDash he would own after the offering.

DoorDash has expanded rapidly in recent years, in part because of aggressive cash infusions that began in 2018. The company operates in the United States, Canada and Australia, with more than a million drivers and 18 million customers.

It has also struck partnerships with several national restaurant chains and created a subscription service, DashPass, which costs $9.99 per month for unlimited deliveries and counts five million customers.

This year, DoorDash began operating "cloud kitchens," or commissary buildings where restaurants can rent space and prepare food specifically for deliveries, as well as delivering groceries, pet food and items from convenience stores like Walgreens. Last month, the company invested in a Bay Area restaurant group, Burma Bites.

The company's largest shareholders include funds operated by SoftBank's Vision Fund, Sequoia Capital and the government of Singapore.

Goldman Sachs and J.P. Morgan will underwrite the offering, which will list on the New York Stock Exchange.

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