DoorDash’s IPO Success

DoorDash’s new IPO was a smash hit as it surged 86% in its stock-market debut on Wednesday, Dec. 9.

The strong market position gives the company a market valuation of around $60.2 billion.

DoorDash amended its S-1 filing with the Securities and Exchange Commission the previous week, announcing that it would price its Class A shares between $90 and $95 per share. The company initially priced its shares at $75 to $85.

The closing price for the company’s IPO on the first day of trading was $189.51. This gives the company, on a fully diluted share count, a market value that surpasses the combined worth of Chipotle Mexican Grill Inc., Domino’s Pizza Inc., and Dunkin’ Brands Group Inc.

DoorDash is the largest service provider in the food delivery industry. The company occupied a roughly 50% share of the U.S. food delivery market.

“DoorDash is much more than an application that connects merchants, consumers, and Dashers by facilitating delivery. We provide a broad array of services that enable merchants to solve mission-critical challenges such as customer acquisition, delivery, insights and analytics, merchandising, payment processing, and customer support, and to fulfill demand generated through their own channels,” said founder and CEO Tony Xu said in a statement.

The reaction to DoorDash has been mixed from analysts. The launch of the company’s IPO means it has a market cap of $72 billion. This is a high number for a seven-year-old startup that lost $667 million in 2019 and lost $149 million in the first nine months of 2020.

David Trainer, CEO of market research firm New Constructs, calls it “the most ridiculous IPO of 2020.”

The San Francisco-based company has never turned an annual profit. This year’s promising numbers have been propped up by a surge in demand during the COVID-19 pandemic has helped to transform it.

“They do not have a way to make money long-term. There’s a lot of competition. And we’re seeing their market share decline. At the end of the day, this business is a race to a zero-margin business, because there’s really no differentiation… This is Silicon Valley selling public markets an asset at a huge premium, and they’re going to laugh all the way to the bank, and I think a lot of individual investors rushing into this are going to lose a lot of money,” Trainer said on Yahoo Finance Live.

While Trainer thinks the pandemic boom to DoorDash’s business will wear off, DoorDash founder Tony Xu believes that, while demand may slow, his business is not a fad.

“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,” said Xu.

Wednesday’s public offering of DoorDash kicks off a busy season for market debuts. Airbnb is set to go public mid-day on Dec. 10, followed by e-commerce Wish next week and fintech company Affirm, and kids’ video game maker Roblox this month.

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