Service Level Sample: Pre-IPO Private Company News
Company Name: DoorDash
Ticker Symbol: DASH
Region: USA
Industry: Logistics – Food Delivery
DoorDash’s Potential IPO Would Come Amid Pandemic-Related Boost in Demand for Food Delivery
(MT Newswires) – – DoorDash’s initial public offering plans may have been set back by COVID-19, but the pandemic also could be a boon for the food-delivery company’s IPO plans as it has boosted demand for food-delivery services.
DoorDash first announced its intention for an IPO in late February as the company said it had confidentially submitted a draft registration statement with the Securities & Exchange Commission. At the time, the company said it expected the IPO to occur after the SEC completes its review process, subject to market and other conditions.
Shortly thereafter, market conditions changed; the IPO market came to a halt in March as COVID- 19 was declared a pandemic and the US economy and stock market sank amid restrictions across the US for business and services that were considered nonessential.
However, as in-person dining was limited, demand for takeout food increased, which was a boon to food-delivery companies. And as the economy began reopening, US stocks recovered the losses seen earlier in the pandemic.
DoorDash raised $400 million in a June private placement that valued the company at almost $16 billion. The company hasn’t publicly commented on its IPO plans since late February and the company didn’t respond to an MT Newswires request for comment. However, an August report by Bloomberg citing people familiar with the matter said DoorDash was then taking steps to go public in November or December.
Such an offering would come as restrictions have eased and restaurants have reopened their doors but consumers are still using food-delivery services much more than before the pandemic. Some analysts are predicting consumers’ use of food-delivery services has become a habit that will be sustained even beyond the pandemic.
“We continue to expect the pandemic to accelerate the shift toward online ordering of food delivery and takeout,” Canaccord Genuity analysts Maria Ripps and Michael Graham said in a late-July note to clients after food-delivery company Grubhub (GRUB) reported better-thanexpected second-quarter results. Ripps and Graham highlighted that Grubhub saw momentum continue into the third quarter “despite the gradual reopening of the economy, signaling that COVID-19 has likely created a more permanent pull-forward of adoption as opposed to a temporary spike in demand.”
Highlighting that trend, credit and debit card usage across the US showed a 78% year-over-year increase in consumer spending on food delivery in late September, according to data compiled by Goldman Sachs Global Investment Research. While that is smaller than a 94% jump recorded in mid-August, it still reflects significant year-over-year growth for the food-delivery sector.
DoorDash hasn’t released full financial results but said in a recent economic impact report that restaurant revenue and DoorDash driver (known as Dasher) income generated through the DoorDash platform accounted for $13.2 billion in direct, indirect and induced economic activity in 2019.
The report also described DoorDash as having become “an even more important source of revenue for restaurants during COVID-19.” It noted that prior to the pandemic, only one out of 20 operators saw more than 20% of sales originate from third-party delivery platforms. During the pandemic, however, “over a quarter of operators saw greater than 20% of overall sales originate from third-party delivery platforms,” the company said in the report.
However, KeyBanc’s Eric Gonzalez sees the economics of third-party marketplaces as “unsustainable in their current form, even as consumer demand continues to rise at a rapid pace,” the analyst said in a note to clients late last month. Gonzalez noted large privately held delivery marketplaces like DoorDash and Postmates have “enjoyed a seemingly unlimited budget to drive growth” thanks to being backed by deep-pocketed venture capital firms and fueled by funding rounds with steadily rising private market valuations.
Nevertheless, Gonzalez added, if DoorDash is moving closer to a public offering, that “might mean a greater focus on profitability is likely in the near future and that the deepest customer incentives are largely in the past.”
As such, he expects the path forward for marketplaces “likely means consolidation, a change in fee structure (e.g., passing on more to the consumers), and/or scaling back in unprofitable markets (e.g., rural areas).” Gonzalez noted deal activity has already picked up; Grubhub recently agreed to be acquired by Just Eat Takeaway while Uber Technologies (UBER) is acquiring Postmates.
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