Previously here at EEON, we wrote a bit about Proposition 22 – a referendum recently passed in California that allows gig-economy companies to continue to classify their drivers and couriers as independent contractors as opposed to employees. Fundamentally, the passing of Proposition 22 in California will allow gig economy firms to save on labor costs as they work to build scale and then attempt to covert scale to profitability. Some sources estimate that gig-economy companies invested over $200 million in lobbying and advertising in the effort to pass Prop 22. One of the primary sponsors of the legislation was Doordash – a gig-economy firm that utilizes a network of couriers to deliver food from local restaurants to customers’ front doors. Doordash was founded back in 2013 by a couple Stanford University graduates, and has been able to raise a massive amount of capital in the private markets over the last few years. Recently, the company’s motives for investing so heavily in Prop 22 became very clear.
On November 13th, Doordash released its public S-1 filing. Companies that are working towards an IPO must file an S-1 filing with the SEC which details the structure of the upcoming IPO, the company’s basic business plan, and a high-level overview of the company’s financial performance. Doordash’s S-1 gives everyday investors a peak into the inner workings of a private company that is currently valued at around $16 billion after its most recent round of fundraising. Per the S-1, Doordash has grown at an incredible rate over the last few years – boosting revenues from $291 million in 2018 to $1.92 billion in the first nine months of 2020. Overall, the company has notched 226% revenue growth in 2020 over 2019. Further, the filing claims that Doordash has expanded its market share over other food delivery platforms in the past two years, both through its acquisition of rival delivery platform Caviar and through organic growth:
Shockingly, the financial information in Doordash's filing even shows that the firm was able to turn a profit in the second quarter of 2020 - a feat made more impressive when considering the gigantic losses other gig-economy firms like Uber and Lyft consistently print. However, one profitable quarter does not a business make, and the firm's pro forma income statements show that overall the firm is still operating at a loss:
Some financial analysts over at TechCrunch and Pitchbook are taking an optimistic tone after reading the S-1, seeing Doordash's relatively restrained losses and growth prospects as reason for cheer. On the other hand, other analysts focused on the technology space feel like they've seen this one before and are concerned that Doordash will be hard pressed to realize enough synergies to achieve consistent profitability.
Following the filing of its S-1 document, Doordash will likely IPO sometime over the next few weeks, giving every day investors the opportunity to scoop up shares. There is always a bull case and a bear case to be made for investing in a particular security - the real trick to investing is being able to apply the judgement required to properly weight each potential outcome. With the Doordash IPO quickly approaching, investors should think through whether they're going to pass on the opportunity or hop on the delivery train.