In this market?
News that emerged on Thursday (Feb. 27) that on-demand food delivery firm DoorDash has filed yet-to-be-made-public documents with the Securities and Exchange Commission – known as a confidential S-1 – to undertake an initial public offering (IPO) may prompt a bit of head-scratching.
In terms of mechanics, there has still been no disclosure about how many shares would be on offer, or at what price range.
In fact, much remains under wraps about why and when the company might go public. That’s because the “confidential” nature of the filing lets firms look at the process of listing without disclosing financials, risk factors or other details that typically are part and parcel of S-1s. You might liken it, in a way, to testing the waters with a toe instead of diving right in. There is, of course, the option to not list at all.
But connecting the dots of the food delivery landscape, the recent fates of money-losing “disruptor” firms in the public markets may give a hint of what’s at stake, and what’s to come, should an IPO indeed come to pass.
The notion that the company would be tapping the markets for capital begs the question: Why?
At a high level, the landscape is shifting, in a fundamental way, as far as how we order, where we eat and how we pay for it all. As noted in the most recent Order to Eat Tracker, digital is making inroads in dining, as 70 percent of consumers use their phones in at least some part of the meal purchasing process. Younger, tech-savvy consumers are embracing the digital route, as half of millennials order more delivery than they did two years ago.
Against that backdrop, DoorDash handles roughly 35 percent of all meal deliveries in the U.S., with Grubhub relatively close behind at 30 percent.
Back in November, DoorDash closed on a $100 million capital fundraising round, which valued the company at about $13 billion.
But November feels like a very long time ago.
Since then, we’ve seen some flameouts. WeWork backed off from a public listing. Casper had to ratchet down its offering price ranges, and still wound up as a busted IPO. Postmates? Well, that delivery firm filed a year ago to go public, and has kept its powder dry.
Merger in the Works?
Beyond that, specific to the food delivery space, reports came last month that DoorDash and Uber met sometime around mid-2019 to discuss a potential merger – at the request of SoftBank, a shareholder in both companies.
In our mind, this is an interesting point. A merger between those two operations would effectively control more than 50 percent of the market, if it were to materialize in a market that is consolidating. SoftBank, for its part, led a $535 million investment in DoorDash back in 2018 and is a significant owner of Uber (with a reported 15 percent stake), so it has skin in the game as to whether those firms merge – or, indeed, whether DoorDash goes public.
The idea that DoorDash may be interested in tapping the markets for capital comes amid a backdrop where last year, overall food and agriculture investments in the U.S. were down 2 percent, to $8.7 billion. That may indicate a dwindling appetite in private avenues of fundraising. And if the goal is to raise more capital relatively soon after the November $100 million capital raise, one wonders about cash burn.
The fact that an S-1 has not been filed means we do not have financials in hand. But in terms of comparables, Uber said its Uber Eats segment logged $415 million in revenue in the latest quarter, but also saw negative adjusted EBITDA (a rough measure of cash flow) of $461 million. In another take on the economics, Cowen analysts have estimated that Uber loses a few dollar on every order. A few weeks ago, Grubhub posted a wider loss than analysts had expected, with a pre-tax loss of $31 million on $341 million. It’s safe to assume that DoorDash is also losing money in a space that seeks to disrupt dining itself.
Timing is everything, they say – and even testing the waters for an IPO seems a bold move for DoorDash, but is perhaps a necessary one.