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DoorDash IPO | S-1 Breakdown

By 

Max Motschwiller

Nov 16, 2020

DoorDash, a food delivery marketplace, filed for a $100M IPO. That $100M figure is a placeholder and is likely to rise by the time the company prices their IPO. Goldman Sachs is leading the IPO and DoorDash plans to trade on the New York Stock Exchange (NYSE) under the ticker “DASH.” DoorDash’s mission is to “grow and empower local economies” and it operates in one of the largest markets in the world, food and local logistics. Tony Xu, co-founder and CEO of DoorDash, started the company in early 2013, to be a merchant-first platform, enabling local brick-and-mortar businesses to succeed in the on-demand economy. DoorDash’s core Marketplace product helps restaurants solve challenges such as delivery and customer acquisition, consumers access a wide selection of food delivery options and delivery Dashers earn income. With 50% U.S. market share in the local food delivery logistics category, DoorDash aspires to continue to expand its footprint in both food delivery and other local logistics categories.

DoorDash grew its revenue to $885M in 2019, up 204% YoY with 263M orders, up 217% YoY. In the quarter ended Sep-20, the company recorded $879M of revenue, up 268% YoY and over 18M unique account purchasers in the month of September alone. DoorDash is headquartered in San Francisco, CA and has 3,279 employees (not including Dashers) worldwide. The company was incorporated as Palo Alto Delivery, Inc in 2013 and changed its name to DoorDash, Inc in 2015.

Product & Technology

DoorDash’s logistics platform connects and optimizes the experiences of the three constituents that make up their network: merchants (restaurants), consumers, and Dashers (delivery drivers). By using machine learning algorithms DoorDash aims to continue to improve the quality and performance on their platform with things like personalized content creation for consumers, real-time delivery batching/routing optimization and maximizing earnings for Dashers.

Merchants: DoorDash prides itself on being a merchant-first business helping restaurants connect with consumers and Dashers to fulfill food delivery demand. The platform helps merchants reach new customers, grow their businesses and benefit from incremental sales that leverage the fixed cost investments they have already made. DoorDash handles payment acceptance from consumers and remittance to Dashers. The self-service software portal enables merchants to update business information like menu items and pricing. The DoorDash platform is built to integrate with the merchants’ existing processes and workflows making it convenient to implement and manage. It also offers insights and analytics to help merchants better understand their business and track performance (e.g. top performing items and incremental sales) and handles customer and Dasher support for orders placed through the platform.  

In addition, DoorDash Drive is a white-label logistics service where restaurants can have food delivered from orders that they generate through their owned and operated channels like telephone. DoorDash Pickup enables consumers to place orders on the platform and pickup directly from the merchant. DoorDash for Work provides merchants with large group orders and catering orders for businesses and events.

Consumers: Through the DoorDash mobile app and website the platform allows consumers to search, discover and order food from local restaurants. The product helps consumers decide what to order with relevant information about each merchant, visually-rich photos and filters to efficiently find the right restaurant and items based on different parameters like cuisine, delivery time and ratings. Once an order is placed, the platform offers real-time notifications, order tracking and the means for the customer to communicate with their Dasher directly.

Source: Company S-1

The company also has a membership subscription program called DashPass that enables consumers to access delivery without paying per-order delivery fees for eligible merchants and reduced fees on eligible orders. DashPass costs $9.99 per month for members.

Consumers choose DoorDash because they get convenient access to selection, a modern digital experience and strong value.

Dashers: DoorDash’s network of delivery providers are called Dashers. Dashers leverage the platform to work where, when and how they want so they can earn more money in less time. After passing a background check, Dashers can start fulfilling orders and making money. Unlike other “gig-economy” apps like Uber and Lyft, Dashers are not required to have a car and may deliver by bike or scooter.  Broad national coverage give Dashers the opportunity to earn in many parts of the country. DoorDash also provides products to help Dashers track, monitor and optimize their earnings.

DoorDash’s local logistics platform benefits from three virtuous cycles around connecting merchants, consumers and Dashers all feeding into increased selection, efficiency and economic opportunity. See the DoorDash flywheel diagram below:

Source: Company S-1

Business Model Summary

DoorDash generates the substantial majority of its revenue from fees paid by consumers and commissions charged to merchants for orders completed through the Marketplace.

Merchants enter into contractual agreements with DoorDash to pay the company a commission fee to support the services they provide and to provide earnings for Dashers. DoorDash does not charge commissions to non-partner merchants, which are merchants that receive orders on the DoorDash Marketplace, but have not signed up to be on Marketplace. DoorDash will proactively include non-partner merchants on the platform to demonstrate incremental sales growth with the goal of converting them into partner merchants, though this practice is under regulatory scrutiny in many states including California. In the nine months ended Sep-20, over 95% of Marketplace GOV was generated from partner merchants.

DoorDash also generates revenue from fees paid by consumers for orders from merchants. For each order, consumers pay two fees: (1) a fixed delivery fee (2) a variable service fee based on the total dollar value of goods ordered. Revenue also comes from the DashPass subscription product where subscribers pay zero delivery fees and reduced service fees on orders from DashPass-eligible merchants.

The company also generates revenue through Drive, their white-label logistics service, by collecting a per-order fee from merchants that use the local logistics platform to fulfil delivery for orders generated through their own channels.

DoorDash will issue credits or refunds to merchants and consumers to ameliorate issues that may arise with orders. They account for such refunds as variable consideration and therefore record the amount of each refund or credit issued as a reduction to revenue.

DoorDash summarizes an illustrative Marketplace order economics diagram below, which is an approximate average per order from 2019.

Source: Company S-1

Consumer Economics: Total GOV includes cost of food, taxes, fees and an option to leave a tip.

Merchant Economics: Merchants collect food revenue and tax, but are charged a commission fee based on an agreed-upon rate applied to the total dollar value of goods ordered.

Dasher Economics: Dashers are paid an amount based on the estimated duration and distance of travel and desirability of order as well as promotions. DoorDash also remits 100% of the tip provided from the consumer to the Dasher.

DoorDash maintains that Dashers use the platform as independent contractors, and they outline the risk that Dashers may be reclassified as employees under federal or state law. Notably, Assembly Bill 5 (AB 5) was signed into law in California in late 2019 codifying standards regarding contractor classification. In the recent election, DoorDash and other on-demand marketplaces that leverage the independent contractor model supported a 2020 ballot initiative in California (Prop 22) which passed. A reclassification of Dashers or delivery service providers as employees would have adverse impacts on DoorDash’s business and could lead to fundamental changes in pricing methodologies and pay models.

DoorDash Economics: DoorDash receives the net amount of fees charged to the consumer and the commission charged to the partner merchant less amounts shared with the Dasher.

‍Summary Metrics and GTM (Go-to-Market)‍

DoorDash acquires merchants, consumers and Dashers through organic word of mouth and paid marketing.

DoorDash utilizes inside and field sales to grow their merchant base and also offers a self-serve channel. The company acquires consumers and Dashers through online and offline marketing channels as well as a referral program. Marketing channels include search engine marketing, display advertising, social media, streaming audio, direct mail, television and billboards. DoorDash will also do co-marketing campaigns with partner merchants to promote the platform through in-store collateral, television campaigns and digital marketing efforts. For example, DoorDash partnered with Wendy’s to promote new menu items and Chili's on a television commercial and free food giveaways.

Source: Company S-1
  • In the month of Sep-20, over 390,000 merchants ran their business on the platform. This includes national restaurant chains where each location counts as a distinct merchant.
  • In the month of Sep-20, over 18M unique consumers purchased goods from merchants on the platform.
  • As of Sep-20, there are over 5M consumers on DashPass.
  • In the month of Sep-20, over 1M Dashers used the platform to find opportunities to earn.
  • 2019 saw 59% YoY same store sales growth.
  • Over 900M orders, $19B of merchant sales and $7B of Dasher earnings since founding.
  • A consumer survey conducted by Cowen indicates that nearly 80% of delivery orders are incremental to merchants’ on-premise businesses.
  • Currently reaches over 85% of the U.S. population.
  • As of Sep-20, had 21 issued U.S. patents, 41 U.S. patent applications pending, and 8 patent applications pending in a foreign jurisdiction.
  • Lists 18 putative class actions and representative actions related to independent contractor misclassification matters and 9 other actions mostly related to consumer protection and data privacy laws.
  • In Dec-19, filed an agreement to pay $40M with the representatives of Dashers that had filed certain actions in California and Massachusetts.

COVID-19 Impact

DoorDash acknowledges that the COVID-19 pandemic has driven “a significant increase” in revenue, total orders, and Marketplace GOV due to increased consumer demand for delivery, more merchants using the platform to facilitate both delivery and take-out, and improved efficiency of their local logistics platform. DoorDash cautions that the circumstances that have accelerated the growth of their business stemming from the effects of the COVID-19 pandemic may not continue in the future, and that they expect the growth rates in revenue, total orders, and Marketplace GOV to decline in future periods.

Market Opportunity

The substantial majority of DoorDash’s merchants are restaurants. DoorDash has the leading market share in U.S. local food delivery logistics, which is a large and fast-growing market. In 2019, Americans spent $1.5T on food and beverages, of which $600.5B was spent on restaurants and other foodservices, of which 50%, or $302.6B was consumed off-premise. DoorDash’s 2019 Gross Order Value (GOV) was $8.0B, implying 2.6% market share for the off-premise segment.

DoorDash started with a strategic focus on suburban markets and smaller metropolitan areas as they believed these were the markets that were most under-served. As a result, these tier 2-4 areas have experienced growth that has outpaced that of tier 1 markets. DoorDash has a growing presence in Canada and Australia, but international is still a very early opportunity for DoorDash and offers a different competitive set.

Source: Company S-1

Competition

Local food delivery logistics is fragmented and intensely competitive. In the United States, DoorDash competes with other local food delivery logistics platforms including Uber Eats, Grubhub, Postmates, chain merchants that have their own online ordering platforms, pizza companies such as Domino’s, other merchants which own and operate their own delivery fleets, grocers and grocery delivery services, and companies that provide point of sale solutions and merchant delivery services. As they continue to expand their presence internationally, they will also face competition from local incumbents in these markets. In addition, DoorDash competes with traditional offline ordering channels, such as take-out offerings, telephone, and paper menus that merchants distribute to consumers as well as advertising that merchants place in local publications to attract consumers. With Drive, and as the company expands into other industry verticals beyond food, DoorDash expects to compete with large internet companies with substantial resources, users and brand power, such as Amazon and Google.

Source: Company S-1

DoorDash’s growth has outpaced competitors leading to increased total U.S. marketshare. Marketshare in suburban markets is even greater at 58%.

% Ownership, Pre-Offering

Softbank Vision Fund is the largest DoorDash shareholder at 22.1% pre-offering, an exciting win amongst much scrutiny over the past few years.

Source: Company S-1

Preferred Stock Prices by Series

According to Pitchbook, DoorDash' Series H was raised in June 2020 at an implied valuation of ~$16B and the Series G was was raised in 2019 at an implied valuation ~$12.7B.

Source: Company S-1

‍‍Acquisitions

Since 2017, DoorDash has completed five total acquisitions. Most notable given its scale and purchase price is Caviar, a similar on-demand food delivery marketplace. Caviar was acquired from Square in Oct-19 for $411M of total consideration.

Source: Company S-1

Financials and Other Metrics Output

DoorDash's financial performance has be very impressive and it is clear COVID-19 has helped accelerate the company's growth rate, with the Jun-20 quarter revenue growing 86% QoQ alone. Many people have been skeptical of the on-demand economy business model as Uber and Lyft still continue to show significant burn, but DoorDash has generated positive cash flows from operating activities in the nine months ended Sep-20 and had a GAAP operating income positive quarter in Jun-20. DoorDash has proven the economic model is not only viable, but could produce attractive growth, margins and cash-flows in the future.

Historical P&L & Metrics ($M)

Source: Company S-1

Quarterly Gross Order Volume (GOV) ($M)

Source: Company S-1

Quarterly Revenue ($M) and Take Rate as a % of GOV

Source: Company S-1

Quarterly Revenue Run-Rate ($M) & Implied Net New Revenue Run-Rate ($M)

Source: Company S-1

Quarterly Non-GAAP Gross Margin and Operating Expenses as a % of Revenue

Source: Company S-1

GAAP and Non-GAAP Operating and Contribution Margins

Source: Company S-1

Cash Flows ($M)

DoorDash currently has $1.6BB of cash, cash equivalents and marketable securities.

Source: Company S-1

Revenue Mix by Geography (%)

Despite having launched cities in Canada and Australia, 99.8% of DoorDash's nine months ended Sept-2020 revenue comes from the U.S.

Source: Company S-1

Quarterly KPIs ($)

Source: Company S-1

Marketplace GOV by Cohort, Indexed to Year 1

DoorDash's cohorts exhibit net GOV expansion each year for each cohort since 2016.

Source: Company S-1

Marketplace GOV from New Consumers & Existing Consumers

A substantially larger percentage of revenue is coming existing customers vs new customers over time.

Source: Company S-1

Quarterly Income Statement ($M)

Source: Company S-1

Valuation

DoorDash will trade like other high-growth on-demand consumer marketplaces, on a multiple of forward revenue or gross profit. For comparable multiples, in the U.S. we can point to public ride-sharing companies Uber and Lyft. It is also helpful to look at international at on-demand food marketplaces like Just Eat, Delivery Hero and Meituan.

Source: Capital IQ

The output below uses NTM (next-twelve-months) revenue based on an illustrative range of growth rates and comparable EV (enterprise value) / NTM revenue multiples. As mentioned in other posts, companies do not release projections or guidance in S-1's. While it is hard for the market to estimate near-term growth rates for any business, the impact of COVID-19 makes it even more challenging. All that said, I would expect DoorDash to trade north of $20B of enterprise value, well above the last round price of ~$16B.

Note: Enterprise value ranges and growth rates are illustrative

DoorDash is one of the most highly anticipated U.S. consumer IPOs in recent memory and looks to be aiming to be a public company before year end. Given the size of the market and future growth opportunities, DoorDash appears to be well positioned for compounding growth for many years by growing its impact on the fabric of our local economies.

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Special thanks to my partner Aimee He for her help on this post.

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