DoorDash IPO Worse Than WeWork Disaster?

Yesterday in my December outlook for stocks, I alluded to the fact that the DoorDash IPO was perhaps overly optimistic about its profitability and the company’s ability to keep any semblance of that profitability in a post-pandemic world.

MarketWatch Calls DoorDash IPO “Most Ridiculous”

Someone over at MarketWatch isn’t waiting for investors to read between the lines with an opinion piece claiming that the DoorDash offering is the, “most ridiculous IPO of 2020.” The piece goes on to make the claim that the DoorDash IPO offering may even be worse than the WeWork IPO disaster that they previously proclaimed, the Most Ridiculous IPO of 2019.

The article goes into the numbers in details, but the long and the short of it is this:

  • DoorDash barely squeezed out a profit on $1.92 billion of revenue for the first nine months of 2020. That amount of revenue is 3x last year’s revenue due to a huge increase in the food delivery market thanks to the Covid pandemic. If you can’t squeeze out a profit in the very best possible market, how can you be profitable ever again.
  • DoorDash can’t raise fees and expenses due to numerous competitors. In fact, its fees are already considered so onerous to restaurants that in some place, like the City of Denver, lawmakers moved to cap the extremely high fees. The company responded by charging a $2 Denver surcharge, but that just covers what the company already lost in revenue. Customers can easily check their potential orders in all three major delivery apps, and pick the one with the lowest expenses. Good look raising rates in that environment.
  • DoorDash could, theoretically, become the high price, high value provider by getting the best drivers. Unfortunately, the company has the same issue with drivers as it does with customers. It’s easy for drivers to see which delivery service is offering the best rates, or the most orders, and simply switch with a swipe of the finger. To get loyalty, DoorDash would have to increase driver pay, which would increase costs.
  • New competitors every day. In my area, I’ve got something called BeyondMenu that seems to be handling a lot of the Chinese food restaurants, Slice, which is doing several pizza places, and Toast. All of these services offer the same service on a smaller scale.
  • Direct delivery increasing. The longer the pandemic goes, the more the concept of restaurants hiring someone to deliver their own food becomes the better move rather than paying extortion-level fees to food delivery services.
  • Pickup your own food also increasing. Here in the suburbs, we all have cars and drive anyway. We order delivery for convenience, but with companies like DoorDash marking up our orders by 10% (or more?), going and getting it ourselves looks like a better deal, especially on bigger, more profitable orders. Then, add in some restaurants deciding it’s better to offer a 25% discount on orders made directly with the restaurant and picked up, and DoorDash gets cut out easily.
  • The pandemic will go away eventually. There will never be as many orders as there are now again. If you can’t be profitable today, what prospects are there for profits tomorrow?

In the end, the issue is costs. DoorDash’s overhead is huge considering what it offers. Whether all of that infrastructure spending is required isn’t known but the company’s IPO makes no mention of cutting costs. Lower costs is the only viable path to profitability and it seems the company can’t do it.

In other words, this IPO is not an investment, it’s a venture capital bailout. Get enough “bigger idiots” to by into the DoorDash IPO and walk away with cash, while investors find themselves holding a stock with no way to increase value, and certainly no way to offer a dividend.

DoorDash Future


Without a revolutionary new innovation of some sort, or incites into massive cost cutting, the future of DoorDash stock is clear.

First, maybe a bit of a post-IPO bounce as dumb money chases a “Hey I know that guy,” stock. Followed by stock that stagnates and then begins circling the drain as revenues dry up. Layoffs, some hysterics, and then a stronger competitor swooping in with a much-lower-than-IPO offering to take over what remains of the company.

Either way, I know none of my money will find its way to the DoorDash IPO.

As always, this article, and all articles on Finance Gourmet are for informational purposes only. They are not to be used as investment advice, nor as an offer to buy or sell securities. For individual investment advice consult your financial advisor and tax advisors.

The author of this article does not hold himself out to be a financial advisor. At the time of publication, the author did not own any shares of DoorDash, although that could change at any time without notice.

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