While the setup is prime for an IPO, the critical questions will be on pricing and determining any hidden surprises. After spending some time with the S-1, our first blush does not look as bad as feared. But more work needs be done on the accounting for things like goodwill allocation, potentially aggressive capitalization of costs, any hidden liabilities, and how it pays its dashers. More to come.
Coming as no surprise, the company describes what it believes is the changing consumer landscape favoring delivery coming out of the pandemic. In the S-1, DASH said that "58% of all adults and 70% of Millennials say that they are more likely to have restaurant food delivered than they were two years ago," adding that it believes "the COVID-19 pandemic has further accelerated these trends."
The S-1 filing is helping to bring clarity to its numbers and the general delivery market. The company reportedly is looking to go public between Thanksgiving and Christmas, despite some recent market chop and election chaos. However, PROP 22 passing in CA was likely an essential contributor to the current timing. To that end, it is promoting drive and order profitability by using 2019 data. In an "illustrative" example that DoorDash notes are its 2019 "approximate average per-order information," the split works out as follows:
- Bill: $32.90
- Merchant: $20.10, or 61%
- DoorDash: $4.90, or 15%
- Delivery person: $7.90, or 24%
Why not use the 9 months 2020 data?
DoorDash has raised around $2.5 billion in capital during its private life, most recently in a $400 million round this June. At the time, DoorDash was valued at an incredible $16 billion post-money, giving the company a hefty valuation when it prices its IPO. DoorDash's growth may support a hefty valuation, with revenues growing from $291 million in 2018 to $885 million in 2019. More recently, from $587 million in the first nine months of 2019 to $1.92 billion in the same period of 2020. If we assume just 5% sequential growth in 4Q20 and the company posts $926 million in revenues, it will bring the year to $2.8 billion. Just Eat Takeaway is buying GRUB for 3.8x and 3.2x 2020 and 2021 EV/Sales, respectively. Just Eat Takeaway is trading at 6.2x and 5.3x EV/Sales, respectively. Assuming a Just Eat Takeaway multiple on 2020 sales, DASH is worth $17.3 billion. The biggest objection to valuing DASH to TKWY is that the latter is global, and the company is profitable! The DASH’s 221% growth rate in 2020 is impressive, but how much demand has been pulled forward, and what is a sustainable growth rate in 2021 and beyond? What will DASH revenues grow in 2021 from 10%-20%?
The S-1 is clear on this point "a significant increase in revenue, Total Orders, and Marketplace [gross order volume] due to increased consumer demand for delivery, more merchants using our platform to facilitate both delivery and take-out, and improved efficiency of our local logistics platform."
The company then went on to say that the "circumstances that have accelerated the growth of our business stemming from the effects of the COVID-19 pandemic may not continue in the future, and we expect the growth rates in revenue, Total Orders, and Marketplace [gross order volume] to decline in future periods."
In the first three quarters of 2019, the company had gross margins of 39.9%, and in the same period of 2020, the figure rose to 53.1%. This compares to Just Eat Takeaway's gross margin of 61% in the first six months of 2020, compared with 66% in the first half of 2019. Excluding the impact of delivery, TKWY's gross margin was 91%. The gross margin improvement has meant improving profitability, as the operating loss fell from $479 million in the first nine months of 2019 to just $131 million in the same period of 2020. DoorDash's net loss was $533 million and $149 million over the same time frames, respectively. DoorDash has around $1.7 billion in cash and equivalents heading into the fourth quarter, with a $1.0 billion net debt, which means that it has ample cash to fund itself at the IPO time. Without scrutinizing the numbers, DASH has generated operating cash flow of $315 million during the first three quarters of 2020, up from -$308 million in the same period of 2019.
