DoorDash Makes its Public Debut

DoorDash Knocks on the Market’s Door

DoorDash (DASH), the United States’ largest food delivery company, made its trading debut on Wednesday. The San Francisco startup raised $3.37 billion, making its IPO the third-largest of 2020. DoorDash sold 33 million shares at $102 each after initially marketing them at $90 to $95 each.

As consumers have avoided dining at restaurants over the past 10 months, demand for food delivery has soared. The food delivery industry was growing even before the pandemic, but delivery companies like Doordash faced strong competition, thin margins, and complaints of high fees, among other challenges. These issues have not gone away for DoorDash, but changing consumer habits during the pandemic have caused the company to grow steadily. DoorDash’s revenue more than tripled during the first nine months of 2020 as new customers flocked to the app.

How DoorDash’s Suburban Bet Paid Off

As DoorDash’s competitors concentrated their energy in the United States’ largest cities, DoorDash developed a suburban strategy. In the suburbs DoorDash found families with more people to feed, and consequently larger delivery orders. DoorDash also differentiated itself from competitors by growing the number of restaurants on its app instead of zeroing in on ultra-fast delivery.

That strategy delivered returns as the pandemic swept across suburban areas in the United States. In January DoorDash had 1.5 million monthly subscribers. By September that number reached 5 million subscribers.

SoftBank’s Investment in DoorDash

Like many food delivery companies that struggle with small margins, DoorDash has not yet posted a full-year profit, but the company’s IPO and strong growth in 2020 lends hope to major shareholders that profits could be on the way. SoftBank (SFTBY) is DoorDash’s most prominent shareholder with a 24.9% stake in the company.

Two years ago, SoftBank invested $680 million in DoorDash. Now Wall Street estimates that investment is worth more than $5 billion. Analysts say early cash from SoftBank was a turning point for DoorDash, which used the funding to quickly expand from 600 cities to 3,000. DoorDash accounted for 20% of the food delivery market in 2018, but now controls over 50% of the market. At the end of the trading day, DoorDash shares were up 85.8%, priced at $189.50. Investors will be eager to see what lies ahead for the company now that it is publicly traded.

p.s. SoftBank is also a SoFi investor.

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