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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Starbucks’ Grande Post-Pandemic Plan

Executives Expect a Quick Rebound

Yesterday Starbucks (SBUX) held its biennial investor meeting. COVID-19 has battered many industries, and the coffee shop industry is no exception. Starbucks’ sales fell 40% during the first months of the pandemic, but executives expect business to fully bounce back around the world before next September. “People will be back in Starbucks stores at a rate far beyond what they were pre-pandemic,” CEO Kevin Johnson said earlier this week.

Even as COVID-19 cases surge and certain parts of the US impose new lockdowns, Johnson has high hopes for Starbucks once a vaccine is widely distributed. Though it will likely take several months for vaccines to be manufactured, delivered, and administered, Johnson believes the vaccine will bring more stability for Starbucks and the rest of the economy.

Shaping the Starbucks Experience

The pandemic has given Starbucks an opportunity to rethink its strategies around store layouts and locations. The pandemic revealed that Starbucks is perhaps too dependent on foot traffic in city centers. It has also highlighted the opportunities for growth using a drive-thru model.

Starbucks expects demand for drive-thru coffee to be strong even once people return to pre-pandemic routines, and it is responding accordingly. As part of this new strategy, the chain will close 1,050 Starbucks branches and will open 2,150 new shops in different locations. But Starbucks is not completely tossing out its sit-down structure in favor of the drive-thru. Johnson said the cafe experience that has been so central to Starbucks’ model will only become more desirable after the pandemic ends.

To improve the in-person cafe experience, Starbucks is investing in technology that will allow employees to spend less time on inventory and administrative tasks and more time on customer service. As a part of this strategy, Starbucks also announced it will boost US wages by at least 10%.

Growth is an Anomaly in Coffee Space

Despite Starbucks’ optimism, the United States is on track to lose nearly 2,000 coffee shops in 2020. The pandemic has brought years of growth for the coffee shop industry to a halt. Starbucks’ balance sheets were able to withstand the pandemic downturn, but sadly, many smaller coffee shops will not be able to weather the storm.

Wall Street is watching Starbucks closely, and analysts expect it will be one of just a few of the large consumer companies whose earnings will see double-digit growth in 2022 and beyond. Despite the challenges it has faced, Starbucks’ stock now sells for 13% more than it did before the pandemic.

Cell Phone Providers and Tech Companies Bid on Airwaves for 5G

A Multi-Billion Dollar Auction for Airwaves

Much-anticipated 5G networks have arrived in the United States, which can be up to 600 times faster than their 4G predecessors. Cell phone providers like Verizon (VZ), AT&T (T), and T-Mobile (TMUS) will likely spend billions of dollars in a government auction of C-band airwaves which began earlier this week. These wireless frequencies are important for companies offering 5G service.

The auction could last several more weeks as cable, technology, and investment companies battle with cell phone providers for prized C-band space. Analysts say a total of $52 billion could be spent over the course of the auction.

The ABCs of C-Band Airwaves

C-band spectrum is widely considered the “sweet spot” for 5G networks. These mid-range frequencies can handle long distances from cell towers while also moving lots of data quickly. Davis Herbert, an analyst at CreditSights, said, “C-band is going to be the cornerstone of 5G networks for the next decade.”

The frequencies are already used in television. Satellite operators had to agree to make room for cell companies on the C-band airwaves they use to send TV feeds around the United States. In years past, the Federal Communications Commission handed out frequency licenses for free. But as new technologies heightened demand, the commission started selling the licenses.

Looking Ahead

Americans both pay for and benefit from the new licensing system. The bidding companies take on debt to secure the licenses, and that money ultimately moves from the FCC to the US Treasury. The winning companies then charge their customers higher fees to cover that borrowing.

Just as big changes are happening in the cell carrier industry, another transition is also on the horizon. President-elect Joe Biden will be inaugurated in January, and will soon appoint a new chair of the FCC. The new administration is expected to prioritize net-neutrality rules. Biden has also said he will focus on expanding broadband service around the country.