DoorDash-ing to IPO

The business serves a rapidly expanding market that's relatively underpenetrated

Asad Hussain 20 November, 2020 | 12:41AM
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DoorDash’s S-1 filing indicates the company generated revenue of $1.9 billion through third-quarter 2020. Driven by pandemic-induced demand for food delivery, DoorDash is growing at a blistering pace of 200%-plus, well ahead of its competitors thanks to its focus on higher-ticket, fast-growing suburban markets, and knocking on the door of sustained profitability with a 10% adjusted EBITDA margin delivered in the third quarter.

The timing of DoorDash’s market debut is fortuitous. There’s a lot to like about this business. It serves a large, rapidly expanding addressable market that is relatively underpenetrated (less than 6% of the U.S. population is on the platform). We believe there is a long runway of growth ahead for DoorDash and expect consumers to continue to favor food delivery even beyond the pandemic. Additionally, the risk of labor regulation pinching margins (a major overhang on the business) has eased somewhat with the passing of Proposition 22 and increased likelihood of a divided federal government. These developments should help assuage investor fears about the risks of investing in the business.

We think DoorDash is well-positioned to increase its valuation substantially through an IPO. DoorDash is a much cleaner growth story today for investors than it was before the pandemic. Overhang over labor regulation has reduced, the company has seen a massive expansion in growth, and it is making strides toward profitability. We believe DoorDash could be valued north of $25 billion in an IPO. Our analysis is based on favorable market conditions, increased investor enthusiasm, derisked regulatory environment, valuations of precedent transactions, and a similar valuation multiple to what the company has traded at in the past. This would be a significant increase from the company's last private market postmoney valuation of $16.0 billion in June 2020.

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About Author

Asad Hussain  Asad is lead mobility analyst at PitchBook.

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