This morning, DoorDash filed a new S-1 document, this time updating the market about the price it expects to command during its public offering. The food-delivery giant gave a range of $75 to $85 per share, which would revalue the company sharply higher than its final private price, set during a June Series H that valued DoorDash at $16 billion.
The company intends to sell 33 million shares, raising between $2.475 billion and $2.805 billion in the process. Notably, there are no shares set aside for its underwriting banks to buy at its IPO price.
The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.
After the public offering, DoorDash expects to have 317,656,521 shares outstanding across various classes, giving it a valuation of between $23.8 billion and $27 billion at the two extremes of its IPO range, not counting RSUs and unexercised options. CNBC calculates that the company could be worth up to $32 billion on a fully diluted basis.
What matters more than the raw dollar amounts, however, is what we can learn from them. Let’s get into the guts of the valuation range and find out if it’s bullish or if we should anticipate DoorDash to raise its range before it goes public.
Valuations, ranges
The new DoorDash S-1/A filing doesn’t appear to contain new financial information, so we can keep our prior notes on the company’s health and performance in mind. Recall that we were generally impressed by DoorDash’s growth and its improving profitability.
Other on-demand food services are doing well: HungryPanda just raised $70 million, and on the back of Uber Eats’ growth, and optimism that its ride-hailing business will return with the market-readiness of strong COVID-19 vaccines, shares of Uber are at all-time highs.
So you can taste the optimism that DoorDash is riding as it looks to list. Given our take, you would be forgiven for presuming that DoorDash is targeting an aggressive price.
Is it?
To understand if DoorDash looks expensive or cheap at its IPO price range, we’ll need a revenue number to use as a yardstick. There are two options: If we took the company’s performance during the first three quarters of 2020 and annualized it, we’d measure DoorDash against a revenue mark of $2.55 billion. But, since the company grew quickly during 2020, it’s probably more market-aligned to multiply its most recent (and largest) quarter by four. That works out to $3.52 billion.
You can see in those numbers how rapid growth can quickly change how we perceive a company’s size.
At DoorDash’s expected price range of $23.8 billion to $27 billion, we can calculate a number of revenue multiples for the company. We’ll go ahead and calculate four, using both of our revenue figures and both valuations, so that you have full context:
- Revenue multiple at $23.8 billion and Q1-Q3 revenue annualized: 9.33x.
- Revenue multiple at $23.8 billion and Q3 revenue annualized: 6.76x.
- Revenue multiple at $27 billion and Q1-Q3 revenue annualized: 10.58x.
- Revenue multiple at $27 billion and Q3 revenue annualized: 7.67x.
As DoorDash is a growth-oriented company, I suspect that it will be valued along the more aggressive calculations in bold. So at the top end, DoorDash could be targeting a multiple of as much as nearly 8x.
Which I would instantly protest about if DoorDash didn’t have such strong gross-margin momentum. The company’s gross margins grew from 41% in Q1 2020 to 53% in Q3 2020. So, with more scale comes better economics for DoorDash.
Thus, if you are bullish on DoorDash keeping up its growth in 2021, you may very well also expect it to keep seeing stronger economics. With those preconceptions, $85 per share might be cheap for the company’s equity.
On the other hand, if you are a bear on DoorDash keeping up growth in 2021 when the COVID-19 pandemic begins to recede, you may very well also expect it to see weaker economics. With those preconceptions, $85 per share might be a bit expensive for the company’s equity.
This brings us back to Uber, which I think provides the correct prism through which to view today’s market sentiment. Namely, that Uber is valued at all-time highs at a time when it is far from in its best all-time shape. But investors are betting on its ride-hailing business returning, and, I think, that its food-delivery business will not recede in the future. Those tea leaves bode very well for DoorDash’s eventual IPO pricing.
Which, in turn, is good news for unicorns. DoorDash is still an unprofitable company going public on the back of a pandemic-led — and therefore temporary — boost to its business. And it is going to possibly add up to $11 billion to its May valuation in December of the same year. That’s, ahem, aggressive. But that you are not rolling your eyes at its possible IPO price is all that we need to say about today’s market appetite for growth, yeah?
What a year!
Is Slack overpriced now that the market knows Salesforce might buy it?
Comment