DoorDash filed a fresh S-1/A, providing the market with a new price range for its impending IPO.
The American food delivery unicorn now expects to debut at $90 to $95 per share, up from a previous range of $75 to $85. That’s a bump of 20% on the low end and 12% on the upper end of its IPO range.
The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.
DoorDash still anticipates 317,656,521 shares outstanding after its IPO, giving the company a new, non-diluted valuation range between $28.6 billion and $30.2 billion. On a fully diluted basis, the company’s valuation rises to more than $35 billion.
For the on-demand giant, the upgrade is enormously positive news. Not only will its valuation stretch even further above its most recent private price — around $16 billion, set this summer — but DoorDash will also raise even more money than it previously anticipated. That war chest will be welcome when a vaccine becomes widely available and food consumption habits could shift.
DoorDash will raise as much as $3.135 billion in its IPO, according to the filing.
After mulling over the company’s updated valuation from its new SEC filing, I’ve decided there are three things worth calling out and discussing. Let’s get into them.
It’s Friday, so to make our analysis as easy as possible I’ve broken it into discrete sections for your perusal. Let’s go!
A path to profitability is important
DoorDash’s most profitable quarters that we are aware of were its two most recent. During the June 30 quarter, the company saw positive net income of $23 million off revenues of $675 million. In the September 30 quarter, on the back of even more revenue growth, DoorDash lost a modest $42 million against $879 million in top line.
Those two quarters contrast with the first quarter of 2020 when DoorDash lost a far-greater $129 million against a far-smaller revenue result of $362 million, and Q4 2019 when the figures were a $134 million loss and revenues of just $298 million.
For startups, the lesson here is that rapid growth with modestly rising losses is OK. Rapid growth with flat losses in gross dollars terms is better. And losing less money as you scale top line is as hot as Satan’s forge.
Returning to our set of numbers, you can feel DoorDash’s trajectory shift in the results; from losses of a third of revenue or more, the company recently popped in a profitable quarter and then grew 30% in the next quarter while losing a modest sum in percent-of-revenue terms.
DoorDash gets better with size. And investors are cheering that fact on by rewarding the company with an enormous jump in value. But you and I would both agree that this new price range also belies the fact that investors expect Americans to keep ordering delivery even after COVID-19 is behind us.
New consumer behavior is expected to persist post-COVID
By raising and tightening its expected IPO price interval, DoorDash is making it clear that not only has demand been strong, it also knows what investors will pay for its equity.
DoorDash’s new valuation range — $28.6 billion to $30.2 billion on a non-diluted basis — gives it a revenue multiple of up to 8.6x. In prior years that was a software multiple. So investors are pricing in forward-growth to the company’s present-day valuation.
That means that those same capital jockeys expect DoorDash to hold onto its COVID-19 induced gains. We can infer that because if investors thought the opposite, DoorDash could anticipate negative growth in the back half of 2021. And if that were the case, investors would not pay so much for its shares today, a company’s value of course being, at its base, the present value of its future cash flows.
But even more than that, I would argue that investors are even more bullish than merely expecting DoorDash to retain its recent growth. Investors are anticipating future expansion a well. This brings us to our third observation.
There’s optimism in the market for continued on-demand growth
It’s not enough at DoorDash’s IPO price range for the company to merely defend its pandemic-driven growth. Investors expect that the company can grow even more, which implies that the broader on-demand market in the United States still has room to expand.
This helps explain why Uber’s shares are setting new all-time highs this week. And it bodes well for any on-demand startup, though we’ve certainly heard less from that cohort in recent quarters.
We noted in our first observation that DoorDash gets better with size, at least in recent quarters. If you presume that the company has plenty of growth ahead of it, you can infer that it will generate plenty of cash flow that will do good things like avoiding future dilution by obviating any potential need to sell shares to raise capital. So for investors anticipating a larger on-demand market, everything that DoorDash has going for it will only magnify in time.
Hence, a higher price.
That’s the bullish case, as sketched by the company’s rising IPO price range. Let’s see what happens when it prices. I can’t laugh at the chance that it prices above its present interval.
Comment