You may soon be able to sink your teeth into DoorDash as an investor. The leading food-delivery platform filed to go public last week, setting the stage for what could be one of the market's more volatile debutantes when it starts trading under the ticker symbol DASH on the New York Stock Exchange.
It's going to live up to its ticker symbol. There's a lot to like in sizing up the country's leading third-party app for restaurant delivery. There's also a lot not to like. Let's break it down into three categories: the good, the bad, and the ugly.
If you're a fan of revenue growth, you'll find plenty of it in DoorDash. The top line more than tripled last year, up 204% to hit $885 million. Business is actually accelerating in 2020, soaring another 226% through the first nine months of 2020.
Business picking up this year isn't a surprise. The pandemic has forced restaurant operators large and small to embrace the off-premise convenience provided by third-party delivery apps. Roughly half of last year's $600 billion in U.S. restaurant sales were being consumed offsite. One can only imagine how that metric is faring in 2020 when some eateries don't have a choice given indoor dining restrictions and consumer fears of contracting COVID-19 in indoor spaces where folks naturally have to remove their masks to eat and drink.
The news gets even more encouraging for DoorDash as we work our way down the income statement. Margins have improved dramatically this year to the point where DoorDash has generated positive contribution profit and adjusted EBITDA through the first nine months of 2020.
DoorDash has come a long way in a short time. Three years ago it was the third-largest player in a crowded niche. It commanded just 17% of the U.S. market, trailing Uber Technologies' (NYSE:UBER) Uber Eats with the thickest 39% slice and Grubhub (NYSE:GRUB) at 27% of the category share in terms of total sales. DoorDash now reigns supreme with 50% of the market.
Consolidation has helped give the leaders more room to breathe. DoorDash acquired Caviar in October of last year. Uber Eats lost out to Just Eat Takeaway.com (NASDAQ:GRUB) in the fight to gobble up Grubhub this summer, hooking up with Postmates instead on the rebound. The competition is thinning out, and that's a good thing in terms of the cutthroat competition that was starting to happen.
However, having three giant players commanding 92% of the market isn't going to put an end to the aggressive promotional activity needed to stand out. DoorDash, Uber, Grubhub, and Postmates have warmed up to credit card companies for affiliations that provide card holders with discounted if not free access to their premium loyalty subscription platforms. Promo discount codes are the norm given the high fees consumers face when ordering through the third-party apps.
We also can't read too much into this year's improving margins at DoorDash. Right now restaurants will do anything to get noticed on DoorDash and rival platforms by offering deals and discounts on top of the stiff piece of the action that the apps are collecting as the middleman. It will be the eateries that regain bargaining power at the other end of the pandemic.
The accelerating top-line growth and improving bottom line at DoorDash makes this a great time to go public, but it's also hitting the market at an inopportune time. Stay-at-home stocks have fallen out of favor since encouraging vaccine news started breaking earlier this month.
With industry consolidation likely done after the three largest players got larger over the past year, that route for market share growth has been squeezed dry. When the dust settles and folks are safely returning to eatery dining rooms won't that make the three top dogs even more aggressive on the promotional front?
Then we get to the ballot measure that passed in California earlier this month. This was another positive for the industry -- as delivery apps will be exempt from classifying their independent contractors as employees with all of the costly associated benefits -- but things may play out differently if voters in other states see things differently in the future.
There's a lot to like in DoorDash. Scroll through the S-1 filing and you'll see a promising IPO stock with better-than-expected growth and bottom-line resiliency than you figured for the industry's top dog. However, given the inherent risks of IPO stocks one has to wonder if we're already seeing DoorDash at its best. We might be at peak DoorDash, and after seeing so many things go right this year it may hit the market priced for perfection -- and that's a recipe for indigestion.