Food delivery giant DoorDash continues its march to a public debut after filing its initial S-1 Registration Statement with the SEC last month. The company updated its prospectus last week, boosting the expected valuation range to $90 to $95 per share, up from the original range of $75 to $85. DoorDash expects to have approximately 317.7 million total shares outstanding across all three classes after the offering, translating into a market valuation of $28.6 billion to $30.2 billion.
Here's what prospective DoorDash investors need to know.
Image source: DoorDash.
A significant premium to peers
That market cap is several times greater than Grubhub's (GRUB +0.00%) valuation of $6.4 billion. The smaller food delivery platform is in the process of being devoured by Just Eat Takeaway in an all-stock deal announced over the summer.
DoorDash has generated just over $2.2 billion in trailing-12-month (TTM) revenue, which means that the company is looking to go public at around 13.7 times sales at the high end of the range. That valuation ratio represents a significant premium to GrubHub's 3.9 price-to-sales ratio, although it's worth noting that the stock trades in tandem with Just Eat Takeaway shares due to the pending acquisition. Regional peer Waitr is valued at just 1.6 times sales.
At the midpoint of the expected range, DoorDash anticipates raising net proceeds of just under $3 billion. The company plans to use that cash for general corporate purposes. Some of the money might be used to fund DoorDash's $200 million Main Street Strong program, the initiative announced in May aimed at supporting local restaurants through the COVID-19 pandemic.
Can DoorDash justify the premium?
There is some important context for anyone that is considering investing in DoorDash, particularly when looking at the premium valuation that the company is looking to fetch.
For starters, salesforce's splashy proposed acquisition of Slack has pushed many tech stock valuations higher, since the enterprise software giant is paying a hefty premium for the messaging and collaboration platform. The deal has created an environment where tech companies, especially start-ups preparing to go public, can justify lofty multiples to investors.
Data source: SEC filings. Chart by author.
DoorDash is certainly posting the types of growth figures that get investors excited: Marketplace gross order volume (GOV) has nearly tripled to $16.5 billion in the first three quarters of 2020. But the context for those gains is that the COVID-19 pandemic has supercharged demand for food delivery services as consumers stay home and many restaurants around the country have been intermittently shuttered throughout the year. With cases spiking across the U.S., there may be even more government lockdowns in certain markets in the months ahead.
However, the world is on the cusp of effective vaccines being released, which will be a crucial weapon in defeating the contagion. As things slowly return to normal as vaccines become available, demand for food delivery services will likely diminish, potentially undermining premium valuations across the food delivery sector.
"The circumstances that have accelerated the growth of our business stemming from the effects of the COVID-19 pandemic may not continue in the future, and we expect the growth rates in revenue, Total Orders, and Marketplace GOV to decline in future periods," DoorDash warns.
