DoorDash, the leading food-delivery app in the US, has just filed its IPO prospectus with the SEC Friday morning, revealing some shocking - though not entirely unexpected - details about its financials that should make prospective investors nervous.
DoorDash reported $1.9 billion in revenue during the nine months prior to Sept. 9. That's compared with just $587 million during the same period last year, before the COVID-19 pandemic led to a massive surge in demand for takeaway meals in the US, and around the world.
However, even after exhibiting such robust growth, it's worth noting that the company's loss only narrowed by $149 over the same period, despite the massive surge in orders, a clear sign that the company is still effectively subsidizing every meal that it delivers. In 2019, DoorDash's financials reveal, the company reported a $533 million loss, meaning the company's YTD loss is still north of $375 million. That's certainly an improvement, but as the company outlines in a section of the filing called "Risk Factors" that it "may not be able to maintain or increase profitability in the future."
We have a history of net losses, we anticipate increasing expenses in the future, and we may not be able to maintain or increase profitability in the future.
Although we generated net income of $23 million for the three months ended June 30, 2020, we have incurred net losses in each year since our founding, we anticipate increasing expenses in the future, and we may not be able to maintain or increase profitability in the future. We incurred a net loss of $667 million and $149 million in the year ended December 31, 2019 and the nine months ended September 30, 2020, respectively, and, as of December 31, 2019 and September 30, 2020, we had an accumulated deficit of $1.2 billion and $1.3 billion, respectively. We expect our costs will increase over time and our losses to continue as we expect to invest significant additional funds towards growing our business and operating as a public company. We have expended and expect to continue to expend substantial financial and other resources on developing our platform, including expanding our platform offerings, developing or acquiring new platform features and services, expanding into new markets and geographies, and increasing our sales and marketing efforts. These efforts may be more costly than we expect and may not result in increased revenue or growth in our business. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from maintaining or increasing profitability or positive cash flow on a consistent basis. If we are unable to successfully address these risks and challenges as we encounter them, our business, financial condition, and results of operations could be adversely affected.
Following the completion of this offering, the stock-based compensation expense related to our RSUs and other outstanding equity awards will result in increases in our expenses in future periods, in particular in the quarter in which the offering is completed. Additionally, we may expend substantial funds in connection with the tax withholding and remittance obligations that arise upon the initial settlement of certain of our RSUs. For more information, see “—The stock-based compensation expense related to our RSUs and other outstanding equity awards will result in increases in our expenses in future periods and we may also expend substantial funds to satisfy a portion of our tax withholding and remittance obligations that arise upon the initial settlement of certain of our RSUs, which may have an adverse effect on our financial condition and results of operations.”
If we are unable to generate adequate revenue growth and manage our expenses, we may continue to incur significant losses in the future and may not be able to maintain or increase profitability.
To be sure, DoorDash isn't the first food-delivery company on the public market. GrubHub and Uber have both already gone public, even though GrubHub's market share is less than half that of DoorDash's.
In an introductory letter, DoorDash CEO Tony Xu really tapped into the zeitgeist with a story about his immigrant parents. He said his mother worked three service-industry jobs, including at a restaurant, to put food on the table, and that Xu had started the company to "DoorDash exists today to empower those like my Mom who came here with a dream to make it on their own."
Now that California has passed Prop 22, Xu can continue to help people make it "on their own", ie without any kind of formal employment arrangement (or offering the benefits to match).
Given the timing, with Prop 22 passed and the pandemic driving a massive surge in demand, it makes that DoorDash has picked now to move ahead with its IPO.
But in a series published last year by WSJ called "the Delivery Wars", the paper's reporters broke down why it has become so difficult to project a path to sustainable profitability for companies like DoorDash without hiking prices considerably.
Of course, until the market has a dominant player, prices probably won't be going anywhere thanks to the extreme competitive pressure. But once a winner has been chosen, a virtually monopoly should give them far more wiggle room on pricing power.