This is the week that was as it relates to Initial Public Offerings. Well, last week also.
Amongst the IPO royalty is a company called “DoorDash” (DASH) that hit the IPO switch on Wednesday and was up almost 90% on its first day of public trading.
DD had already re-priced its IPO price based on demand twice during the lead up to their birth as a public company, so the deal was pretty rich.
You know my constant refrain when I see big IPO first day trading pops, right? The investment bankers got the pricing wrong because clearly the demand was greater than anybody thought.
Which brings us to the question — Who is DoorDash and why is it so damn hot?
1. Dash is a seven year old food delivery app.
2. It is enjoying staggering recent growth — staggering he said — on the tail wind of the Pandemic that has left us hungry for food and no way to get it.
3. Enter now Dash to fulfill our cravings for anything for a small delivery fee.
4. How strong was the Pandemic tailwind? Dash saw a 226% revenue surge revenue in the first three quarters of 2020 when compared to 2019.
5. Total revenue for the first nine months of 2020 was $1,920,000,000 — that’s 1.92 BILLION.
In fairness: Dash only lost $43MM on Q3 2020 revenue of $879MM and might have been profitable except for one-time G & A expenses of $79MM. I tell you that because you may want to take succor from the notion they are a growth company in an early stage of growth. Good luck with that.
Dash’s biggest competitor, UberEats, also lost money in Q3-2020, the Year of the Pandemic. Fairness.
Huge winner, right, Big Red Car?
Not so fast there, Dasher-Donner-Blitzen:
1. The near term improvement in Dash revenue is entirely Pandemic tailwind driven. Dash charges a flat $5.99 delivery fee so if orders go down it peels back immediately, linearly. They have no second act. No diverse set of cash flows. It’s delivery.
2. Food delivery is a commodity business — meaning very little if any differentiation, price sensitive, no value added to the underlying product, no barriers to entry, no moat — and it is highly competitive.
3. Grubhub, UberEats, Postmates, Instacart, Delivery.com, goPuff ($1.95 flat fee), ChowNow, Seamless, Munchery, Eat 24 — all competitors.
Stores like Jimmy John’s have their own local arrangements. McDonald’s is harnessing the delivery wagon as we speak.
4. No value add proposition. The food tastes better hot, but so what? The food does not taste better because the guy standing at your front door is from Dash v UberEats.
Do you think the order level goes UP or DOWN when the vaccines are well disbursed and we are back to “old normal?”
How about the restaurants, Big Red Car?
The whole food deliver is fraught with risk for the restaurant:
1. The restaurant’s brand in food-delivery-app-world is the guy at your door, not the cozy, intimate crowd at your favorite local Italian comfort food drug dealer.
2. The restaurant has a different kind of customer — the delivery guy and loses that intimate, personal relationship with the real customer for whom they always used to find a table, send over a free dessert on the customer’s birthday, ask, “Have you lost weight or are you just working out more? Look great, Freddie.”
3. The restaurant loses its website-to-customer mojo — cause the customer is now (not in all instances) looking at a website that is not the restaurant. The restaurant loses its online brand visibility and cache. [Never, ever lose your cache. Very expensive to replace.]
4. Low margin, highly competitive commodity businesses employ bottom-of-the-gene-pool-workers putting your precious brand in the hands of a knucklehead just when you really need every $$$.
5. The reputation of the restaurant and the quality of the food is now held hostage by a different risk factor — delivery.
You can lose a customer over delivery? Yes.
Bottom line it, Big Red Car
Here it is, hungry reader:
1. DoorDash is a Pandemic tailwind driven business that will implode when the vaccines arrive (starting next week) and people can again graze at restaurants.
2. It is highly competitive, a race to the bottom price contest, and moat-less.
3. It is an opportunistic IPO and will come down as fast as it went up.
As a stock, DoorDash may not deliver.
This is just an insight, slightly less useful than an opinion, and not nearly as definitive as a fact. Hell, it could be and is probably wrong. Right?
But, hey, what the Hell do I really know anyway? I’m just a Big Red Car — and for God’s sake do NOT ever take investment advice from a bloody car. Do not be THAT guy.
Merry Christmas
