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DoorDash: The Value of Speed

Mario Gabriele
The Generalist
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Doordash IPO at $32bil valuation

Palo Alto Delivery got its first order 45 minutes after launching - Really bad website, with just a phone call, without menus, kept getting orders - Seed investment followed - and it's grown ever since - Beat Grubhub and reached 50% market share October 2020, with the help of $2.5 billion in capital - It's got in bunches of customers and merchants, and revenue has grown >200% in two consecutive years - Now has subscription product - Retains emphasis on helping small businesses - Taken flak for weird practices that don't seem friendly These dichotomies lead to a question - is it hypergrowth or a money-furnace, underdog or predator?

The Story

A few Stanford students walked around to look for problems - and a local owner showed them her delivery problems - three months later they had a website - Started pulling in so much money Square thought they were money laundering - Got into Y Combinator, dynamic branding, moving fast - $17.3mil Series A, $40mil Series B, new geographies, more financing, acquisitions - Also collisions - merchants didn't like weird pricing strategies - Dashers wanted employment status - Tipping wasn't more money for the courier - Coronavirus accelerated the IPO and allowed DoorDash to improve image

The Market

DoorDash doesn't claim a TAM, but it does claim only 6% customer penetration - Growth is expected, market size estimated $22.5bil and $60.7bil in the future - DoorDash holds 50% market share, and is to IPO at $32bil - valued > total market - Uniquely positioned in suburban and small metropolitan markets - These also have family orders, less congestion, less independent competition - But drive-through expanded even larger in pandemic - Is more cost-efficient for merchants - This means DoorDash now needs to beat a different competitor

The Product

Core product needs to orchestrate 3 players at scale and with optimization - Consumers want great selection, Dashers and merchants want money - This all needs a much larger sales budget than anything else - Logistical optimization - need everything to be timed perfectly - Interfaces have to communicate these complicated things well - Lightweight app for everyone so far - can build bigger tools for merchants in future - Right now DoorDash broadening reach, but deepening tools is lucrative Some other product lines as well: - Supporting delivery for chains that own their interface - Defensive strategy of lowering commissions and giving back branding space - Plays in convenience and grocery stores

The Business Model

Does DoorDash make money - it's a marvel to make delivery profitable - Core product monetizes by fixed merchant and variable diner commisions - DoorDash takes 15%, Merchant gets 60% and Dasher 25% - Can the merchant lose 40% of the sale? - Can the dasher make a living off this sort of wage? - Will consumers pay 30-40% premium for delivery? - Also consider average order volume/frequency, delivery efficiency, and supplier pressure as small ones die and large chains thrive - Headwinds may become larger after pandemic

The Management

Tony Xu is a really good fit - started in family restaurant, then in merchant-focused companies - Has grit and drive, willing to go lengths for the team - high rating from his team - His direct reports are from high growth and large marketplace companies - His incentive plan is tied to long-term performance - modest salary, large vesting potential instead based on stock price

The Investors and Financials

Lots of people have thrown in money to DoorDash - much dilution, but high valuation - Sequoia Capital, Softbank, Greenview are those clearing 5% threshold - Meanwhile the company has grown a lot of revenue while getting efficient - Sales and Marketing costs dropped from 75% to 32% of revenue - Cost of revenue dropped from 60% to 47%, efficiency improvement - Operating losses dropped from $479mil 2019 to $131mil 2020 - Gross order volume (GOV) is doubling too, especially with COVID - Pre-COVID, GOV was increasing by repeat business not new customer acquisition - so if it's grown more customers could monetize them more - Unit economics are tricky to find but have been analyzed - Customer acquisition costs around $6 - Each order ~$30, and Doordash keeps more of it more frequently over time - We think DoorDash earns ~$60 per customer over 5 years - very great - The breakeven does take time (about 16 months), but looks like B2B SaaS - Generally though small changes in margins have big impacts because small absolute value

The Competition

DoorDash vying with a whole list of companies in a variety of spaces Three main areas of competition: - Delivery marketplaces - UberEats and Grubhub in the field as well - DoorDash has most of market, but isn't leading in large metros - Independents list on multiple services, so exclusive deals are important White-label platforms - if DoorDash is Amazon, who is Shopify (a few startups) Ghost kitchens - aggregating many kitchens - This puts lots of kitchens at one point, which raises average order volume - CloudKitchens led by Travis Kalanick has a lot of potential - Zuul Market also aggregates tenants on the other end too - $1/delivery cost

The Regulation and COVID

Reclassification of Dashers as employees will upend business model - This is existential threat to DoorDash - a bunch of money on Prop 22 - Biden seems to support reclassification based on ABC test Commission Caps happened during COVID - if retained will really hurt - Denver capped fees charged to restaurants, so DoorDash added flat cost to customers COVID changed spending behavior - Customers are buying more at home, while restaurants rely on delivery - DoorDash provided PPE and contactless delivery for everyone

DoorDash doesn't need to go public

Stable financial position, but it's a really good time to do it - Stellar numbers, competitors doing well, Prop 22 helping DoorDash If they continue to grow, the new capital will help

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