Breakingviews – DoorDash IPO leaves too much on the table

NEW YORK (Reuters Breakingviews) – DoorDash has ignored the golden rule of all-you-can-eat buffets: always take more than you need. The leap in the food-delivery company’s shares on its market debut on Wednesday shows that DoorDash, which raised over $3 billion in its initial public offering, could easily have grabbed more. And it should have: competition is fierce and the eating-in trend has probably peaked.

Tony Xu’s company had already raised its estimated price range twice before settling on $102 per share. On Wednesday, the stock opened at $182, valuing the SoftBank-backed startup at about $58 billion, almost quadruple its $16 billion valuation in a private funding round in June.

Market prices don’t tell the whole story, since the volume of shares traded on day one is likely to be only a fraction of the 33 million shares DoorDash sold. But it could have sucked up more cash without ruining its smashing public debut. Say DoorDash had issued its new stock at $135 a piece it would have netted an additional $1 billion. That’s not chump change: the company’s total operating costs for the most recent quarter were $914 million.

DoorDash is generating positive cash flow on its own, and for the three quarters ending Sept. 30 revenue tripled to $1.9 billion compared to the same period last year. But when Covid-19 abates, consumers will begin eating out again. Meanwhile, the restaurant industry is in peril. Morgan Stanley estimates that up to 30% of U.S. independent eateries could close.

Rivalry is also cutthroat. DoorDash has been gobbling up market share but Uber Technologies and Grubhub, soon to join with Europe’s Just Eat Takeway.com, are vying for more customers too. In a fierce food fight, it makes sense to start with a plate piled as high as possible.