SAN FRANCISCO – Wall Street loves a pandemic winner.
DoorDash’s shares rose on Wednesday’s first day of trading, achieving a year of oversized growth for the largest grocery shipping company in the country. DoorDash shares opened at $ 182, up 78 percent from the market price of $ 102. The company raised $ 3.4 billion, making it the largest public offering of the year. The opening trade valued the company at $ 69 billion including stock options, more than the market caps of Dominos Pizza and Chipotle Mexican Grill combined.
Despite DoorDash’s deep losses and the highly competitive market in which DoorDash operates, investors piled into the stock. In the week leading up to its IPO, DoorDash raised its proposed price range 16 percent to $ 92.5 per share by the middle, before prices rose even higher. The pandemic was a boon to the company as people turned to delivery services while stuck in their homes.
Tony Xu, the executive director of DoorDash, said the company will try not to chase the scoreboard and the stock market hype as a public company. “I realize the importance of the milestone and the moment, but it’s a day on this multidecade journey,” he said.
DoorDash’s listing heralds a banner week with public offers for technology start-ups. Airbnb plans to evaluate its offering later on Wednesday and start trading on Thursday. The home rental company has hiked its asking price range already and could be valued at up to $ 42 billion, well above its $ 18 billion valuation in the private market this year.
E-commerce startup Wish, video game company Roblox and real estate startup OpenDoor are also planning to list their shares before the end of the year. The events will generate a profit for company founders, employees and investors in what is expected to be the busiest year to go public since 1999, with more than 200 companies going public to date.
Many of these companies lose money. Nevertheless, investors largely welcomed them warmly when they went public. Private investors valued Snowflake, a data warehousing company, at $ 12 billion before going public in September. Since then, the valuation has risen to $ 107 billion.
DoorDash’s debut also highlights the extreme economic disparities caused by the pandemic. Restaurants struggling to survive government-mandated closings are increasingly relying on delivery apps like DoorDash to stay in business.
The apps that armies of gig workers send out to collect and deliver orders impose fees that some restaurant owners say are onerous. In many cases, takeaway orders have not made up for the lost revenue from indoor dining. Chains like Ruby Tuesday, California Pizza Kitchen, and parent company Chuck E. Cheese all went bankrupt this year.
But DoorDash thrived. In the first nine months of the year sales more than tripled compared to the same period last year to 1.92 billion US dollars. Orders rose to 543 million by September compared to 181 million in the previous year.
Prior to going public, DoorDash announced a $ 200 million commitment to various programs to help restaurants and delivery drivers. It invited a number of restaurant owners and delivery people to virtually attend the stock market opening and ushered them in outdoor marketing campaigns in New York and San Francisco.
Despite its rapid growth, DoorDash burns cash. The company lost $ 149 million in the first nine months of the year and warned investors that pandemic-fueled growth was likely to slow.
Mr. Xu said the company will continue to spend money to grow “according to the opportunity.”
David Hsu, a professor of management at the University of Pennsylvania, said DoorDash’s “amazing” rating made him believe investors had overemphasized the impact of the pandemic. “When you get to that market cap, there are questions about where are you going from here.” he said.
DoorDash recently won a long-competitive battle for the use of contract labor. Last month, the Californians passed Proposition 22, an electoral measure that exempted DoorDash, Uber, Lyft and others from a state law requiring them to treat their drivers as employees. Companies are expected to push for similar rules in other countries.
DoorDash has grown in part by focusing on suburban markets and partnering with large chain restaurants. Founded in 2013 by Xu, Stanley Tang, Andy Fang and Evan Moore, the company survived a ruthlessly competitive market longer than many of its competitors. That year two players, Grubhub and Postmates, were taken over by bigger rivals.
By doing business, DoorDash has remained independent. It has a million drivers and 18 million customers in the US, Canada and Australia.
The company has experimented with various business models, including the DashPass subscription service, which costs $ 9.99 per month for unlimited deliveries. DashPass has five million subscribers.
DoorDash also started operating commissioners’ buildings where restaurants can rent space and prepare food specifically for deliveries. It has also partnered with grocers, pet food companies, and drug stores. The company even invested in Burma Bites, a local restaurateur.
The sequence of tech IPOs provides long-awaited returns to venture capital investors. Many of the companies going public are a decade old. With ample venture funding, unicorn startups worth $ 1 billion or more have been able to postpone going public and putting pressure on to keep profits as long as possible.
Sequoia Capital, which supports Airbnb, DoorDash, Snowflake, and several other big startups going public this year, is expected to reap a bonanza. This also applies to the Founders Fund, a venture company that is a large shareholder in Airbnb and Wish. And the Japanese conglomerate SoftBank, which was hurt by bad bets on the office rental company WeWork and others, was repaid through its investments in DoorDash and OpenDoor.
Matt Phillips contributed to the coverage.