Doordash (NYSE 🙂 turned out to be a huge success during its trading debut on Wednesday, when the shares of the food delivery platform skyrocketed, showing investor interest in technology stocks
San Francisco-based DoorDash was up a staggering 92% on its first trading day, closing at $ 189.51 a share after the company raised $ 3.37 billion on its initial public offering. The jump from day one, the third largest this year in the US for a major IPO, gives DoorDash a market capitalization of $ 60 billion and a fully diluted value of $ 71.3 billion. On Thursday, the shares closed at $ 186, while on that day they lost 1.85%
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The skyrocketing share on the first day of trading shows that investors feel comfortable owning stock in a company that is in a tough market where many companies are trying to capitalize on the pandemic boom in demand for meals delivered to our door.
Despite these challenges, DoorDash's business model has a unique appeal that is hard to ignore. First, there's the company's growing subscription program, which shows its customer loyalty and the potential of repeat sales.
DoorDash's subscription program had more than 1 million subscribers from August 2018 to August 2019. That number increased to more than 5 million by September 30, 2020, according to DoorDash & # 39; s first public offering.
About 28% of DoorDash & # 39; s over 18 million users are now considered monthly subscribers, far more than Uber's 1 million subscribers (NYSE 🙂 at the end of the third quarter, even now the company 78 million monthly active platform users in Rides and Eet. Laura Forman of the Wall Street Journal wrote in an analysis article last week:
"DoorDash & # 39; s early focus on customer loyalty appears to have played a role in the transformation from a delivery entrant to the US market leader. So are the suburban markets, which are in many cases a pandemic gold mine with higher order values ??and lower operating costs. But customer loyalty could become even more of a factor next year when consumers return to restaurants. "
50% Market Share
This first-mover advantage has helped DoorDash capture 50% of the US market's food delivery business, far ahead of its main rivals, including UberEats, Grubhub (NYSE 🙂 and Postmates, according to the filing documents.
With less than 6% of US residents currently using its service, DoorDash says its business has much more room to grow. Revenues for the first nine months of the year more than tripled and net loss declined from a year earlier as the pandemic fueled news orders.
With its top spot in food delivery, DoorDash plans to use its platform to ultimately provide on-demand delivery for any product.
As the company said in its prospectus:
“While food itself is a category with a long runway for growth, we believe the network we have built provides us with the ideal position to fulfill our vision of enabling all local businesses to compete in the convenience economy. "
With this outlook, however, DoorDash is a service that thrived during the pandemic. Investors should also consider the post-pandemic economy, which could significantly reduce demand for door-to-door food deliveries. Major players in this game are the restaurant owners who in some cases pay up to 30% of the order to DoorDash.
At the same time, it is almost impossible to predict from an IPO success whether the company will be successful in the long term or whether it will get its investors in trouble. History tells us that the previous success of an IPO is no guarantee of the long-term viability of the company.
A Bloomberg analysis of companies that debuted since the financial crisis and shot more than 100% on their first day of trading shows that most stocks have fallen since their initial rise.
Bottom Line ]
DoorDash & # 39; s 90% pop at its debut shows that investors have great confidence in the company's business model. This euphoria on Wall Street has enabled the delivery person to achieve an excellent rating. But shortly after an IPO surge may not be an ideal time for long-term investors to take a position. Waiting on the sidelines for a better entry point is, in our opinion, a more prudent strategy on this point.
