DoorDash Puts Its Valuation To The Taste Test

DoorDash investors are racing toward the exit. The SoftBank Group-backed food-delivery service filed for an initial public offering last week, even as coronavirus puts extra strain on investors already wary of tech listings. Owners will first have to come to a reckoning on its lofty valuation.

After the high-profile ditching of WeWork’s IPO, investors have become more discerning about money-losing companies. Casper Sleep had to cut the price of its market debut and now trades 25% below that, while Airbnb may postpone its listing plans, according to Bloomberg. Add in last week’s biggest drop in the S&P 500 Index since 2008, and DoorDash’s timing looks odd.

Working in DoorDash’s favor is its runaway growth. The company led by Tony Xu jumped from below 15% of all food-delivery transactions in March 2018 to more than 30% last September, according to Edison Trends. That could explain the rationale for its eye-popping $13 billion valuation after two fundraising rounds in May and November.

But shares in DoorDash’s closest U.S. rival, Grubhub, have fallen more than 40% in a year. One way to assess their worth is gross bookings, or the amount of cash the companies take in before paying drivers. Fourth-quarter gross bookings were around $2.6 billion, based on Second Measure figures. Annualize that and put it on Grubhub’s enterprise value to 2019 gross food-sales multiple of 0.75 and DoorDash is worth nearly $8 billion.

Even that may be generous. Grubhub has been in business far longer and has a track record of profitability, though lost $19 million last year as it upped investments. DoorDash spilled some $450 million of red ink in 2019, according to the Information, and may lose a California ballot proposal this November to override a new law treating gig workers as employees. And annualizing its sales figures might overstate last year’s bookings, given the speed of growth.

Hitting the reset on valuation is painful, but it makes consolidation possible too, depending on how desperate DoorDash becomes. Taking a bite out of DoorDash’s worth is the only way an exit strategy becomes palatable.