DoorDash Hopes the Pandemic Changes Dining Behavior for Good

IPO documents reveal how much money the company has lost this year even with a big upswing in business during COVID.

The pandemic seems to have been DoorDash's lucky break: It gave the delivery app a chance to prove it could turn a profit.

Over three months at the height of COVID lockdowns, DoorDash made money instead of losing it for the first time. On Friday, the company released documents related to its initial public offering, giving insight into the inner workings of the delivery giant.

Turns out, those three months were an anomaly, at least so far. Despite a boom in business as restaurants closed their dining rooms in the spring, even as they charged restaurants controversial commission fees taking a sizable portion of each delivery order, DoorDash and other delivery apps have continued to lose money. So far this year DoorDash has lost $149 million. Last year, it lost $667 million.

It's hard to think about a company like DoorDash losing that much money, especially given their recent, high-profile success. DoorDash is the biggest delivery company in the country, with 50 percent of the market. It has 18 million customers and 390,000 merchants on the platform. But it costs money to grow, and the company has spent hundreds of millions of dollars on its sales and marketing efforts—$581 million in 2019.

What DoorDash does have going for it—aside from over a billion dollars in the bank right now—is a sizable and growing customer base that appears especially loyal. Existing DoorDash customers give the company 85 percent of its business. When you account for the huge increase in revenue this year—$1.92 billion so far—DoorDash was able to spend comparatively less money to attract new users. "The decrease in sales and marketing expenses as a percentage of revenue was driven by increased operating leverage as existing consumers generated a greater proportion of revenue, as well as increased efficiency in our consumer and Dasher acquisition efforts," the filing reads.

Translation: We're big enough that people know who we are and use our service, repeatedly.

As part of the filing, DoorDash had to list potential risk factors, "in the interest of full disclosure"-style. The list is 60 pages long, spanning nearly a quarter of the document. They include many of the criticisms of the third-party delivery industry: a limited operating history in a relatively new industry, a history of net losses with no promise or guarantee of being able to sustain the profitability it saw during the pandemic, and concerns that future regulation and government oversight could harm its business.

Earlier this month, California voters gave DoorDash a reprieve when they passed Proposition 22, an initiative that allows DoorDash to classify its drivers as independent contractors, not employees. It was a response to earlier state legislation that would have required DoorDash and other gig work providers to classify drivers as employees. DoorDash, along with Uber, Instacart, and others, put up hundreds of millions to help the measure pass, making it the most expensive ballot measure ever financed in the state.

The company is also worried about potential negative press. Last year, it was criticized sharply for the way it handled driver tips in a saga that played out over months and still haunts the company.

It also notes that bad press related to restaurants on its platform could hurt its reputation, "even if the publicity is not directly related to us." It's one acknowledgement that, at the end of the day, DoorDash is reliant on the restaurants that use its platform. As another of its listed risk factors notes, if too many restaurants close, DoorDash could take a serious hit.

DoorDash has made some investments in local restaurants with recent "Main Street Strong" initiatives that offer breaks on pricing and grants to help restaurants in cold climates winterize. A day before its IPO filing went public, it announced a $200 million, five-year commitment to help its couriers (dubbed "Dashers"), local businesses, and underserved communities. It recently helped one Chicago-area restaurant reopen in a new, delivery-only space as part of a new "Reopen for Delivery" initiative. And it partnered with one Bay Area restaurant to create a new spinoff location, open for delivery and takeout with co-branded packaging.

"DoorDash only works if it works for merchants, consumers, and Dashers," the company said in the filing, noting that when business improves in one area, it improves in others. More restaurants on the platform lead to more consumers using the app. More consumers place more orders, requiring more couriers. More couriers means faster service for restaurants on the platform. And so on.

DoorDash hopes its initial public offering will value the company at $25 billion. Even then, it says it has incredible room to grow. Only six percent of potential U.S. customers used DoorDash this year. Consumers spent $302.6 billion on off-premise dining (takeout, delivery, drive-thru) in 2019, but only $8 billion was spent on DoorDash. "We are in the early phases of broad market adoption," the company said.

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