![]() ![]() Uber isn’t profitable, and its shares are up 80% in 2020. the same period in 2019: sales and marketing costs rose to $610 million from $445 million research and development costs rose to $112 million from $73 million general and administrative costs, which typically covers accounting, legal fees, and lobbying, nearly doubled to $337 million from $179 million.īut FOMO (fear of missing out) is a powerful market motivator, and has fueled much of the Silicon Valley IPO parade. The answer is its costs and expenses rose in every category in the first nine months of 2020 vs. Some onlookers have wondered how DoorDash manages to lose so much money even as its revenue soared amid the pandemic from stay-at-home customers. I think the history books are going to look back and make a case study out of this: a hyped market, a business that couldn't make money in the best possible lockdown environment, not going to make money in the future, yet selling for double its original IPO price.”Ī DoorDash delivery driver riding a bicycle picks up food from Jack's Wife Freda during the first snow of the season on Decemin New York City. But in a world where another food delivery startup could start tomorrow, there are no advantages to scale. ![]() ![]() ![]() As a result, there’s been big consolidation: GrubHub ( GRUB) merged with Seamless in 2013 Uber ( UBER) launched Uber Eats in 2014 and acquired Postmates this year DoorDash itself acquired Square-owned Caviar in 2019 Instacart, more known for grocery delivery than meals, launched in 2012 and last month reportedly hired Goldman Sachs to run a $30 billion IPO.Įven if DoorDash gets big enough to buy up competitors, Trainer reasons, “How hard is it for another one to start up? If there were some advantage to scale here, then maybe you could make a case for consolidation. The food delivery space has low barriers to entry and is crowded with big names. That's super high growth and a huge improvement in margins, two things which almost never happen simultaneously.”ĭoorDash CEO Tony Xu, when asked by The Information on Wednesday about his company’s eye-popping stock price at the end of its first day of trading, said, “Everyone is entitled to their opinion.” Competition and consolidation in food-delivery space “So they're going to go from a negative 12% to a positive 8% margin, while also growing revenue at 40% compounded annually for over a decade. “What $200 per share implies the company will do in the future is improve their margins to 8%, compared to negative 12% now,” Trainer says. “Is it a coincidence,” Trainer wrote in a note last week, “that DoorDash filed for its IPO so soon after COVID-19 vaccines were announced? We think DoorDash’s current investors and bankers recognize that the window of opportunity to IPO this terrible business closes quickly when the threat of COVID-driven lockdowns no longer drives growth in food delivery demand.” He also predicts the end of the pandemic will mean the end of big growth in orders for all the food delivery apps. Short-lived pandemic boost?īut Trainer says revenue growth doesn’t mean much for a company that hasn’t proven it can turn revenue into profit. the same period in 2019, thanks to a boost in demand during the pandemic. This is Silicon Valley selling public markets an asset at a huge premium, and they're going to laugh all the way to the bank, and I think a lot of individual investors rushing into this are going to lose a lot of money.”ĭoorDash touted in its S-1 IPO filing that its revenue surged 226% in the first nine months of 2020 to $1.92 billion vs. At the end of the day, this business is a race to a zero-margin business, because there's really no differentiation. And we're seeing their market share decline. “They do not have a way to make money long-term,” Trainer said on Yahoo Finance Live just after DoorDash began trading on Wednesday. Why ridiculous? Lack of profitability huge competition and a potential example of pandemic pull-forward in demand. ![]()
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