on November 20, 2018
Online Food Delivery Platforms Kick into High Gear
Online food-delivery platforms have hit their stride if recent funding rounds are any indication. Instacart raised $600 million in early October at a $7 billion valuation. DoorDash raised $250 million last August at a $4 billion valuation, topping its own earlier round of $535 million in March at a $1.4 billion valuation. Postmates raised $300 million in September at a $1.1 billion valuation.
UberEats, an emerging leader in the delivery business, should be valued at $20 billion according to Goldman Sachs.
To say the online food delivery business is hot will be an understatement. The valuations of these companies are closing in on the valuations of the restaurants they deliver for. DoorDash, for instance, which has a contract with Dunkin Brands, is currently valued at $4 billion compared to Dunkins’ $6 billion. Yum Brands (parent of Pizza Hut, KFC and Taco Bell), not surprisingly, took an ownership stake in GrubHub earlier this year. Similarly, Chipotle, Red Robin, Jack in the Box, Cheesecake Factory and Outback Steakhouse have tied up with third-party apps for deliveries.
In the last five years, revenue from deliveries jumped 20%, and the overall number of deliveries increased by 10%, according to The NPD Group. Around 15% of restaurant sales will be comprised of takeout and delivery charges by 2028, according to projections by Mizuho Securities. Worldwide, the market for food delivery stands at €83 billion, or 1% of the total food market and 4% of food sold through restaurants and fast-food chains, according to a McKinsey report.
Contextually, the most common form of food delivery is still the traditional model, in which the consumer places an order with the local pizza parlor or Chinese restaurant and waits for the restaurant to bring the food to the door. This traditional category has a 90% market share, and most of those orders— almost three-quarters—are still placed by phone, according to McKinsey.
That said, the tide is shifting fast, and understandably so. Deeper smartphone penetration, increase in user-friendly food apps, and improved logistics have made it possible for this business category to take hold. Consumers have grown accustomed to shopping online through apps or websites – securely, conveniently and with complete transparency – for a growing number of needs. It was just a matter of time for consumers to increasingly expect the same experience when it came to ordering dinner.
The online food-delivery platforms also expand choice and convenience, allowing customers to order from a wide array of restaurants with a single tap of their mobile phone. They personalize the ordering experience by storing relevant customer data, which makes the relationship very sticky. And according to data from McKinsey Group, once customers sign up, 80% rarely or never leave for another platform.
Furthermore, there is data to support that the online delivery platforms are additive to overall restaurant sales as opposed to cannibalizing it. The delivery business tends to be incremental, pulling in orders that they would not have gotten otherwise – particularly orders in off-peak hours and late-nights in cases where restaurants are open 24-hours as in the case of McDonald’s.
Ultimately, offering a perfect blend of superior in-restaurant dining experience and seamless delivery services – either in-house or via a third-party – will prove to be the winning recipe for success.
Key Takeaways from Recent Tech IPOs
Recent technology IPOs in the USA provide noteworthy takeaways. We compiled a sample of 70 technology IPOs that listed on the NYSE or NASDAQ from the beginning of 2017 until September 2018. These include 40 US, 5 International (ex-China), and 25 Chinese companies – essentially all the private companies that can be classified as technology companies. The purpose of the study was to identify meaningful patterns and trends. We found quite a few. The following table summarizes the results.
• Average Age of US IPOs was 12 years vs. 8 years for Chinese companies. The historical average age of private companies is 8 years, according to the University of Florida study of IPOs from 1980 to 2015. While the average age of Chinese companies was close to the historical average, the US and International companies (ex-China) at 12 and 15 years, respectively, stayed private much longer. A number of factors explain the longevity of private companies in the US, but two stand out: (1) Abundant available funding from the traditional VC and non-VC companies and (2) An active secondary private market that provided much-needed liquidity for early investors and key employees, removing a major hurdle to staying private longer.
• The Average Capital Raised across the Board was roughly $300 Million. While US companies raised $311 million, Chinese companies were the lowest at $285 million. This includes Snap in the US basket that raised $3.4 billion and iQIYI in the China basket that raised $2.3 billion. These were offset by most companies that hovered around the mean funding amounts – some more, some less.
• The Average IPO Share Price of Non-US companies (ex-China) was the Highest at $42 per share. International companies had an average IPO price of $42, well above $16 of US companies and $11 of Chinese companies. The International average was skewed higher by Spotify which priced its IPO at a reference price of $132. Excluding Spotify, the average international price was $16, in line with the US companies.
• The Average Enterprise Value of US companies was $2.1 Billion vs. $2.4 Billion of Chinese Companies. International companies (ex-China) had the highest enterprise value at $5.8 billion, so technically they were the highest. Excluding Spotify, which was an outlier, the average for international companies was $1.9 billion, much lower than the US and Chinese companies. Another pattern worth noting was that Chinese companies had higher cash and debt balances as compared to US and International (ex- China) companies.
• The Average LTM Revenue of US IPOs was the Lowest at $333 Million. Once again the International companies were the highest at $1.1 billion, but that was skewed by Spotify’s revenues. Excluding Spotify, the International’s average was $408 million, still above the US but well below the Chinese companies.
• The Average EV/LTM Revenue Multiple was 8.3x for US IPOs vs. 6.9x for Chinese Companies. This is a very helpful metric for valuing future IPOs. While this is still a high multiple, it is well below the nosebleed multiples of unicorns in the past: Facebook’s IPO multiple was 21.0x, Twitter was 27.1x, and Snap was 20.7x.
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