Venture Bytes #60 - Can DoorDash Deliver a Strong IPO? Odds Favor It

Can DoorDash Deliver a Strong IPO? Odds Favor It

DoorDash filed confidentially on Friday, February 28 for its initial public offering, reopening the window for app-based customer-focused mega unicorns after a short lull. But is the market ready for another unprofitable unicorn following underwhelming IPO performances of Uber and Lyft? While the odds are stacked against it, as they are for all unprofitable start-ups, DoorDash may buck the trend by showcasing itself as the largest, best of breed delivery company in North America, with a clear path to profitability.

DoorDash is the largest food delivery platform in the United States, with 340,000 restaurants on its platform across 4,000 cities in the US and Canada. Riding a rising secular socio-economic wave of on-demand services, rapid urbanization, renting over buying, and secure online payment options, DoorDash is well positioned in its niche market.

To say the online food delivery business is “hot” would be an understatement. Post-2013, food delivery start-ups raised $58 billion in funding rounds, well above the $3 billion raised between 2000 and 2013. A large inflow of funds has enabled the companies to grow faster, both organically and through acquisitions. And rapid growth in turn has attracted still more investors at higher valuations. DoorDash’s private market valuation grew from $1.4 billion in 2018 to $13 billion today.

Not only have valuations of delivery apps expanded, they are approaching, if not exceeding, the valuations of the restaurants for which they are delivering. DoorDash, for instance, has a contract with Dunkin Brands that is valued at $6 billion. Not surprisingly, Yum Brands (parent of Pizza Hut, KFC, and Taco Bell) took an ownership stake in Grubhub. Similarly, Chipotle, Red Robin, Jack in the Box, Cheesecake Factory, and Outback Steakhouse have tied up with other third party apps for deliveries.

From 2013 to 2017, revenue from deliveries jumped 20%, digital restaurant orders increased 23%, and the overall number of deliveries increased by 10%, according to the NPD Group. Roughly 15% of restaurant sales will be driven by takeout and delivery charges by 2028, according to projections by Mizuho Securities.

People are still eating in restaurants but just not as much. Delivery apps from DoorDash, Postmates, Grubhub, and UberEats have made ordering in easier, and have changed the way food chains think about their business. Accordingly, downloads of the five most popular apps including Grubhub, Uber Eats, Zomato, Postmates, and DoorDash increased by 115% in 2018 compared to 2016, according to market-data firm App Annie.

The total addressable market in the U.S. for food delivery is projected to grow to $467 billion by 2025 from $337 billion in 2018, according to Morgan Stanley. Spending on online food delivery could grow at 18% annually to $61 billion in 2025 from $20 billion in 2018; a penetration rate of 13% in 2025 from 6% in 2018.

DoorDash has raised $2.1 billion to date, has partnered with 90% of the top 100 restaurants – reportedly more than all its peers combined – and serves 80% of the population in the U.S. and Canada. The company commands a leading market share in a highly fragmented and competitive marketplace. DoorDash first overtook Uber Eats and then in Feb 2019 went ahead of Grubhub, the incumbent market leader. As per the latest available data DoorDash’s share of delivery transactions grew from 27% to 35% during Sep 2019. Additionally, Caviar’s share is at around 2%. UberEats’ share is 25% while Grubhub dropped to 23%.

The DoorDash story is very compelling in our opinion. Barring any negative developments at the company - including regulatory pushbacks - and a major downturn in the economy, the odds favor a strong public market debut for the company.

Space Economy Is Poised To Take-Off

From government officials and space entrepreneurs to leading company executives and analysts there is a growing consensus that space will present a multi-trillion-dollar market opportunity in the coming decades. That’s still a long way from where the industry is today but a number of developments are pointing in the right direction.

In 2018, according to the FAA, the global space economy, consisting of private industry revenues and government budgets, was $360 billion. About $277 billion (77%) was revenue generated by companies providing services like television; mobile, fixed, and broadband communications; remote sensing; satellite systems and ground equipment manufacturing and sales; and, of course, launch services. The remaining $83 billion (23%) constituted government space budgets ($81 billion) and commercial human spaceflight (almost $2 billion).

The global space transportation industry (launch services), the key and essential enabler of the booming space economy, was over $6 billion in revenues in 2018, a relatively small part of the overall $360 billion global space economy. Space transportation makes it possible to send national security and commercial satellites into orbit, probes into the solar system, and humans on exploration missions.

Closer to home, the U.S. space industry was approximately $156 billion in 2016, based on last availbale data. This figure includes over $110 billion in revenues generated by satellite services, satellite manufacturing, satellite ground equipment, and launch services, as well as over $48 billion spent on space programs by the U.S. government.

U.S. launch service providers accounted for about $2.2 billion in total revenues (40% of global revenues). FAA AST-licensed launches accounted for $784 million of the $2.2 billion.

Build It and They Will Come

The space economy today is worth $400 billion, according to most recent estimates. Most of this is generated by satellite-provided service led by SpaceX. The company has launched five batches of 60 Starlink satellites into orbit since mid-2019 for a total of 300 satellites. According to SpaceX executives they are well on their way to deploy the 480 satellites they will need to begin providng broadband service in the U.S. and Canada by the end of 2020. Yet SpaceX is not the only group making this bet: OneWeb, Telesat, and Amazon are also investing billions in networks of thousands of internet connectivity satellites. Apple is also reportedly chasing the dream of satellite broadband.

More importantly, the component cost of satellites and the rockets that launch them have come down considerably, lowering the hurdle for future launches, to add to the roughly 2,300 operational satellites in space right now.

Venture capitalists have also been investing millions of dollars at small satellite companies with big dreams. Planet, Hawkeye360, Spire, Capella Space, BlackSky, and Swarm are just some of the firms who have raised cash, launched satellites, and are planning for a big 2020. Their business models vary, from tracking radio signals and gathering radar data to imaging every inch of the Earth to communicating with internet-of-things devices. But they all depend on the falling cost of building and operating spacecraft and satellites.

Space Tourism and Asteroid Mining – Potential Near-Term Opportunities

Space tourism and asteroid mining appear to be the early drivers of the space economy. Virgin Galactic went public this year in a reverse merger, and now Richard Branson’s space tourism firm says it has the cash to begin flying regular tourist trips to the edge of space sometime in 2020 for $250,000 per ride. More than 600 potential customers have already paid a collective $80 million in deposits for the flight. They will be passengers aboard a six-passenger plane that will be carried aloft by a larger jet before being released and using its own rocket to reach the edge of space. Passengers on the 90-minute flights would experience three to four minutes of weightlessness. The company has one working spaceship and plans an initial fleet of five that could perform 25 flights a month. The short trips are initially aimed at high-net worth individuals, but the company says interest will expand as economies of scale bring down ticket prices. Virgin Galactic said interest had grown since October’s initial public offering, with the number of people registering online as potential passengers doubling since then to almost 8,000.

Blue Origin, Jeff Bezos’ space firm, is expected to fly people on its New Shepard suborbital rocket in 2020. And, SpaceX has tied up a with a space tourism company Space Adventures to take four private citizens into space to the height of the ISS (c. 250 miles) and make two to three orbits around Earth at the end of 2021 or in 2022.

Asteroid mining is another promising opportunity. Allied Market Research estimates the market to be around $3.9 billion by 2025; a robust CAGR of 24.4% between 2018 and 2025. The market is categorized primarily into construction, resource harvesting, and 3D printing based application. Key drivers are current and future space missions as well as increasing investment in technologies used for space mining. SpaceX recently received a $117 million contract for NASA’s 2022 mission to explore Psyche, a mineral rich asteroid. Some of the notable asteroid mining companies include Bradford, iSpace, Kleos Space S.A., Planetary Resources, SpaceFab. The stakes are high with estimates from scientists indicating that the nickel and iron that make up 16 Psyche’s potato-shaped asteroid could be worth $10,000 quadrillion (1 quadrillion is 1,000 trillion dollars).

The next few years are setting up to be very promising as the new and incumbent players power the space economy to the next level.