Third-party delivery company DoorDash will set a share price for its initial public offering Tuesday, riding a wave of momentum that could bring it a valuation of more than $30 billion.
In the latest sign of demand for its stock, the company on Friday raised the price range for its shares to between $90 and $95, up from $75 to $85.
But not everyone shares that enthusiasm about the IPO. Some investors question the terms of the offering and the company’s readiness for the public market, while others believe its growth runway is shrinking.
On Monday, CtW Investment Group sent a letter to DoorDash’s board raising concerns about the IPO’s share structure and how the company characterized public reaction to a former tipping policy. CtW works with union-sponsored pension funds.
CtW criticized DoorDash’s dual-class voting structure, which they say gives too much voting power to company executives. DoorDash is offering three classes of stock in its IPO: A, B and C. Class A shares are being sold on the public market, and each share represents one vote. Class B shares will be held only by DoorDash co-founders Tony Xu, Andy Fang and Stanley Tang, and each share equals 20 votes, according to a prospectus filed with the Securities and Exchange Commission.
“This arrangement imposes a significant gap between those who exercise control over the company, and those who have economic exposure to the consequences of that control,” CtW Executive Director Dieter Waizenegger wrote in the letter.
CtW also said DoorDash is “unready for the public markets,” pointing to its handling of a former tipping policy as one example. CtW suggested the company in its filing downplayed public outcry over the policy that put drivers’ tips toward a guaranteed minimum delivery payment.
“Given that DoorDash has changed its policy and notes the continued risks to its reputation from this incident, the company’s insistence on pretending it did nothing wrong suggests, at a minimum, that it has not yet developed the thick skin necessary to endure on the public markets,” Waizenegger wrote.
Others view the stock as something of a runaway train that’s running out of track due to the uncertainties about the delivery business post-pandemic.
“It’s beyond a bubble,” said Eric Schiffer, CEO of the Patriarch Organization, a private-equity firm focused on tech and media. “That doesn’t mean it can’t still grow. But it’s detached from fundamentals.”
Delivery companies including DoorDash have seen business boom during the pandemic. While many believe demand will remain permanently elevated, the meteoric growth is likely to slow at best when dining rooms reopen and daily life returns to normal. In its prospectus, DoorDash acknowledged that the pandemic’s acceleration of its business “may not continue in the future” and said that it expects growth rates to decline.
In a survey of 59 investors, Wall Street researcher Bernstein found that most thought DoorDash’s growth would decelerate in 2021.
“Most anticipate growth in the 10% to 25% range, though some do anticipate another year of high double-digit growth (50% to 100%), while others think volumes could be flat-to-down in 2021,” the researcher said.
“The kind of growth levels that they’ve been kicking out year after year are about to end,” Schiffer said. “Yes, you can acquire, but organic growth is reaching a zenith.”
Given that dynamic, Schiffer said investors will be looking at DoorDash as a short-term investment.
“You’re not buying this for intrinsic value. … You’re buying this because of better fool theory and the float. And there’s always risks in that,” he said.