DoorDash IPO Soars; Commission Caps Make Early News

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Not a bad debut — not by any measure. But one wonders if the rocket fuel will last.

At this writing, DoorDash shares are changing hands more than 80 percent higher headed into the close of their first day of trading. That translates into an intraday price of $182, up from the $102 where shares had initially priced, above a range that had been reported to be between $90 and $95.

This, on a day when the NYSE was down roughly 70 basis points on the day.

CNBC noted that with this type of hyper-upward action, DoorDash is valued at about twice the level of Uber, on a price to sales basis, in this case at a respective 16x multiple to Uber’s 8x. And yet the challenges that face the delivery companies and their platforms remain the same, remain real, and are mounting.

We’ve noted in this space that there have been piecemeal attempts by states and cities to cap the commissions charged on various delivery services. In only one recent example, as reported by Washington City Paper, the District of Columbia passed legislation that would cap commissions at 15 percent, where it had been 30 percent — at least for the duration of the public health emergency.

And the district’s attorney general has sent a cease-and-desist letter that ordered the company not to charge rates that exceed the cap. The company maintained, in response to that order, that the caps are applicable only to its Classic service, and not DashPass. DashPass, in turn, is the subscription service that offers unlimited deliveries (the fee is $9.99 monthly for the subscription). The City Paper notes that restaurants pay extra to participate in DashPass “because it gives them greater visibility to these committed customers.”

Adding Some Fees

And then there’s a bit of a work-around, a bit of making up for lost revenue streams — at least for DoorDash. In one market — Chicago — that has seen caps put in place, DoorDash has added a $1.50 “Chicago fee,” as reported by the Chicago Sun Times. But this fee gets levied on the customer, not the restaurant, which may lead to pushback.

And herein lies a conundrum for the platform companies. We contend that by claiming the caps are applicable for the tiers of services that are non-subscription, they might spur legislators to ensure that caps cover all offerings. And while only a few states and cities have mandated caps, it’s likely that we’ll see a groundswell of support for those caps — particularly as restaurants seek to have more money in place to weather the continued economic storm of the pandemic. As we see more stay-at-home orders take root, and more indoor dining efforts are shuttered (literally), restaurants will continue to rely on platforms to keep top lines at least somewhat intact. Yet, of course, margins would be pressured with status quo commission rates. Passing more burdens onto the end consumer may not engender loyalty … signaling that even as IPOs may soar, delivery/platform companies have to walk a tightrope that stands taut with legislators, consumers and restaurants all watching.

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