DoorDash just filed for its IPO, and revealed a lengthy list of risk factors that investors should be aware of — from the ongoing pandemic to contract-worker classification

  • Food-delivery service DoorDash filed for its initial public offering on Friday morning.
  • The "Risk Factors" section of the document highlights many of the issues facing the broader app-based food-delivery market, from business model challenges with contractors to a surge in sales due to the pandemic.
  • Everything from the ongoing coronavirus pandemic to contract workers rights legislation is highlighted and detailed by DoorDash as potential risks to its business. We break down the full list below.
  • Visit Business Insider's homepage for more stories.

The biggest player in the food-delivery service market, DoorDash, is officially going public.

DoorDash Friday morning filed a form S-1 for its IPO with the Securities and Exchange Commission. 

In order to begin that process, DoorDash had to publicly disclose a trove of information that was previously unknown. For starters: The pandemic has been good for the company, with losses dropping to $149 million on revenue of $1.9 billion, compared to a $667 million loss on $587 million in revenue in the prior year.

But that's far from all the filing document has to offer — a section labeled "Risk Factors" details the major issues DoorDash believes it could face. We break down the most important of those potential issues below:

1. DoorDash is part of an emerging market, and at just 7 years old, the company has limited experience in that market.

A key issue for DoorDash, which the company touches on repeatedly throughout the Risk Factors section of its S-1, is how young it is in a relatively new market: app-based food delivery.

"We have a limited operating history in an evolving industry," the company said in the filing, "which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful." 

DoorDash launched in 2013 and expanded rapidly in the last seven years. 

"This limited operating history and our evolving business make it difficult to evaluate our future prospects and the risks and challenges we may encounter," the company said.

 

 

2. The company has yet to turn a profit, and expenses are only expected to increase going forward.

Like so many other startups before it, DoorDash has been operating at a loss for years as it expands its userbase.

"We have incurred net losses in each year since our founding," the company said in the filing. "We anticipate increasing expenses in the future, and we may not be able to maintain or increase profitability in the future."

Things have improved for the company in the past few years: In 2019, for instance, DoorDash "incurred a net loss of $667 million," but that net loss dropped to $149 million for the first nine months of 2020.

Still, DoorDash expects losses to continue going forward. "We expect our costs will increase over time and our losses to continue as we expect to invest significant additional funds towards growing our business and operating as a public company," the filing said.

3. The market for food delivery apps is increasingly crowded, and increasingly competitive.

DoorDash is dominant in the app-based food delivery market, with over 50% of market share according to Edison Trends. 

But the other half of the market is full of "intense competition," DoorDash said, including Uber Eats, Grubhub, and Postmates. But the company's filing doesn't stop there: It also lists Domino's, "merchants that own and operate their own delivery fleets, grocers and grocery delivery services, and companies that provide point of sale solutions and merchant delivery services" in the competition.

If DoorDash is "unable to compete effectively," there's a possibility that the business "would be adversely affected."

4. The ongoing coronavirus pandemic, or another such pandemic, could negatively impact business in an unpredictable way — and the boost in sales and usage won't last forever.

The coronavirus pandemic has killed over 1.2 million people around the world, and over 50 million people have been infected. Beyond the horrific human cost, economies around the world have faced unprecedented challenges.

One business that's been doing better than ever is food delivery. To that end, DoorDash has seen its net losses drop by hundreds of millions of dollars as millions of people turn to delivery while stuck indoors.

That said, the unpredictable nature of a pandemic means potential negative impacts as well on the company's business: "The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted at this time," the company's filing said.

Moreover, DoorDash is concerned that the boost from the pandemic won't last forever. "With the COVID-19 pandemic, we have experienced a significant increase in revenue, Total Orders, and Marketplace GOV due to increased consumer demand for delivery, more merchants using our platform to facilitate both delivery and take-out, and improved efficiency of our local logistics platform," the company said. "The circumstances that have accelerated the growth of our business stemming from the effects of the COVID-19 pandemic may not continue in the future, and we expect the growth rates in revenue, Total Orders, and Marketplace GOV to decline in future periods."

5. If DoorDash has to reclassify drivers as employees, it would impact the company's growth opportunities — but other legislation could harm its financials, too.

DoorDash, like Uber and Lyft and many other app-based services, classifies its delivery employees ("Dashers") as contractors. 

But California, and potentially other states or even the federal government, have pushed back on that concept with legislation aimed at turning contractors into full-time employees. 

In California, where DoorDash is headquartered, Assembly Bill 5 attempted to do exactly that. But DoorDash — alongside Uber, Lyft, Postmates, and Instacart — pushed back by proposing a ballot initiative that would exempt them from the new law: Proposition 22. The group pumped over $200 million into the exemption, which recently passed.

Prop 22 requires app-based companies, including DoorDash, to offer health subsidies, cover some expenses for drivers, and set a wage floor for when drivers are actively driving. DoorDash warned these expenses could lead them to charging higher fees, which could in turn lead to DoorDash losing customers. 

DoorDash also warned that if other states or the federal government enact similar legislation, DoorDash would have to offer drivers the same type of benefits full-time employees receive, like a minimum wage or healthcare. DoorDash sees this as a potential risk to its foundational business model.

"If Dashers are reclassified as employees under federal or state law," DoorDash said in the filing, "our business, financial condition, and results of operations would be adversely affected."

In short: DoorDash's business model is built on contractor labor, and reclassifying all of those contractors as full-time "would require us to significantly alter our existing business model and operations and impact our ability to add and retain Dashers to our platform and grow our business," the company said.

If you're interested in reading the full IPO filing, you can find it right here.

Got a tip? Contact Business Insider senior correspondent Ben Gilbert via email ([email protected]), or Twitter DM (@realbengilbert). We can keep sources anonymous. Use a non-work device to reach out. PR pitches by email only, please.

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