At the end of last week, DoorDash – a U.S. based food delivery app – filed for an IPO. It’s likely to take place at the end of the year, helping confirm 2020 as a big year for tech companies going public. The fact that the success of big tech in general and gig economy apps like DoorDash specifically has come in a year that been devastating for many shouldn’t come as a surprise: the instability caused by the pandemic has consolidated the power of many tech companies. From data analytics to monitor and manage the spread of the virus through to delivery services, technology companies have found a way to use the crisis to gain an even greater foothold in our lives.
DoorDash’s success throughout the pandemic
DoorDash has seen astonishing levels of success throughout the pandemic. According to The Guardian, it has seen its revenues grow 226% in 2020. It is now the biggest player in the food delivery market in the U.S. and accounted for nearly half of all meal delivery sales in September. This is more than the combined market share of rivals GrubHub and Uber which are already public. (Those two companies accounted for 20% and 22% of the food delivery market in that period respectively.)
Proposition 22 and DoorDash
The company has recently benefitted from the passage of Proposition 22 in California. This is the law that defines gig economy workers as contractors rather than employees. However, despite this victory, DoorDash acknowledges the challenges that this type of legislation still poses. In the prospectus that accompanies its formal S1 filing, the company admits:
“A reclassification of Dashers or delivery service providers using a local logistics platform as employees could require us to revise our pricing methodologies and pay model to account for such a change to Dasher classification, and to make other substantive internal adjustments to account for any transition of a Dasher to an employment position, which would have an adverse impact on our business, financial condition, and results of operations.”
The extent to which this will have an impact on investors remains to be seen.
The profitability taboo
The risks to DoorDash’s success run deeper than possible employment laws. There are many of indications that the company could well struggle to achieve profitability. This is explained in depth by Edward Ongweso Jr. at Vice, who writes that “there’s little to no evidence DoorDash can achieve let alone sustain profitability… and lots of evidence that its business model is largely based on taking advantage of both restaurants and drivers.”
There are many parts that you could point to to highlight this fact, but this from the summary of the risk factors sums it up: “we have a history of net losses, we anticipate increasing expenses in the future, and we may not be able to maintain or increase profitability in the future.”
This isn’t unique, however. Gig economy platforms consistently struggle to make a profit. Uber famously has never been able to turn a profit.
Other tech companies’ pandemic success
Rumours of the end of the techlash might be overstated, but it’s impossible to ignore the astonishing growth of many tech companies over the last year. This piece in the Financial Times published at the end of October underscores just how positive the Coronavirus pandemic has been for big tech’s financial health: “The combined sales of the four big tech companies leapt 18 per cent year on year in the latest quarter, to $227bn, 4 per cent higher than expected, while their after-tax profits jumped by 31 per cent, to $39bn.”
Who else has gone public in 2020?
Big tech’s success throughout 2020 could be one reason why so many tech companies have gone public. These include data platform Palantir (which has been working with the NHS in the U.K.), stock trading app Robinhood, and work management tool Asana. Airbnb are also looking to join DoorDash on the U.S. stock market before the end of the year.
However, although this wave of IPOs suggests serious optimism in the tech industry, data indicates that their success is dwindling. “Amid the flurry of tech companies making their public debut this year,” Ross Matican writes in The Information, “a higher number than in the previous two years have quickly traded below the offering price.”