The DoorDash IPO is here. And in a year where the economy has struggled and IPOs have been sparse, this one might have something going for it.
Today, we'll show you whether DoorDash stock is a buy after the IPO or not.
Though the IPO market slowed down in response to COVID-19, the food delivery business promised a different outlook. Everyone was ordering food delivered to their houses.
For example, Amazon had to hire 75,000 more workers to keep up with deliveries. Similar trends were found across the country as more liquor and grocery stores kicked off delivery services.
Lucky for DoorDash, the company is in the food delivery business. And it's one of the leading names in the business.
The company was valued at $16 billion as of June, and it's now floated a price of $25 billion for its IPO, at $45 per share.
It's not all sunshine and rainbows in the food delivery business, however. Here are some things you should consider before investing in DoorDash stock today...
Is DoorDash Profitable?
The Seattle Times reported ahead of the DoorDash IPO that its prospectus revealed some classic hallmarks of a food delivery company.
The San Francisco-based DoorDash revealed it was losing money despite the broad market trend toward delivery.
This is not uncommon for the delivery industry - nor is it for the gig economy in general. Analysts have often scrutinized the viability of business models hiring contract workers en masse. Uber Technologies Inc. (NASDAQ: UBER) and Lyft Inc. (NASDAQ: LYFT) are prime examples of that.
One of the biggest questions is whether a profit can be turned at all if the company can't stay green with an entire staff of contract workers.
The question now is whether DoorDash can do anything to shed this common stigma.
Though the company isn't profitable, it did still turn solid revenue through the COVID months. The company brought in $1.92 billion from 543 million orders between January and September.
It was a 200% improvement year over year, from just $587 million on 181 million orders.
And good news...
Net loss was also down substantially. The company went from $533 million in the negative to just $149 million. It was even profitable for one quarter.
But as the company is still in the red, the question goes back to whether shareholders can trust the business model or not.
That may ultimately determine whether you buy DoorDash stock. Here's how you should think about this.
Is DoorDash Stock a Buy After the IPO?
Whether investing in an IPO is good or bad idea completely depends on the stock. And that depends on a number of factors - the IPO price, whether the company is profitable, how well the company is managed, among other big picture criteria. Check out our IPO investing guide for more details on how to decide when to invest in an IPO, right here.
Looking at the IPO structure can also provide a hint at whether a stock is a buy or not. Some IPOs are a great opportunity to buy a company early. Alibaba Group Inc. (NYSE: BABA) is up 180% since it went public, for example.
At the other end of the spectrum, you have companies like Lyft Inc. (NASDAQ: LYFT), which lost some investors 70% of their money. The company is still yet to see profits - like DoorDash, it's a gig stock, so many consider its profitability doubtful.
These IPO examples side-by-side give you a look at two different motivations for an IPO. One involves a company that's genuinely taking its growth to the next level. The other is a simple cash-out for the founders.
It would be easy to think DoorDash was the latter. Founders Andy Fang, Stanley Tang, and Tony Xu own a combined 9.9% of the company, or $2.47 billion of the IPO.
But a silver lining for the gig economy is that we are still in the early stages. Companies are still trying to sort out their niches in unprecedented ways.
Also, the state of California recently passed Proposition 22, which stopped DoorDash from having to treat its contractors like employees.
The question remains whether DoorDash will continue its upward trajectory in a new tech-delivery-reliant world. Coronavirus vaccines have been making headway, with Pfizer Inc. (NYSE: PFE) recently approving a vaccine with 90% efficacy, and now Moderna Inc. (NASDAQ: MRNA) approving one with 94%.
Over 100,000 restaurants have closed in the last six months due to COVID-19, some of them permanently. That means fewer vendors for DoorDash, but it could also mean a more normalized delivery economy.
In choosing to IPO right now, DoorDash is betting on this transformation. Buying DoorDash stock early would be likewise.
While it could pay off in the event of a massive, permanent transition from in-person dining to delivery, there is still a huge amount of uncertainty investing in DoorDash.
DoorDash stock is one of the more successful gig economy companies, so it could stick around for another decade of digital transition. If you love it, best wait for the lockup period to end before buying.
Three Stocks Even Better Than DoorDash
Chief Investment Strategist Shah Gilani just held his first-ever stock-picking lightning round event - running through more than 50 stocks to tell you if they are stocks to buy or stocks to sell.
Dozens are overpriced and overhyped - you should ditch them ASAP.
But Shah says THESE three stocks are "screaming buys."
All three are trading at a discount... they're under-the-radar companies most people haven't even heard of... and they have massive tailwinds ready to send their share prices into the stratosphere.
To get the company names, tickers, and price targets for Shah's picks, go here now.
About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.