Can DoorDash maintain its pandemic boost?

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Food delivery giant Doordash is going public at perhaps the best possible time for its business.

There’s a lot to be optimistic about in DoorDash’s filing: It is the largest food delivery player in the U.S. and has grown only larger in the pandemic. Revenue more than tripled in the first three quarters of 2020 to $1.92 billion compared to the same period last year—and it wasn’t merely through ramping up promotions or advertisements. Losses in the period after all narrowed from $533 million to $149 million.

While the pandemic delivery story is undoubtedly one of rising tides lifting all boats, DoorDash’s boat has managed to rise higher than its competitors, taking about 49% of the market share by September 2020 compared to around 34% a year earlier.

Last valued at $16 billion, DoorDash is also no longer burning through cash, generating $315 million in those months compared to the $308 million it razed in the same period a year earlier. And in yet another boon for the bulls: The company showed signs of profitability in the second quarter of 2020, gaining $23 million before swinging back to a loss of $43 million the following quarter.

But therein lies a key problem: DoorDash was only able to show profitability at the height of the lockdowns. Can it keep its pandemic boost?

Bulls will argue that stay-at-home orders have fundamentally shifted consumer behavior, forcing some who have resisted the app age to sign up UberEats or Instacart. No doubt that is true—but it seems highly unlikely that any food delivery service will be able to maintain the blistering pace of growth achieved this year as consumers eventually return to in-person dining. (DoorDash acknowledges as much in its filing: “We expect the growth rates in revenue, total orders…to decline in future periods”).

As pre-pandemic times have shown us, profitability in those days was elusive as businesses undercut each other in fees and with discounts. Now, competition is slated to become even more aggressive, if GrubHub’s $7.3 billion price tag for Europe’s Just Eat Takeaway.com or Uber’s near $2.7 billion bid for Postmates are anything to go by.

The tension between restaurants and food-delivery services, meanwhile, has only strengthened as small businesses hanging by a string feel the weight of merchant fees more than before. Restaurants, facing a huge decline in dining, have successfully asked cities to cap fees on third-party delivery providers.

It still seems likely investors will bite. But the question is if DoorDash can gain and maintain the lofty valuation it is seeking to achieve—$25 billion—even after the pandemic.

Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com

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PRIVATE EQUITY

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IPO

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