DoorDash, (DASH  ) a food delivery marketplace, went public earlier this month and closed 86% above its opening price. The company has certainly benefited from the coronavirus which led to an increase in food deliveries as restaurants were shuttered, and many felt unsafe leaving home.

Since its first-day gains, shares are down by 25%. DoorDash has many competitors including Postmates, Uber Eats, and GrubHub (GRUB  ). Some skeptics believe that shares are overvalued and that DoorDash's business model is predatory in that it underpays delivery drivers and takes too much share from restaurants on the platform. Believers in the company feel that it's a logistics company that is giving opportunity to underemployed people to make money in a flexible manner while increasing sales for restaurants.

Company Background

DoorDash was founded in 2012 as PaloAltoDelivery by Stanford students Tony Xu, Stanley Tang, Andy Fang, and Even Moore. Xu remains the CEO of the company. It was part of a slew of apps that took advantage of the increasing ubiquitousness of smartphones phones to create on-demand marketplaces like Uber, TaskRabbit, Lyft (LYFT  ), etc.

The company has an impressive growth rate, since inception, and is now the second-largest food-delivery app by market share. Its growth is due to acquisitions of competitors like Caviar and entering new markets. It's equally impressive that it's been able to hold its own against competitors with deeper pockets and more venture funding like Uber (UBER  ) and Grubhub.

According to its S-1 filing, DoorDash had revenue of $885 million in 2019 which was a 204% increase on a year over year basis. There were 263 million orders on its platform which was a 217% increase. This growth accelerated in 2020 due to the pandemic from these already lofty levels as the last quarter had 268% revenue growth with 18 million new users.

Stock Price Outlook

Valuing DoorDash is quite tricky. It's likely that food-delivery apps continue to take a greater share of the market especially with the rise of "cloud kitchens" which are restaurants that are only on apps. Further, there is increased scrutiny of their business model which relies on contractors who don't get benefits. They are incentivized to make as many deliveries as possible in the least amount of time as possible which creates safety issues.

It's likely that all these marketplaces fail if the company would have to offer benefits to workers on its platform. If the labor market improves, the increased costs of attracting "Dashers" could also eat into profits. It's also possible that a more liberal-leaning government could force them to offer more favorable benefits or payout structure which would also eat into their sales.

For restaurants, it's a double-edged sword. Initially, the apps were helpful in leading to more sales and customers, however, the food-delivery companies are becoming increasingly powerful, and they are taking a cut of sales which eats into margins.

These factors, combined with DoorDash's lofty valuation could mean that shares will underperform in 2021. It's also likely that there will be even greater than normal foot traffic to restaurants which would also lead to decreased sales for restaurants.