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Technology

DoorDash IPO delivers billions for SoftBank

US food delivery group jumps 86% on debut and rewards Chinese-American founders

DoorDash took investors on a pleasant ride on Dec. 9, delivering results far above predictions in the company's IPO filing.   © Reuters

PALO ALTO, U.S. -- Food delivery company DoorDash had a blockbuster first day of trading on Wednesday, sealing a lucrative investment for early backer SoftBank and making billionaires of its three Chinese-American founders.

DoorDash's shares opened at $182 on the New York Stock Exchange on Wednesday and closed at $189.51, up 86% from the IPO price of $102. The price set for the offer was already higher than the target range of $90 to $95 that the company predicted in its IPO filings.

SoftBank's shares also reacted powerfully, closing almost 11% higher in Tokyo on Thursday -- their largest one-day gain since March.

DoorDash has been a clear leader in the U.S. food delivery sector since 2019, according to market intelligence company Edison Trends. It now holds about half of the U.S. food delivery market, giving it a strong lead over Uber Eats, Grubhub and others as demand skyrockets during the coronavirus pandemic.

"This trend of DoorDash being the share gainer and growing faster than anyone else was well-established pre-pandemic," said Tom White, senior research analyst at D.A. Davidson. "And the pandemic just supercharged that already existing trend."

Founded in 2013 by Tony Xu and Stanford University classmates Andy Fang and Stanley Tang, DoorDash quickly grew out of the San Francisco Bay Area.

Its growth accelerated after receiving a $535 million investment in 2018 from SoftBank's Vision Fund, Singaporean sovereign wealth fund GIC and Silicon Valley venture fund Sequoia Capital.

Vision Fund -- the venture arm of the Japanese conglomerate -- invested $680 million in DoorDash via a series of funding rounds between 2018 and 2020. The investment turned SoftBank into DoorDash's largest shareholder at more than 20%. The stake is now worth more than $10 billion based on Wednesday's closing price.

"I think SoftBank recognizes the large market opportunity in the U.S. in the transformations we're seeing here in terms of not only food delivery, but also in the broader transportation space in general, and SoftBank has been one of the biggest financial backers in the space," said emerging tech analyst Asad Hussain at PitchBook, a capital-markets intelligence service.

DoorDash's listing will give SoftBank another opportunity to sell one of its portfolio companies at a profit, as it takes advantage of a booming public stock market to generate returns.

Vision Fund fully exited its stake in Slack -- the business messaging company later bought by Salesforce -- and biotech company 10x Genomics in the July-September quarter.

While the pandemic tailwind has benefited the food delivery sector overall, DoorDash seems to be benefiting the most. During the September quarter, for example, DoorDash's revenue jumped more than 250% year over year, while Uber Eats grew 125% and Grubhub 52%.

One of the reasons for DoorDash's success during the pandemic is that it decided early to focus on suburbia rather than cities, which rivals targeted.

"Before the pandemic, the suburban areas and smaller cities weren't as hotly contested as they are today," White said. "Now it turns out that those are the fastest-growing food delivery markets. And DoorDash had the opportunity to establish their brand with consumers in those markets early on."

DoorDash CEO and co-founder Xu owns about 5.2% of the company, which makes the 36-year-old a billionaire after Wednesday's IPO.

Xu, who emigrated from China in 1989 with his parents when he was just five years old, said his mother's early struggles as an immigrant inspired him to found DoorDash.

Xu's mother was a doctor in China but the U.S. did not recognize her Chinese medical license. She started working as a server at a Chinese restaurant in Illinois, where Xu also worked as a dishwasher. After 12 years of working three jobs a day, she saved enough money to attend a U.S. medical school and later opened a clinic.

"DoorDash exists today to empower those like my Mom, who came here with a dream to make it on their own," Xu said in the company prospectus. "Fighting for the underdog is part of who I am and what we stand for as a company."

Xu's co-founders Fang, 28, and Tang, 27, also own 4.7% stakes in DoorDash -- now worth over $2 billion based on Wednesday's closing price.

Additional reporting by Wataru Suzuki in Tokyo

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