📈 Tech IPOs — Are DoorDash & Airbnb Doing Good?
Happy Weekend! Welcome to 2021 — It’s been a crazy start already, from poor accountability, an attempted coup to a shift in power.
In this post, I wanted to backtrack to what may seem like a lifetime ago — December 2020. Two of the hottest tech IPOs DoorDash [$DASH] and Airbnb [$ABNB] have been the talk of the town.
While neither have made much for public market investors post IPO yet, they have already made billions for all of the private market investors lucky enough to get into their early rounds.
I felt compelled to write about these 2 companies, not because they have generated a lot of money for investors, though that certainly qualifies them as Doing Well, but to explore what Doing Good means for them, and if we can quantify what their positive impact has been.
Traditionally DoorDash and Airbnb don’t fit our definition of Doing Well by Doing Good as mentioned in our original post since their service doesn’t directly contribute to Doing Good. Here’s our original definition for reference.
Doing Well by Doing Good is a concept characterized by for-profit companies that creatively tie in capital incentives through products and services that directly feed into immediate good for society from Day 1. These companies are a subset of those described above, but are differentiated by their ability to tie closer to 100% of their operating revenue to contribute towards Doing Good rather than a fraction like many of the other companies mentioned above.
That said, it’s still important to acknowledge the positive impacts companies like DoorDash and Airbnb have on populations vulnerable due to unstable income (e.g. gig workers unable to find other work, home owners struggling to make mortgage payments, etc).
First we’ll discuss what people are saying and then go into quantifying the impact these companies are having on vulnerable populations, and finally comparing this to the value generated for shareholders (those outside of the vulnerable populations).
The Hullabaloo
With their IPOs, Twitter and the world has blown up with the usual Silicon Valley big wigs, Investors, and even local officials weighing in. From the fun stories of the first cold email to YC partner Paul Graham
To the standard investor websites looking to report on the latest quick buck for DoorDash and Airbnb…but all of the news hasn’t been good.
Most telling has been the backlash against these companies and how they might be making a lot of money for the 1% but not so much for the very people that enable them to be successful.
Take this post from local politician Justin Brannan in NYC highlighting the wealth inequality tech companies like DoorDash are creating.
Or this Tweet from the leaders of nonprofit The League SF
According to DoorDash CEO Tony Xu, "Helping brick-and-mortar businesses compete, succeed, and flourish in these rapidly changing times is the core problem we are trying to solve."
As for Airbnb, investors and key stakeholders, like Paul Graham, have been ecstatic with their financial results, but others like Heather Knight aren’t so thrilled and academic pundits like HBR [full paper here] have shown that a 1% increase in Airbnb listings lead to an 0.018% increase in rents and a 0.026% increase in house prices with US data up to 2018.
Certainly benefits may well be present for both DoorDash and Airbnb, but do they outweigh the costs? How does helping the 1% counteract the positive impact to these vulnerable populations? These are some questions we aim to answer.
Show Me the Numbers (2020)
According to their S-1 filing, DoorDash in the first 9 months of 2020 had the following key numbers
$1.92B revenue
$149M loss
$229M worth in free cash flow
And the key constituents as see in this “Flywheel” diagram below amounted to the following
18M Consumers
1M “Dashers”
390,000 Merchants
DoorDash has shown some strong numbers, according to most pundits, but how do we split this value between the vulnerable populations who need this revenue to survive vs. the 1%? For the sake of argument let’s categorize DoorDash’s stakeholders into two categories:
Value to 1%: Consumers, Large shareholders (e.g. investors, founders, etc)
Social Good: Merchants (e.g. small businesses) and “Dashers” (e.g. gig workers)
What about Airbnb? Similarly their S1 filing shared some promising results despite severe downturn due to the COVID-19 pandemic. For the first 9 months of 2020, they reported
$2.52B revenue
$697M loss
As for some statistics on the supply side:
4M+ hosts
5.6M active listings
But Airbnb is a bit different, because the vast majority of renters are using it as supplemental income rather than a primary source so we break down their two segments in the following way.
Value to 1%: Consumers, Large shareholders (e.g. investors, founders, etc.), Owners with multiple properties supplementing income
Social Good: Renters who use Airbnb as a sublet to survive and owners who rent out property to support affording their homes.
Comparing Doing Good and Doing Well (2020)
Here we’ll make a number of simplifying assumptions since we don’t have all of the numbers, but we can quantify Doing Well and Doing Good by thinking about the segments we used above.
DoorDash
Doing Well: $1.96B rev @ $49.15B mkt cap
Reasoning: this is purely a measure of how well the company makes money and the value the market attributes to it which benefits shareholders. Since DoorDash is a product of convenience, the very product benefits consumers willing to pay extra for that convenience.
Doing Good: $3.12B earnings for “Dashers” + $8.46B Merchant sales
Reasoning: “Dashers” earn on average ~$15 / hour, ~$1 / mile, & ~$8 / trip. For “Dashers” if we assume they are about 80% of the median of hours worked for gig workers, we can use ~20 hrs / week, which comes out to $300 / week or $15,600 / year earned by a single “Dasher”. While we assume a normal distribution, this is certainly not the case, so assuming ~20% of 1M “Dashers” encapsulate the bulk of distribution, we find $3.12B of earnings for “Dashers”. While an estimate, it is reasonable given $7B of earnings reported for “Dashers” since it’s founding and much of that coming in the last 2 years. For Merchants, $19B of merchant sales have been reported since founding, and with a similar distribution as for “Dashers” we can expect ~$8.46B in merchant sales in 2020.
Airbnb
Doing Well: $2.52B rev @ $90.82B mkt cap
Reasoning: this is a measure of the company’s ability to make money which is directly correlated to the value gained by homeowners and the attributed market value which benefits shareholders. Customers with disposable income for travel and familiarity with technology benefit from the convenience of Airbnb’s service.
Doing Good: $3.93B earnings for hosts using this as a means to keep their house or as a sublet
Reasoning: We calculated this by using these numbers from their S-1 where 72% of hosts in NYC fit the group described. Assuming NYC is the 98th percentile of a normal distribution ~37% of hosts might fit this bill. With a host fee ~ 3% and a 20% markup for renters from Airbnb we have $10.63B in total host earnings of which 37% fit the bill.
What does this all mean?
This doesn’t completely tell the whole story because we aren’t looking at gross income. For those vulnerable populations this is not supplemental or disposable income, but the bare minimum to survive. With DoorDash, for example, there are legitimate arguments to be made about value not truly helping “Dashers” , but even hurting them because the $15,600 / yr average earnings causes them to actually lose money over time with the cost of driving. Similarly for Airbnb, it has been shown that housing costs increase in areas where Airbnb has been introduced, ultimately hurting the same populations they hope to benefit with the nearly $4B in aggregate earnings.
So if we simply took the numbers for Social Good vs. Value to 1% , we could argue DoorDash’s Good / Value ratio is ~ 20% (11B/50B) and Airbnb’s is ~ 4.4% (4B/91B), but that’s likely an overestimate given the negatives
Conclusion
There’s no doubt, that like many other tech companies out there, DoorDash and Airbnb are making a LOT of money for investors
But they also generate positive outcomes for those vulnerable populations. Other examples exist such as ad-powered platforms like Google and Facebook which enable small business owners, influencers and many others to benefit from ad revenue.
DoorDash and Airbnb may not be one of the Doing Well by Doing Good companies as we’ve defined them, but both DoorDash and Airbnb have made a LARGE positive impact and have both DONE WELL — to the tune of $10s of Billions — and DONE GOOD — on the order of Billions. To put it simply:
DoorDash does more good than Airbnb, but there’s also likely some bad that comes out of both of their business models. Companies like DoorDash and Airbnb however, want to do better and have an honest spirit, which can’t be said of every company out there. Not every business can Do Well by Doing Good, BUT every company can do some good, and DoorDash and Airbnb are great examples of how to do that even when the product or service you provide may not directly do that.
Hope you found this informative! While we’ll typically focus on Doing Well by Doing Good companies in this newsletter, once in a while we’ll take some time to highlight the positive work large companies are doing to tie this back to the “big news of the day”.
If you enjoyed this quantification exercise or think someone should see this, reply to the email, forward it, or send them the following link
Until next time,
✌🏽Anand