The purchase price is comprised of a mix of cash and DoorDash stock, according to Square’s Q2 shareholder letter.
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“This transaction allows us to increase our focus on and investment in our two large, growing ecosystems—one for businesses and one for individuals,” Square wrote in its letter. “It creates clarity in how we operate and a clearer purpose and alignment for our planning, investment, and work moving forward.”
DoorDash has a pre-existing relationship with Square. It partners with Square for restaurants to enhance online and in-person orders for merchants. Founded in 2013, DoorDash has raised several billion dollars during its life as a private company.
“We believe continuing this partnership provides valuable and strategic opportunities for Square,” the San Francisco payment processing company stated.
This isn’t the first time Square has tried to sell Caviar.
Bloomberg reported in 2016 that the payment processing company wanted to step away from food delivery and tried selling the company to Uber, GrubHub, and Yelp. In 2016, the proposed price for DoorDash was $100 million.
Since Square bought Caviar in 2014, the business unit has reportedly struggled to turn a profit, maintaining regular losses. Square may come out financially whole in the end, however. Given the gap between the purported purchase price and the final sale price, our guess is Square is making up reasonable value through the sale.
Of course the value of DoorDash stock could decline, limiting Square’s upside.
DoorDash has been on a tear in recent quarters, raising a $250 million Series E, a $400 million Series F, and a $600 million Series G all inside the last twelve months. (The Series E was announced on August 16, 2018.)
Let’s all remember that DoorDash is under fire for controversial, and possibly deceptive tipping practices. Buying Caviar might tell us that it certainly had the money to scoop up a company.
The food delivery space is heating up. On page 4 of Square’s shareholder letter, it states that the online food-ordering market generated approximately $27 billion sales in 2018 and is expected to grow at a double-digit rate through 2020. Uber with its Uber Eats product, DoorDash, Postmates, and others are battling for market share and, eventually, margins. Today the competition between the competing players seems to be more focused on revenue than profits. The unprofitable Caviar will supply fresh growth to its new parent company, but little in the way of net income.
Illustration: Li-Anne Dias
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