Cory Johnson, Epistrophy Capital Managing Member, joins Yahoo Finance to discuss DoorDash's upcoming IPO.
SEANA SMITH: DoorDash, that highly anticipated IPO, has released its filing to go public. For more on this, we want to bring in Cory Johnson. He's a managing member at Epistrophy Capital. And Cory, great to have you on the program. Taking a look at these numbers that we're seeing from DoorDash, they are [INAUDIBLE].
CORY JOHNSON: Yeah.
SEANA SMITH: They're leading the food delivery space. They turned a surprising orderly profit back in June. What do you think of this, just in terms of the growth that we've seen over the last several months with the company and what we have to expect going forward?
CORY JOHNSON: I mean, I look at this business, and I see a business that is just terrible, terrible, terrible, and terrible. I mean, this is a lousy business. They're losing money on every sale. And they're gaining volume to lose even more.
It's even in the midst of this pandemic, a business scenario that could not have possibly imagined when they created this business, even then, they're losing money. You mentioned the exception of the second quarter. I think we would all agree that the second quarter we're living through in this world, and certainly in the country and among DoorDash customers, is nothing like we've ever seen before. And even then, it barely ekes out a profit. I look at a business here that is just destroying its investors' money to the tune of well over a billion dollars since they started this business.
ADAM SHAPIRO: Cory, I know that in a lot of these filings, they have to do the warnings about these are not guarantees of future growth, blah blah blah. But the one thing, you know, warning that their pandemic fueled growth spurt may not last, boy, I can't think of a better way to chase an investor away.
CORY JOHNSON: It's the most optimistic risk factor we've ever seen, right? Yes, I think we all hope the pandemic will end. I'm certain the people at DoorDash hope it will end, but their business doesn't. This is a business that, again, it loses money with every sale. And that can't be emphasized enough here. When you look at how the business works, what we really saw going in the prior quarters-- you know, they only give us quarterly data for seven quarters.
And what we see is that, first of all, they've done some very big acquisitions to try to boost to that growth. So we really can't see the long-term growth of this business. But what it looks like is they're doing, you know, a modest double digit revenue growth on a year over year basis. I'm looking at the model that I've tried to cobble together with their numbers. And doing, you know, let's call it 20%, 30% quarter over quarter growth.
That's great on the top line. But the fantastic growth that we saw in the first quarter and then the second quarter and less so in the third quarter really was pandemic fueled. Of course they're going to want to go public during this timeframe because their numbers look better. But fundamentally, it's not a great business.
But then you take back what the effect of this business is on our world. Now it's wonderful to get food delivered to your front door in certain circumstances. But the effect on the restaurants and the effect on the drivers has been particularly painful and really destructive on the lives of those people and the business lives of those restaurant businesses.
And it doesn't have to be that way. When you read into the details of the S-1 filing, you see the venture capitalists might get rich. You see the creators of this business have already enriched themselves and sold over $60 million worth of stock. But you don't see the drivers, the people who built this business, participating in this IPO. And it doesn't have to be that way.
SEANA SMITH: Cory, one thing that also is facing this company that could be a risk of going forward is what we've seen play out in states when it comes to these gig workers. Yes, Prop 22 was passed in California. That was a big victory for companies like DoorDash.
But a lot of other states have very similar concerns. How do you think investors or how are you thinking about this, just the fact that this business model, it kind of goes back to what you were saying. It's under scrutiny and the risk that this presents to a name like DoorDash.
CORY JOHNSON: Well, and I don't want to come off as some angel who's not willing to make money where money is to be made. I've owned companies that sell guns. I've owned companies that sell on social media, right? So but, you know, what's happening here is they are not follow the same rules that other companies are when it comes to having workers who get workman's compensation, who get minimum wage, who have some basic protections of health insurance and so on.
And the result is even then, they can't make a profit. But the effect on all these workers is really painful. You know, tooting my own horn, but you know, I've made an investment with a company called Braintrust that I've worked with that is a user-owned talent network that tries to go around these problems. It really tries to deliver the company to the company that-- the people who build that company, whether it's temporary workers or full-time workers and using a tokenized environment. That's not the only solution to this problem.
But when I look at this company and I think about how it treats the people who work for it and have built it, I don't see a reward in this S-1 statement. And I don't see the profits from not paying their workers like other companies pay their workers.
ADAM SHAPIRO: Cory, very quickly, this whole fad-- and fad's not the right word. Perhaps trend toward specs. We just had Jim [INAUDIBLE] on who's looking to acquire a company for digital entertainment. I mean, should we all beware as investors, or is this here to stay and it's only going to get bigger than traditional IPOs?
CORY JOHNSON: Well, you know, it was a terrific interview, and he was-- I thought he was a great guest. And I thought that one of the notes he sounded is that our life is going to be different after this pandemic. Look, you look at what's happening to restaurants here in San Francisco. The restaurants are closing at midnight tonight because the COVID infections have gotten worse. And so there won't be in-restaurant dining after tonight.
But the problem that DoorDash and Uber Eats and others have created for these restaurants is really painful. Talk to a restaurateur about this when they talk about how they have to adjust their prices, often raising the price in the restaurant, because the delivery companies won't let them have different pricing for the deliveries, making the restaurant experience worse. The delivered restaurant food is not as good when it shows up at your house, as lovely as it might be. They don't get the chance to sell you liquor or desserts and other kind of upselling opportunities. So the profits for the restaurants are a lot less.
And what we may have is a world where we just have a lot fewer restaurants. DoorDash and Uber Eats may somehow limp on, but the restaurants from which they are delivering are really suffering. They're closing in droves across this country. And these businesses are making it worse for the restaurants that they are relying upon to deliver the food.
SEANA SMITH: All right, Cory Johnson, great to have you back on the program. We look forward to talking to you soon.
CORY JOHNSON: Thanks, guys.
SEANA SMITH: Thanks so much for taking the time.