Activist Investor Group Takes Aim At DoorDash CEO Tony Xu

CtW Investment Group has written a letter to DoorDash DASH shareholders asking them to reject the reelection of Tony Xu to the DoorDash board of directors.

Xu is the co-founder, chairman and CEO of DoorDash and the only board member up for reelection during the company's upcoming shareholder meeting, set for June 22.

"As a recently IPOed company, DoorDash has failed to provide a governance framework that holds its board accountable to all its shareholders," the letter stated. "DoorDash's dual-class share structure, with no reasonable sunset period, denies public investors an accountable governance structure through which to monitor and protect their investment and grants an extraordinarily high concentration of voting power to a single executive."

DoorDash became a public company in December 2020, doing so with a dual-class share structure that gives Xu full control over key company decisions, according to Forbes, which reported on the structure in advance of the IPO. The company's shares are split into Class A shares, which provide one vote per share held, and Class B shares, which give holders 20 votes per share held.

In an emailed statement to Modern Shipper, CtW Research Director Richard Clayton said the firm had concerns about Xu's leadership, both as a board member and as CEO.

"Our concerns speak to both roles, particularly with respect to DoorDash's road to profitability and driver classification issues, but as I'm sure you know, shareholders elect the board but not the CEO," Clayton wrote. "If Xu were to lose his bid for reelection (essentially impossible, given the dual class structure), we imagine he would stay on as CEO."

CtW would like to see both the dual-class structure and the three-year terms for board members changed immediately. In the letter, the firm said it works with "union-sponsored pension funds to enhance long-term stockholder value through active ownership" and the "funds the Investment Group works with have over $250 billion in assets under management and are substantial DoorDash shareholders."

"We would like to each be repealed ASAP, but for what it's worth, companies generally try to phase out these kinds of practices over a few years, rather than instantly remove them," Clayton wrote. "But one share, one vote and annual director elections are in our minds a much better approach to governance than what DoorDash currently practices."

CtW said that Xu, along with founders Stanley Tang and Andy Fang, control 70.4% of the voting power but hold only 12.5% of the outstanding stock.

"The company's classified board structure leaves shareholders with limited means of expressing dissatisfaction with the company's directors, stripping shareholders of a critical communication tool with the company's board," the shareholder letter reads.

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Clayton said CtW is concerned about DoorDash's lack of long-term vision and believes that more accountability would benefit the company and shareholders.

"For instance, DoorDash (and other gig-economy delivery companies) have taken reputational hits from reports of high fees charged to restaurants, listing restaurants without permission, deducting tips from driver pay, etc. While the company has responded to these reports to varying extent, to us each incident shows a company not really thinking through the long-term consequences of its actions and policies," Clayton said.

He acknowledged that voting down the reelection of Xu is unlikely, but no votes would signal that shareholders want the "board to chart a more responsible course for the company's future."

A Modern Shipper request for comment from DoorDash was not returned by publishing time.

Since its public debut, DoorDash has exceeded investor expectations. DoorDash reported revenue grew 198% year-over-year to $1.1 billion in Q1 and was up from $970 million in Q4 2020. Total orders jumped 219% year-over-year to $329 million. Marketplace GOV also increased significantly, rising 222% year-over-year to $9.9 billion, up from Q4's $8.2 billion. GAAP gross profit increased 233% year-over-year to $493 million, which was up from $477 million in Q4, and adjusted EBITDA was $43 million, compared to an adjusted EBITDA loss of $70 million in Q1 2020.

The company has also been growing various segments, including its nonfood delivery segment, which has grown to 7% of total gross order volume. During its Q1 earnings call, CFO Prabir Adarkar said the more engagement DoorDash is able to achieve with customers, the more it grows overall revenue.

"Once you begin to use multiple categories, that actually increases your engagement with the core restaurant category," he said. "And then the other thing we found is that customers who actually engage with us across different categories beyond food also appear to have stronger retention and engagement … versus consumers who place their orders with restaurants only. So we're actually seeing strength because the addition of categories basically makes a user stickier with our platform."

Investment firms responded to the strong Q1 earnings, boosting the stock more than 20% after the results were announced. Wells Fargo upgraded the stock to overweight from equal weight and raised its price target to $170. Truist Securities upgraded to buy from hold, and Needham & Company reiterated a buy rating.

DoorDash has faced claims by restaurants and communities that it charges exorbitant fees and in April responded with a new fee structure. The delivery service rolled out three price points in its Partnerships Plans, starting with a 15% commission option. Pickup commission costs will be lowered to 6% and its Storefront online ordering platform will become free for all restaurants, with fees charged for payment processing only.

In a statement to Modern Shipper, a DoorDash spokesperson said the added fees were necessary to support local jobs.

"Operating our platform, paying and insuring Dashers and ensuring high-quality service can be expensive, which is why in many markets where local governments have passed pricing regulations we have begun charging customers a small additional fee," the spokesperson said. "We realize this isn't ideal, but with these regulations in place, these fees help us to continue providing convenient delivery for customers, meaningful earning opportunities for Dashers and valuable services that help drive orders for merchants."

CtW has been active in 2021, urging shareholders to vote against the reelection of directors or proposals for Geo Group, General Electric, McDonald's and HCA. The firm also issued a letter on March 3 calling on Uber UBER to include drivers and delivery workers in its oversight efforts among other requests.

Click for more Modern Shipper articles by Brian Straight.

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