Olo Share Are Trading Lower After DoorDash Levels Fraud Charges: FT

U.S. food delivery app DoorDash Inc (NYSE: DASH) has accused its partner Olo Inc (NYSE: OLO) of several years of fraud and revenue manipulation and using the income to strengthen its position ahead of its March 17 initial public offering (IPO), the Financial Times reports.

What Happened: Restaurants utilize the Olo software for order management from multiple apps like DoorDash and Uber Technologies Inc’s (NYSE: UBER) Uber Eats on a single platform for a fee per order processing. Olo posted a net income of $3.1 million on revenues of $98.4 million in 2020. The software company’s stock rose 39% on debut, reaching a market capitalization of $4.4 billion. The stock has dropped just below 15% since then. 

Olo’s largest customer DoorDash alleged Olo of charging higher fees than peers, leading to the breach of a 2017 contract, as per New York Supreme Court filing. 

As per the 2017 contract, Olo had agreed that fees charged to DoorDash “would never be higher than the fees charged to any other delivery platform provider.” 

DoorDash reportedly discovered the discrepancy of $7 million in 2020 while reviewing Olo’s terms with DoorDash-owned rival delivery app Caviar. DoorDash further alleged Olo over non-disclosure of fees charged to other delivery apps.

Why It Matters: DoorDash is seeking retaliatory compensations exceeding $7 million for the breach.

The filing was in response to Olo’s earlier attempt to dismiss DoorDash’s claim. According to Olo, a November 2017 addition to the DoorDash contract had annulled the low fee clause. 

Ola also ruled out high-end restaurant delivery service Caviar as a DoorDash peer.

DoorDash accounted for 19.3% of Olo’s 2020 revenue.

Price action: DASH shares traded higher by 0.38% at $131.09, and Olo shares traded lower by 12.3% at $25.99 on the last check Wednesday.