DoorDash Stock Looks Highly Overvalued At $208

by Trefis Team
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DoorDash stock (NYSE: DASH) has rallied by almost 10% over the last month, significantly outperforming the S&P 500 which declined about 1% over the same period. The stock is also up by about 50% year-to-date. The recent rally was driven by a couple of factors. Firstly,  the surge in Covid-19 cases in the U.S., caused by the highly infectious Delta variant of the virus, will likely delay return to office plans and this could also bode well for stay-at-home stocks such as DoorDash. Moreover, the company also posted stronger than expected revenues over Q2 2021 with sales rising 83% year-over-year to about $1.2 billion, despite the relaxation of some Covid-19 guidelines over the quarter, giving investors some confidence that demand could hold up reasonably well even post Covid.

That said, despite the optimism, we think DoorDash stock is considerably overvalued at its current market price of $208 per share. The stock trades at a whopping 15x forward revenue, almost like a software-type business that has thicker margins and more operating leverage. Sure, DoorDash’s has posted breakneck revenue growth recently, with sales rising 3x last year and projected to rise over 45% this year, but growth rates will slow considerably in 2022. Moreover, DoorDash has not been able to turn a profit despite posting big growth over the past year and its loss over Q2 2021 was also larger than expected. This makes us concerned about DoorDash’s unit economics. DoorDash’s biggest cost is related to its delivery partners and this number is variable, rising in proportion with the number of orders, giving the company little leverage. As the restaurant industry, which DoorDash works with, is inherently low margin, customers will ultimately have to bear the impact of higher fees to drive profits. We value the stock at $130 per share, about 9x forward revenues. See our analysis DoorDash Valuation: Expensive Or Cheap? for more details on DoorDash’s valuation.

[7/12/2021] What’s Happening With DoorDash Stock?

DoorDash stock (NYSE: DASH) has rallied by almost 25% over the last month, significantly outperforming the S&P 500 which gained about 3% over the same period. There are a couple of factors driving the gains. Sentiment for DoorDash’s stock has picked up after its Q1 results published in early May when the company raised its full-year revenue guidance, making investors more optimistic about its post-pandemic prospects. Analysts have also upped their price estimates for DoorDash stock, as the company focuses on expanding into new geographies and beyond its core food delivery vertical with announcements of new partnerships for groceries and other items. Concerns about post-IPO lockup expirations have also eased, as it is now over six months since the company went public.

However, despite the recent optimism, we think DoorDash stock looks overvalued at current levels of almost $180 per share. The stock currently trades at a high 14x forward revenue, more like a software-type business that has thicker operating margins and more operating leverage. In comparison, ride-hailing and food delivery major Uber trades at about 6x projected revenue, while Just Eat Takeaway.com, a food-delivery services company that was recently created via the merger of European players Takeaway and Just Eat trades at about 4x trailing pro-forma revenue. While the higher multiples versus delivery are partly justified by DoorDash’s breakneck revenue growth (over 45% growth projected for 2021), we have concerns about DoorDash’s unit economics. DoorDash’s biggest cost is related to its delivery partners and this number is variable, rising in proportion with the number of orders, giving the company little leverage. As the restaurant industry, which DoorDash works with, is inherently low margin, customers will ultimately have to bear the impact of higher fees to drive profits. We value the stock at a little under $120 per share, about 9x forward revenues. See our analysis DoorDash Valuation: Expensive Or Cheap? for more details on DoorDash’s valuation.

[5/24/2021] Investors Optimistic About DoorDash’s Post Pandemic Prospects Po Q1

DoorDash (NYSE:DASH) stock was seen as a classic pandemic play. The company saw revenues surge by over 3x last year as people increasingly opted for food delivery services as they sheltered at home through Covid-19. Investors were concerned that DoorDash’s business would face the heat as the economy re-opens with people starting to returning to sit-down restaurants. However, these fears were probably misplaced. Over its Q1 2021 earnings call, Doordash actually upped its guidance for its gross order value this year to between $35 billion and $38 billion, up from a prior range of $30 billion to $33 billion. That marks a year-over-year growth rate of as much as 55% on the upper end of guidance. The guidance certainly gives investors much more optimism about the company’s post-pandemic prospects. DoorDash Stock has rallied by about 20% since the company’s earnings were published on May 13.

While the company’s demand outlook was encouraging we still have some reservations regarding the company’s profitability. DoorDash hasn’t really been able to improve the economics of its business despite its rapid growth. Operating loss for Q1 2021 stood at $99 million, only a slight improvement from the $123 million loss it posted in Q1 2020. Contribution margins – which are margins DoorDash earns after accounting for variable costs, expressed as a percentage of its gross order value largely remained flat at a mere 3% over the last three quarters of 2020 and actually declined to about 2% in Q1 2021. This is likely due to the fact that increasing demand for meal delivery translates into a proportionate rise in labor costs for the company’s delivery partners. We think this means that one shouldn’t really expect thick margins for Doordash even as it continues to expand. We also think the stock is somewhat overvalued compared to other food delivery and ride-sharing stocks. While DoorDash stock currently trades at about $138 per share or about 11x forward revenue, Grubhub trades at about 2.5x while Uber trades at 5.5x (although their historical growth rates have been lower).

See our analysis DoorDash Valuation: Expensive Or Cheap? for more details on DoorDash’s valuation. We value DoorDash at about $115 per share, about 9x forward revenues.

[5/3/2021]

Last week, DoorDash (NYSE:DASH) announced new pricing plans for the restaurants that use its platform, introducing three tiers that charge commissions of 15%, 25%, and 30% respectively. The lowest tier plan will have a narrower delivery area and will transfer a higher portion of the delivery cost to customers, while the highest tier plans come with lower customer fees, a wider delivery radius, access to better promotions, and a minimum order guarantee. Although the plans give restaurant owners more choice and flexibility, we think they underscore that the economics of DoorDash’s business remains tough. The company cannot keep fees reasonable for both customers and restaurants simultaneously. One party will have to effectively bear the high costs of delivery, as DoorDash says that its own margins and the earnings of its delivery partners are likely to remain the same.

Restaurants typically operate on thin margins and paying fees as high as 30% might not be viable. While the 15% commission plans look attractive for restaurants, their customers will essentially be charged the difference, and it’s not clear that customers will see as much value in delivery services post the pandemic. Close to 44% of the U.S. population has now received one or more doses of a Covid-19 shot, per the Bloomberg vaccine tracker, and as Covid cases continue to recede and the economy opens up further, people should start returning to sit-down restaurants.

Although DoorDash stock remains down by about 33% from its February 2021 highs, we still think it looks expensive trading at over 12x forward revenues. The company posted a sizable operating loss last year, despite seeing big revenue growth through Covid-19. Considering that there is little to differentiate the major delivery players other than delivering food at the lowest possible price, the long-term outlook for margins does not seem too bright for the company. See our analysis DoorDash Valuation: Expensive Or Cheap? for more details on the company’s valuation.

[4/4/2021] Should You Buy The Dip In DoorDash Stock?

DoorDash (NYSE:DASH) stock has declined by almost 40% from its February 2021 highs and remains down by about 6% year-to-date, trading at around $133 per share. With Covid-19 cases falling and vaccination rates picking up in the U.S., investors are moving out of high-growth tech and “at home” stocks such as DoorDash, to cyclical and value stocks. So does DoorDash stock look attractive at current levels? We don’t think so.

The narrative for the stock has clearly changed. Close to 30% of the U.S. population has now received one or more doses of a Covid-19 shot, per the Bloomberg vaccine tracker, and as Covid continues to decline and the economy opens up further, people should start returning to sit-down restaurants.  This impacts DoorDash, given the company was one of the biggest beneficiaries of the pandemic, with sales more than tripling last year to $2.9 billion. While the app-based food delivery business is certainly here to stay, DoorDash’s fees are relatively high and it is not clear that customers will see as much value in the company’s services post the pandemic.

Now, DoorDash does have an edge over rivals such as UberEats, given its focus on more profitable suburban markets and also due to its well-received DashPass subscription program, which has over 5 million customers. That said, DoorDash still looks expensive even post the correction, trading at over 11x forward revenues. While the company is likely to grow revenue by about 25% over the next two years, it is not clear that the unit economics will work for DoorDash. The company posted a $436 million operating loss last year, despite massive revenue growth. Considering that there is little to differentiate the major players other than delivering food at the lowest possible price, the long-term outlook for margins also doesn’t look too bright. See our analysis DoorDash Valuation: Expensive Or Cheap? for more details on the company’s valuation.

[3/12/2021] What’s Happening With DoorDash Stock?

DoorDash (NYSE:DASH) stock has declined by about 30% over the past month, driven partly by the broader sell-off in technology and high growth stocks. So is this a good time to enter DoorDash stock? We don’t think so and believe that the stock has a further downside. DoorDash was a big beneficiary of the Covid-19 related lockdowns last year, with revenue expanding by over 3x in 2020. However, growth is likely to slow to under 30% this year per consensus estimates, as people start venturing back into dine-in restaurants, with Covid-19 cases declining in the U.S. and the vaccination drive gaining momentum. As this trend becomes visible through the company’s quarterly reports, it’s likely that investors will re-value the stock lower. For perspective, at its current price of $145 per share the company trades at a relatively rich 12x projected 2021 revenues.

Moreover, longer-term profitability remains a real concern. DoorDash, despite being the largest player with about 56% share of U.S. meal delivery sales in January [1], was loss-making last year and is only expected to barely break even this year on an adjusted basis. The delivery market is also competitive and there is little to differentiate the major players besides delivering food at the lowest price possible. There are also no real switching costs for users, who often use multiple apps.

[2/16/2021] Why DoorDash Looks Expensive

Food delivery startup DoorDash (NYSE:DASH) stock has rallied by around 45% since the beginning of 2021 and currently trades at levels of about $200 per share. So what drove the big rally in the stock? Firstly, sell-side coverage of the stock increased meaningfully in January, as the quiet period for analysts at banks that underwrote the IPO ended. Although analyst opinion has been somewhat mixed, it nevertheless has likely helped increase visibility and drive volumes for DoorDash’s stock.  Secondly, DoorDash is apparently looking to enter Japan, where delivery businesses are growing quickly driven by the pandemic. The company currently only operates in the U.S., Canada, and Australia. Separately, DoorDash also acquired Chowbotics – a startup that sells robotic equipment that can automate the process of making meals such as salads and poke bowls. It’s possible that DoorDash’s increasing interest in automating food production is also helping the stock.

That said, we believe DoorDash stock remains overvalued trading at about 17.5x consensus 2021 revenues. Competition in the delivery space is mounting and with highly effective Covid-19 vaccines being rolled out, it’s likely that growth in the delivery market could also cool off, as people start venturing back into restaurants. See our analysis DoorDash Stock

[12/23/2020] Why DoorDash Stock Looks Expensive

Food delivery startup DoorDash (NYSE:DASH) went public earlier this month and saw its stock soar from its IPO price of about $102 to levels of around $160 currently, with its market cap standing at about $51 billion – making the company more valuable than major restaurants including Chipotle and Yum Brands. Is this valuation justified? While DoorDash has seen demand for its services soar through Covid-19, garnering roughly half the U.S. delivery market, we still think the company is quite overvalued at current levels, and estimate its fair value at closer to $90 per share. See our interactive analysis DoorDash Stock: Expensive Or Cheap? for more details on what’s driving our price estimate for the company and how its key metrics stack up versus peers. Parts of the analysis are summarized below.

How Does DoorDash Make Money?

DoorDash primarily makes money by charging restaurants a commission based on the total dollar order value and also charges a fee to consumers for using its platform. The company also generates revenue from membership fees paid by consumers for its subscription service – DashPass and by charging per-order fees to merchants that use its logistics to service orders under its Drive third party program. DoorDash’s Gross Order Value – or the total value of orders placed on its marketplace – grew from around $2.8 billion in 2018 to $8 billion in 2019. We expect it to rise to about $24 billion in 2020, as Covid-19 caused orders made on the platform to surge almost 3x over the first nine months of the year. The company’s Total Revenue has grown from around $0.3 billion in 2018 to about $0.9 billion in 2019 and is likely to jump to about $2.8 billion this year.

What’s DoorDash Worth?

We value DoorDash at about 10x projected 2020 Revenues, translating into a total valuation of about $28 billion or about $88 per share. While this multiple is well ahead of Grubhub (NYSE:GRUB), which trades at about 3.6x projected Revenue, and Uber (NYSE:UBER) which trades at around 7.1x, DoorDash justifies this multiple for a couple of reasons.

Firstly, growth has been much stronger, with Revenue on track to grow about 200% each year between 2018 and 2020. This compares to annual growth rates of about 34% for Uber, 85% for Lyft, and 39% for Grubhub over the last two years. Secondly, DoorDash has also cut its losses, as its Revenues have expanded much more quickly than its cost base. Operating Margin rose from about -72% in 2018 to levels of about -7% over the first nine months of 2020. In comparison, Grubhub and Uber still remain deeply lossmaking.

Moreover, DoorDash has innovated and has been quick to spot trends in the fast-growing delivery space. For instance, it doubled down on suburban markets – which typically have larger orders and lower costs compared to large cities translating into better profitability. It holds about 58% market share in the suburbs. DoorDash’s subscription program, DashPass, has also been a success, signing up about 5 million customers, or about 28% of the company’s estimated 18 million monthly users. In comparison, Uber’s subscription offering is used by less than 2% of its total base (both ride-hailing and food delivery).

What Are The Risks?

We think DoorDash’s current market price of about $160 per share (over 18x estimated 2020 Revenue) is too high for a couple of reasons. Firstly, it’s highly likely that the company’s era of hyper-growth is behind it. As highly effective Covid-19 vaccines have started to roll-out, the end of the pandemic – which is likely a once-in-a-lifetime event that helped delivery volumes –  appears to be in sight. As people return to restaurants, demand for delivery could moderate, impacting Revenues and profits in the sector. Secondly, the delivery market is also intensely competitive and there is little to differentiate the major players other than delivering food at the lowest price possible. There are no real switching costs for users, who often use multiple apps. While DoorDash’s contracts with most of the largest U.S. restaurant brands and its subscription offering help it to an extent, it doesn’t fully mitigate the risks for the company.

E-commerce is eating into retail sales, and should present a big opportunity for the logistics industry. See our theme on E-commerce Stocks for a diverse list of companies that stand to benefit from the big shift.

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Notes:
  1. Second Measure []
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