On its first day of trading back in December, DoorDash (NYSE: DASH) gained around 89%. Priced at $102 per share, by the time any of us mere mortals could buy shares in this company the price had jumped up to around $180. However, since then the stock has pulled back, settling down to a more reasonable level.
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In the first nine months of 2020, DoorDash served up 550 million deliveries, feeding many hungry and bored people stuck at home. But, the stock decline since its IPO now questions whether this presents a buying point for what has been a relatively successful business during the pandemic; or, if the value decrease in fact signals that it is not worth the long-term risk. Therefore, we ask, is DoorDash a good investment?
Bull case
Having made a deal with Albertsons supermarket chain, DoorDash will be the main delivery company for the grocer’s growing home delivery market in the U.S. With over 2,700 stores. Albertsons is currently the third-largest supermarket chain in North America so this is a big opportunity for DoorDash to expand beyond the confines of fast food delivery and into a more predictable and regulated market of grocery delivery.
DoorDash is also making moves in its financials. In the first 3 quarters of 2020, the food delivery company had increased its sales by almost 200% to 1.9 million. In addition, its loss from operations improved, falling from $479 million to $131 million in this same period.
DoorDash currently holds 50% of the U.S. food delivery market share, which is much higher than its main rivals, Uber and Grubhub. Indeed, DoorDash has benefitted superbly from the pandemic induced tailwinds as eating take-out in the confines of your own home has become the dreaded new normal. But with sights now apparently set on expansion into Japan, can the company keep its momentum growing?
Bear case
With DoorDash being a newly public company, it is going to have to get used to increased scrutiny from investors like you and me, as well as regulatory boards. Despite the several bull points earlier, DoorDash has a strong bear case that could make you reconsider an investment in this company.
Whilst the pandemic has fueled DoorDash’s growth over the last year, once life returns to normal the food delivery industry could see headwinds as many of us will likely choose to dine out and return to our favorite restaurants. Indeed, the slowdown in delivery services could see a return to the price war that Grubhub, Uber, and DoorDash were competing in before 2020.
DoorDash is still trading above its pre-IPO price of $102, hovering just above $150, with its revenue for the first three quarters of 2020 at $1.9 billion and a market cap now of $50 billion the stock trades at around 24 times its sales. Whilst the argument for this revolves around predicted growth in 2021, current pandemic trends are likely to lessen somewhat as stay-at-home restrictions ease in response to the vaccine.
This is an industry that is notoriously unprofitable. DoorDash posted a $600 million loss in 2019 with Uber Eats coming in with a loss of $400 million. Yes, in a pandemic DoorDash has proven that it can be profitable, posting a $23 million profit at the height of the lockdowns between April and June, but by its third quarter, it was reporting a loss of $43 million.
So, should I watch DoorDash?
To be very frank, risk-averse investors should stay well away from DoorDash. This company has had a great run over the last year and it has agreed to some new deals including becoming the face of Albertsons food delivery service. However, this company will not be able to sustain the explosive growth it has experienced throughout the pandemic. In fact, it is likely to see its future as a public company as similar to that of Grubhub and Uber — slow growth and not much excitement. And let’s be honest, if food delivery can’t boom now, then when will it?
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