The food delivery sector has seen exponential growth, bolstered significantly by the pandemic, as delivery services became a lifeline for the restaurant industry. As consumer preferences evolve and technology continues to shape our daily lives, this industry is primed for continued expansion. In the heart of this thriving sector stands DoorDash. With its solid market presence in the US and ambitious international expansion plans, which include a significant push in Australia, DoorDash looks well poised to capitalise on the lucrative market. But can the business deliver long-term returns for shareholders and not just food? Let’s find out.
- DoorDash dominates the US food delivery market while rapidly expanding internationally with strong growth and increasing order values.
- With $4.5 billion in cash and no long-term debt, DoorDash is on the brink of profitability, aiming for positive net income in Q3 2024.
- DoorDash has 24 buy ratings, 17 holds, and 0 sells, with an average price target of USD$135.15 signalling a 35% upside.
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The Basics
DoorDash is a household name to many, with millions of consumers worldwide craving convenience. The business operates a platform that connects consumers, delivery riders and merchants by utilising a network of independent contractors known as ‘Dashers’ who pick up and deliver orders.
The company is growing at a substantial pace, with the number of orders increasing by more than 55% in the last two years. It has continued to flourish since the pandemic when being stuck indoors led to a surge in delivery demand. This laid the foundations for the business to go public in late 2020 in what was one of the biggest IPOs that year. Its listing was successful, with shares rising by 80% on the first day of trade.
DoorDash currently makes 90% of its revenue in the United States, but the business is aggressively expanding overseas to diversify its revenue, with strong marketing campaigns and acquisitions. In Q124, its international revenue grew 54%, and CEO Tony Xu said: “We’re growing substantially faster than our peers overseas. In some cases, we’re growing five times to six times faster, which is causing us to gain share in the majority of the markets that we operate.”
Competitor Diagnosis
The global food delivery industry is dominated by just a few names, and the sector looks set for further consolidation. In the US, DoorDash commands an impressive 67% market share, which may surprise many. Its main competitors in the US are Uber and GrubHub (owned by JustEat). Uber, of course, needs no introduction and is by far its most feared competitor, with soaring profitability and, therefore, the financial capability to innovate and grow in the US and internationally. However, despite a lower market share, Uber’s food business isn’t seeing the same growth that DoorDash is experiencing.
Internationally, there are more competitors, including DeliveryHero, JustEat Takeaway, and Deliveroo. These names have a larger presence in Europe, where DoorDash wants to expand its operations. All three of these businesses are publicly listed, and in the last three years, their valuations have fallen dramatically from their pandemic highs, making them potential takeover targets. DoorDash has already shown interest in acquiring Deliveroo to broaden its international footprint.
A significant challenge for these companies is their reliance on gig economy workers, leading to issues like driver retention and regulatory scrutiny. On top of that, customers are often fickle. At the end of the day, we all want to find the best deal when ordering our takeaway! DoorDash offers a $9.99 monthly subscription, which includes free delivery and incentives to keep users in the ecosystem.
Financial Health Check
The pandemic accelerated DoorDash’s business, but they haven’t rested on their laurels, and the company has moved from strength to strength. DoorDash has seen robust revenue growth, with its advertising business gaining traction and its DashPass subscription driving higher order frequency and order value, adding a valuable revenue stream. In 2023, total order value increased by 25% year-over-year and shows no signs of slowing down.
At the start of this year, they reported solid Q1 earnings, showing improvements in gross margins, reduced operating losses, and increased free cash flow. DoorDash currently has USD$4 billion in cash on its balance sheet, with no long-term debt as of the end of 2023 – an impressive feat for a company growing at such a rapid pace.
However, despite this progress, DoorDash is still operating at a loss, but profitability is close. Losses last quarter reduced by 86% year-over-year, and the market is eyeing Q3 for a profitable quarter. Expansion into new markets comes with high costs; the company spent USD$540 million on sales and marketing in Q1, which poses a risk if sustained growth isn’t achieved. The market wasn’t a fan of this huge expense bill in Q1, and shares have fallen around 21% in the last three months, creating a potential entry opportunity for investors. But, as the business scales, it should have the freedom to cut costs with market dominance, leading to increased profitability. Its next earnings release is slated for the 1st of August.
Buy, Hold or Sell?
DoorDash dominates the US market with a solid delivery infrastructure, leading the business to profitability. The company has a number of clear catalysts for ongoing growth: rapid international expansion, a growing advertising business and gaining further market share in the US with the food delivery sector continuing to expand. Competition and regulatory scrutiny pose ongoing challenges, but DoorDash has managed these headwinds very well in recent years.
With an excellent runway for growth, analysts are positive about DoorDash’s future. According to Bloomberg’s Analyst Recommendations, DoorDash has 24 buy ratings, 17 holds, and 0 sells, with an average price target of USD$135.15 signalling a 35% upside.
With profitability just around the corner as margins keep growing and a healthy balance sheet, the business looks in great shape. DoorDash will need to keep delivering in more ways than one, but future prospects look promising for shareholders.
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*Date accurate as of 19/07/2024
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