In the fast-paced world of food delivery, DoorDash (NASDAQ:DASH) has been making headlines with its aggressive expansion and strategic positioning. Analysts have been closely following the company's performance, providing a wealth of data and insights into its prospects. Let's take a closer look at what makes DoorDash a company to watch on Wall Street.
Company Overview
DoorDash, founded in 2013 and headquartered in San Francisco, CA, has grown to become the largest third-party delivery platform in the US. With a network that includes 390k merchants, 1mn couriers, and 18mn customers, the company has a strong foothold in the market. Its subscription model with DashPass and partnerships with top US restaurant brands give it a competitive edge, especially in suburban areas.
Market Performance and Strategy
Analysts see a significant market opportunity in restaurant, grocery, convenience, and retail delivery for DoorDash, estimated at around $6.7 trillion. With only 1% market capture and 7% of available homes using its service, there's considerable potential for user growth. The company's market share in the US is estimated at 44% for 2023E, with an expectation to compound user growth at a CAGR of ~13% between 2022 and 2026.
DoorDash's business includes Marketplace services, which generate the majority of revenue, and Platform services such as Drive, Storefront, and Bbot. These services are expected to drive order frequency growth across all business lines at a rate of ~4%/year.
Financial Health and Valuation
Improving unit economics is a highlight for DoorDash, with EBITDA/Order rising from $0.21 in 2021 to an anticipated $0.77 by 2025. The company's valuation is considered undervalued, especially when compared to peers like Uber (NYSE:UBER), trading at a lower multiple of future EBITDA estimates.
International Expansion and Competitive Landscape
Internationally, DoorDash operates in 27 countries and has been consistently gaining market share. Its experience in the US is seen as a competitive advantage for international expansion. The food delivery industry is recognized as a winner-take-most market, where DoorDash's scale is crucial for profitability.
Regulatory Environment and Risks
Risks include potential regulatory changes affecting wages and classification of delivery workers, which could impact compensation costs and EBITDA estimates. Moreover, higher marketing expenses than anticipated could pose a threat to profitability.
Future Outlook and Projections
Analysts are bullish on the company's potential for significant user growth and consistent order frequency growth across all business lines. There's also optimism for expansion into new retail categories and growth in advertising, which could drive further profit.
Bear Case
What regulatory risks could impact DoorDash?
Potential regulatory changes, such as wage laws and worker classification, could increase operational costs for DoorDash. The NYC Delivery Minimum Wage ruling is a specific example that could affect the company's EBITDA. Additionally, increased marketing spend to drive demand could pressure margins if not offset by order growth.
Could competition affect DoorDash's market share?
While DoorDash holds a strong market position, the competitive landscape in food delivery is intense. Competitors like Uber are constantly innovating, and new entrants could disrupt the market. Market saturation could also lead to a deceleration in growth, impacting DoorDash's profitability and market share.
Bull Case
How will DoorDash's market opportunity translate to growth?
DoorDash's significant market opportunity in various delivery segments points to room for user growth. With a small fraction of the total addressable market captured, the potential for expansion is vast. The company's strategic partnerships and subscription model could further solidify its market position and drive growth.
What are the prospects of DoorDash's international expansion?
DoorDash's international expansion is gaining traction, leveraging its US experience to scale globally. The company's category leadership in on-demand food delivery positions it well to replicate its success in new markets, potentially leading to increased market share and profitability.
SWOT Analysis
Strengths:
- Leading market share in the U.S. food delivery industry.
- Diverse revenue streams from Marketplace and Platform services.
- Strong unit economics with rising EBITDA/Order.
- Substantial market opportunity for expansion.
Weaknesses:
- Exposure to regulatory risks impacting labor costs.
- High marketing expenses to sustain growth.
- Competition from established players like Uber.
Opportunities:
- Expansion into grocery and other retail categories.
- International growth in untapped markets.
- Advertising revenue potential.
- Increased consumer adoption post-COVID.
Threats:
- Regulatory changes affecting worker classification and wages.
- Economic downturn impacting consumer spending.
- Intensifying competition and market saturation.
Analysts Targets
- Deutsche Bank (ETR:DBKGn) Securities Inc.: Buy rating with a $125 Target (NYSE:TGT) Price (November 16, 2023).
- BofA Securities: Buy rating with a $100.00 Price Objective (October 26, 2023).
- Seaport Research Partners: Neutral rating (October 24, 2023).
- J.P. Morgan Securities LLC: Neutral rating with a $95.00 Price Target (October 23, 2023).
- JMP Securities: Market Outperform rating with a $113.00 Price Target (November 02, 2023).
- Wells Fargo (NYSE:WFC) Securities, LLC: Equal Weight rating with an $88.00 Price Target (October 11, 2023).
- Evercore ISI: Outperform rating (December 11, 2023).
The timeframe for this analysis spans from October to December 2023.
InvestingPro Insights
As DoorDash continues to navigate the competitive landscape of food delivery services, its financial health and strategic moves are under the microscope. According to InvestingPro data, the company's market capitalization stands at a robust $39.38 billion, reflecting investor confidence despite a negative P/E ratio of -36.87 and an adjusted P/E ratio for the last twelve months as of Q3 2023 of -56.42. This could indicate that investors are looking beyond current profitability towards future growth prospects. In line with this, DoorDash has shown impressive revenue growth of 34.38% over the same period, highlighting the company's ability to expand its top line amidst challenging market conditions.
InvestingPro Tips shed light on several crucial aspects of DoorDash's operations. With more cash than debt on its balance sheet, the company holds a strong liquidity position, which is crucial for its aggressive expansion strategy. Furthermore, analysts are optimistic about the company's future, expecting net income and sales to grow this year. This is supported by the fact that 6 analysts have revised their earnings upwards for the upcoming period, signaling confidence in DoorDash's trajectory.
Nevertheless, it's important to note that the company operates with a poor return on assets and provides low returns on book equity, which could be of concern to potential investors. Additionally, while the stock price has experienced a high return over the last year, DoorDash's shares are known for their volatility, which might warrant caution for those looking for stable investments.
For those interested in a deeper dive into DoorDash's financials and analyst projections, more InvestingPro Tips can be found by visiting InvestingPro. As of the latest count, there are 18 additional tips listed on InvestingPro, offering a comprehensive view of the company's financial health and market potential.
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