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DoorDash DASH -2.57%

is a newly formed $ 65 billion public food delivery company trading near its highs as the coronavirus begins to abate and restaurants reopen. What could go wrong?

The closest catalyst could be misleading. The company is expected to release fourth quarter results on Thursday, its first report as a public company. All signs point to the end of a phenomenal year for the platform, which now occupies 53% of the seemingly untouchable market, according to data released Friday by Edison Trends.

The fourth quarter is seasonal for food delivery players, given the cold weather and the holidays, but Covid-19 has made 2020 a special boon. Earlier this month, Grubhub said it increased its sales 48% year-over-year in the fourth quarter, while Uber Technologies said its Uber Eats business increased revenue by 224% over the course of from the same period. So it makes sense, based on the performance of competitors, for investors to outbid DoorDash’s stock before its profits.

Uber has yet to turn a profit, but its shares are up 70% from the growth in food delivery last year, even as its rideshare bookings were down 43% in January. Likewise, DoorDash said it lost money in the nine-month period ended September 30, although its income more than tripled. As income growth inevitably slows and comparisons become increasingly difficult as 2021 progresses, investors’ patience will be tested. Estimates compiled by Visible Alpha predict another two years of losses for the company.

DoorDash’s “first-to-market” growth strategy in the US suburbs and in ancillary categories such as local delivery has certainly served it well. But competitors are evolving in this field. Grubhub, for example, said its own restaurant inventory grew by 75% in 2020 in both suburban and rural areas. And earlier this month, Uber said it was paying more than $ 1 billion to acquire the Drizly alcohol and convenience delivery platform. While these moves validate DoorDash’s model, they also imply that growth may be more expensive.

Investors should also keep an eye on the prices. Regulators have capped the commissions that food delivery players can charge their restaurant customers amid the pandemic in many cities, with some officials seeking to set permanent limits. Meanwhile, the consumption fee on the DoorDash platform can exceed 50% of the cost of the food itself. DoorDash’s continued growth implies that consumers have been willing to shell out for its service due to Covid-19. But once the restaurants open, this level of tolerance is unlikely to be sustained.

Early OpenTable data suggests people are skipping out on dining out: Portland, Oregon, showed a 23 percentage point increase in bookings just four days after indoor restaurants reopened earlier this month . On February 12, restaurant reservations across the country were down just 14% year-over-year, OpenTable said.

And then there’s the block to consider: an early expiration of the block will release 20% of the shares owned by directors and 40% of the shares held by all other shareholders, likely creating significant volatility around mid-March. There is also a second final blocking period which expires 180 days after the date of its initial public offering filing or around its second publication of results, whichever comes first.

Compared to its competitors, DoorDash appears to be in the best position to attract the post-pandemic consumer. But like everyone involved in food delivery, its days of peak growth may be behind. Soon, investors looking for lasting profits after the pandemic will have to order a different menu.

Demand for food delivery has skyrocketed amid the pandemic, but restaurants are struggling to survive. In a fiercely competitive industry, delivery services are struggling to gain market share while facing increased pressure to lower commission fees and provide more protection for their workers. Video / Photo: Jaden Urbi / WSJ

Write to Laura Forman at laura.forman@wsj.com

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Appeared in the February 24, 2021 print edition under the title “DoorDash Deliver Investors a Feast”.



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