is a newly minted $65 billion public food-delivery company trading near its highs just as the coronavirus is beginning to wane and restaurants are opening back up. What could possibly go wrong?
The nearest catalyst could be deceiving. The company is set to dish out fourth-quarter results on Thursday, its first report as a public company. All signs point to a capstone end to a phenomenal year for the platform, which now commands a seemingly untouchable 53% of the market, according to data released Friday by Edison Trends.
The fourth quarter is seasonally strong for food-delivery players, given cold weather and holidays, but Covid-19 has made 2020 a particular boon. Earlier this month,
said it grew sales 48% year over year in the fourth quarter, while
said its Uber Eats business grew revenue 224% in the same period. It makes sense, then, based on competitors’ performance, that investors would be bidding up DoorDash’s stock ahead of its earnings.
Uber has yet to turn a profit, but its shares are up 70% over the past year on its food-delivery growth, even as its ride-share bookings were down 43% as of January. Similarly, DoorDash said it lost money in the nine-month period ended Sept. 30, though its revenue more than tripled. As revenue growth inevitably moderates with comparisons becoming increasingly difficult as 2021 goes on, investors’ patience will be tested. Estimates compiled by Visible Alpha forecast another two years of losses ahead for the company.
DoorDash’s “first-to-market” growth strategy in the U.S. suburbs and in ancillary categories like convenience delivery have certainly served it well. But competitors are moving onto this turf. Grubhub, for example, said its own restaurant inventory increased 75% in 2020 in suburban and rural areas. And earlier this month, Uber said it was paying more than $1 billion to acquire alcohol-and-convenience delivery platform Drizly. While these moves are validating to DoorDash’s model, they also imply growth may be more costly.
Investors also should keep an eye on pricing. Regulators have capped commissions that food-delivery players can charge their restaurant customers amid the pandemic in many cities, with some officials looking to set permanent limits. Meanwhile, consumer fees on DoorDash’s platform can exceed 50% of the food’s cost itself. DoorDash’s continued growth implies consumers have been willing to shell out for its service because of Covid-19. But once restaurants open back up, it is unlikely that this level of tolerance will hold.
Early data from OpenTable suggests people miss dining out: Portland, Ore., showed a 23-percentage-point increase in bookings just four days after indoor dining reopened earlier this month. On Feb. 12, nationwide restaurant bookings were down just 14% year over year, OpenTable said.
And then there is the lockup to consider: An early lockup expiration will release 20% of shares held by directors and 40% of shares held by all other equity holders, likely creating significant volatility around mid-March. There also is a second final lockup period that expires either 180 days after its initial-public-offering filing is dated or around its second earnings release, whichever comes first.
Relative to competitors, DoorDash seems best-positioned to appeal to the post-pandemic consumer. But like all food delivery players, its days of peak growth may now be behind it. Soon enough, investors looking for sustainable profits post-pandemic will need to order off a different menu.
Write to Laura Forman at [email protected]
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