My take is that the food delivery model is inherently not sustainable. With no real product differentiation between food delivery apps, it is usually a race to the bottom in terms of bottom line. This high marketing spend is probably what allowed it to surpass the market share of its then nearest competitor, Grubhub. This figure, while significant, is still much lower compared to its marketing expenditure in 2019, which was 67% of revenue. Promotions, marketing and other deals on food delivery always make a big factor for choosing an app for food delivery.ĭuring Q3 of 2022, DoorDash incurred $418 million in sales and marketing expenses, equivalent to 25% of its revenue. Customers are always hunting for deals between different delivery apps. So the elephant in the room is if the best case scenario did not generate a profitable year for the company, when will it ever be profitable? The short answer is there is no realistic path to profitability. The one quarter where it eked out a small profit was during the height of the pandemic. This phenomenon is spread across delivery apps. With expanding losses and EPS standing at -$0.77, it's hard to expect profitability anytime soon with this company. Gross profit has tanked, and operating margin is still negative. But things are not looking so good under the hood either. Now could this be justified? It can be argued that the pandemic pulled forward a lot of growth and this slowdown was only natural all things considered. From a peak growth rate of 225% in 2020 to 33% in its most recent quarter, it is quite obvious that growth has fallen off a cliff. Slowing growth and unprofitable Business modelĬomparable QoQ has slowed considerably. In addition to slowing growth, investors have to still contend with an unprofitable business model, insider selling, stock dilution and sky high valuation. As we will explore in the upcoming sections, it seems like we would be worse off buying now. Does it mean it is a buy now? Far from it. The stock is down more than two-thirds from its first day of trading. This has been well reflected in the stock price. Growth has peaked and there is no new story that is attractive enough to continue to carry the stock. For as long as stock markets have existed, investors have gone through this manic-depressive cycleįast forward to now, it looks like the growth story has started to take a turn. In every case, investors have burned themselves on IPOs, have stayed away for at least two years, but have always returned for another scalding. This episode reminded me of a quote from the great Benjamin Graham: The delivery company's shares closed at $190, more than 80% above its initial public offering price of $102. Valuation made very little sense, but the story was growth and there was very little to gain by buying into this IPO. When I see DoorDash ( NYSE: DASH) and its history as a public company, it serves as a big reminder on why buying into IPOs could be a terrible idea. However, such investments are critical to building market share in new localities.Ivanko_Brnjakovic/iStock via Getty Images Bear thesis While the quarter was solid on the sales growth front, with progress on margins, the firm's heavy investments caused the firm to report a larger loss than expected. DoorDash did a lot of things right to spark a 25% pop in total gross order volume year over year. DoorDash Reports Solid Quarter Shares Sink AnywayĭoorDash just came off a decent result, yet not decent enough to help the stock resist the downward pressure applied by broader markets. Moreover, the firm has many growth levers it can pull as it looks to become even more dominant. While I'm no fan of the fallen pandemic beneficiaries, I like DoorDash, as management continues leveraging its strong network effect. Continued strength in numbers suggests the lockdown-era usage of DoorDash has led to a habit that'll outlast the pandemic. Wall Street analysts are staying bullish on the stock, and I think they'll be proven right over the longer run.ĭoorDash isn't just a pandemic one-hit-wonder. Though higher rates will likely continue to dictate the trajectory of most stocks, I do view DoorDash as one of the fallen high-multiple tech plays that's worth a second look.
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