Is DoorDash Stock Overvalued?

DoorDash Inc (NYSE:DASH) was one of the most controversial initial public offerings (IPOs) of 2020 and a sign for bears that a technology bubble may be forming.

The company priced at $102 per share before nearly doubling to $195.50 on its first day of trading. It spent the rest of the year deflating to start 2021 well under $150 per share. Now the concern has surfaced: is DoorDash stock overvalued?

The company operates in a tough business – it earns money charging fees to both restaurants and consumers. How much it charges to whom is legally different in every municipality, and it faces big competition in the form of Uber Eats, which bought Postmates in a $2.65 billion all-stock deal in 2020.

And like Uber (UBER), it hasn’t generated a profit yet – losing $450 million off of a record $1 billion in revenue in 2019.

In spite of its challenges, the company is a leader in the gig economy, and the pandemic facilitated an unusual opportunity to scale. Both DoorDash and Grubhub partnered with Lyft (LYFT) in 2020 to compete with the Uber/Postmates combination.

Lyft and DoorDash also partnered with Chase to integrate loyalty benefit ecosystems. In an age when people are reaching full subscription fatigue, these bundles may be key to success. But that doesn’t mean DoorDash will be the ultimate benefactor.

Here’s a breakdown of the company’s assets and value in the early 2020s. It ended its first calendar year on the downturn, but it could be a valuable technology play over the next decade.

Are future returns on the menu for DASH investors?

Why DoorDash Stock Went Up

In 2020, giants like Amazon (AMZN), Microsoft (MSFT), and Apple (AAPL) reached new high market capitalizations while local businesses were shutdown via government orders. To make matters worse, unemployment reached historic record highs.

Global shutdown orders were the perfect catalyst for DoorDash’s regional sales teams, which were already working virtually. Suddenly restaurants were looking for any way to increase sales while social distancing rules made them a disputed pandemic zone.

Newly unemployed or furloughed workers turned to the gig economy for side money in droves. Because food delivery is a two-sided marketplace, the migration towards online demand provided fuel to grow.

And tech stocks like Snowflake (SNOW), Tesla (TSLA), and Zoom (ZM) dominated investment headlines through the year. That brewed the perfect storm for retail investors to pay upwards of $195.50 per share when it finally became available to them.

After gaining an 80 percent premium, the stock price dropped 10 percent within weeks.

DoorDash Financials Are Not All Rosy

The December 2020 DoorDash IPO valued the company at $50 billion, and it quickly dropped to a $45 billion market capitalization at the start of 2021.

As of the end of 2020, the food delivery platform boasted 20 million users and 1.5 million paying DashPass subscribers. Its menu includes 340,000 restaurants across 4,000 cities, giving it 45 percent of the total food delivery marketplace.

Uber Eats held 22 percent, Grubhub held 18 percent, and Postmates held 8 percent of the market. This means even the combined Uber/Postmates only holds 30 percent of the market. But none of these companies is profitable.

DoorDash earned $1.9 billion in revenue in the first nine months of 2020, and that is expected to grow in 2021. But when the pandemic subsides, restaurants could find better ways to connect with diners. And if it drags on, spending on food delivery could be deemed too expensive.

This caused bears to end the year screaming about DoorDash being overvalued, and they may not be wrong.

Is DoorDash Valuation Too High?

We need to examine Uber to fully understand DoorDash, because they are very clearly competing. Uber is famous for two things – being highly valued in its IPO and never making a profit in over a decade of business.

Uber lost $5.8 billion in 2019 and predicted profitability by the end of 2020, which it didn’t reach.

Despite these losses, the company was valued at over $94 billion at the start of 2021. It wasn’t a straight line to success though. Share prices dropped to $13.71 per share during the 2020 market crash before rising to over $50 per share by year end.

A reason DoorDash outgrew Uber Eats is because it undercut business fees by four to five percent. By having more restaurants available, it established loyal consumer habits. The battle between Uber and DoorDash is now like Apple vs Android.

One has a closed ecosystem under its fully control. The other depends on a team of independent businesses working together.

Will DoorDash Stock Drop?

DoorDash stock mostly dropped in its first month as a publicly traded company. It’s likely to be a volatile technology stock for years to come. This is because it dominated headlines for being overvalued in its IPO and still has a long way to go to prove itself from a profitability perspective.

It has the sales and partnerships to make it, but there is a larger shadow looming over the industry.

Gig economy workers do not get the benefits and working conditions of employees. And driver unions are pushing legislation in different localities. Uber may dominate these headlines, but DoorDash, Lyft, and others will be included.

This industry will define the 2020s, but it’s not clear whether they’ll prove their value in the long run.

Is DoorDash Stock Overvalued? The Bottom Line

DoorDash is the most popular food delivery service from the 2010s. When the pandemic hit in 2020, the company launched its IPO and became instantly infamous as the most overvalued company of the year.

Opinions vary on whether DASH is overvalued today.

Compared to Uber or Grubhub revenues, it’s overvalued by at least 2x on the conservative end and 5x on the high end. It won’t prove its true strengths for at least another year, and it’s unclear whether it can maintain margins while providing benefits.

This question is likely to be one that defines the market through 2030. And most signs point to DASH being overvalued.

If it’s not – Uber and Grubhub are better value buys, as they may grow to meet it in the middle.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.