DoorDash surged 30%, but can the North American food delivery miracle really continue?

North America's food delivery giant DoorDash released a strong Q4 earnings report after hours on Wednesday, following which the stock soared more than 27% in after-hours trading. This was a rare increase after the stock fell from its high of $257 per share in November last year to the current level of $94.

(DoorDash weekly chart from Investing.com)

This food delivery company, which experienced explosive growth during the pandemic, was one of Wall Street's hottest "pandemic stocks." When DoorDash went public in the U.S. in December 2020, it was one of the largest IPOs in the U.S. that year, with its stock price skyrocketing and market capitalization surpassing $50 billion at one point. The platform also became the largest food delivery service in the U.S., capturing over 50% of the market share.

However, as vaccines were widely distributed across Europe and the Americas and economies reopened, people began returning to restaurants. At this point, companies that had benefited significantly during the pandemic started to see their performance slow down. DoorDash is one such pandemic stock that raises concerns.

According to data from Investing.com, after reaching a high of $257 in November last year, the company’s stock began to plummet rapidly, eventually falling below its IPO price of $102. By Wednesday's close, the cumulative decline had reached 63%.

So, after an earnings report that wasn't much better than market expectations,Is DoorDash's stock price really about to turn around? Is this 27% post-market increase a 'flash in the pan' or the prelude to another surge?？

Let’s first take a look at this earnings report:

In the fourth quarter, DoorDash reported revenue of $1.3 billion, surpassing analysts' expectations of $1.28 billion, with a year-over-year growth of 34%. Meanwhile, the company posted a loss of $0.45 per share, worse than the expected loss of $0.25 per share. Looking ahead, DoorDash forecasts the total market order value for the first quarter to be between $11.4 billion and $11.8 billion, compared to analysts’ expectations of $11.4 billion to $11.6 billion.

Although the company's revenue figures exceeded market expectations, the margin was not significant, marking the slowest growth since its IPO in December 2020. Previously, the company’s revenue growth rate was 351% in Q1 2021, then sharply dropped to 242% in Q2 2021, further declining to just 45% in Q3, and now stands at only 34% this quarter.

On the other hand, DoorDash is still unprofitable, posting a net loss of $155 million, though it narrowed compared to the same period last year. Given the uncertainties in the food delivery industry in the post-pandemic era and the intense competition from peers, the company may not become profitable anytime soon.

In terms of users, the total market order value (all app orders and subscription fees) in Q4 was $11.2 billion, higher than the analysts’ forecast of $10.6 billion, representing a 36% year-over-year increase. The total market order volume reached 369 million, also surpassing expectations, reflecting a 35% rise compared to the same period last year. Notably, the company saw a record-breaking monthly active user base of over 25 million people in Q4, up 22% year-over-year. In December 2021, the proportion of monthly active users ordering from non-restaurant merchants rose to 14% of the total.

This is not a terrible report card, but is it enough?

In our article earlier this week, we highlighted some potential risks for this stock, including peer competition and the end of pandemic-related tailwinds—these bearish factors have not disappeared.

First,Unlike China’s market where Meituan (HK:3690) and Ele.me hold a duopoly, the U.S. food delivery market is relatively more competitive. Despite having over 50% market share, DoorDash still faces fierce competition from three other major food delivery giants: Uber Eats (NYSE:UBER), Grubhub (NYSE:GRUB), and Postmates.

Moreover, being number one in the U.S. doesn’t necessarily equate to dominance. Although the U.S. restaurant market is larger than China’s (in 2019, China’s foodservice market size was RMB 4.67 trillion, while the U.S. stood at RMB 6.03 trillion), the company still lags significantly behind Meituan in both revenue and market capitalization.

Secondly,Even during the pandemic, food delivery platforms began to be recognized and used by many Americans. However, some local consumption habits and geographic restrictions in the U.S. have still led to significant challenges for these food delivery giants in expanding. On one hand, most cities in the U.S. are sparsely populated with very dispersed residential areas, which inevitably reduces meal delivery efficiency per unit of time and increases costs. Moreover, the high labor cost in the U.S. makes delivery fees on American food delivery platforms 3-5 times higher than in China.

Finally,Food delivery platforms in the U.S. are also facing stricter regulation and standards. Among them, regarding commission issues of delivery platforms, several U.S. states have introduced pricing caps on third-party service providers offering food delivery services. For delivery drivers, there are also strict regulations across U.S. states requiring platforms to provide welfare benefits to drivers, thereby increasing driver welfare but also raising platform costs accordingly.

At the same time, the Chair of the Federal Trade Commission (FTC) has received letters from several state legislators, suggesting that the U.S. food delivery industry is now dominated by three major players. An investigation into the impact of consolidation in the food delivery industry should be conducted as delivery platforms may engage in unfair business practices, including charging 'excessive fees and commissions.' U.S. regulators have taken notice of these phenomena and have already taken action to introduce new regulations to protect consumer rights.

Overall, despite DoorDash's better-than-expected earnings report, the road ahead is still long. Investors need to make prudent judgments and guard against risks.

Author: Li Yingwei

Disclaimer: The content and opinions in this article are for reference only and do not constitute any investment advice. Investing involves risks, and one should proceed with caution when entering the market.

211K Views