37% below peak, DoorDash stock may increase due to service excellence, new markets

Food delivery is a huge market with a lot of competition. Inspired by a mom whose restaurant work propelled her to medical school, DoorDash CEO is the frontrunner to maintain her market leadership.

With its stock down 37% from its all-time high in November, here are three reasons to invest:

  • Service excellence
  • Growth above expectations
  • Investment in new growing markets

(I have no financial interest in the securities mentioned in this article).

Market leadership

DoorDash is the market leader in the American food delivery market. The U.S. food delivery market totaled $ 31.4 billion and is expected to grow at an average annual rate of 7.3 percent by 2025, according to Statistical.

DoorDash has twice the market share of its main competitor. According to Bloomberg second measure (BSM), in November 2021, DoorDash’s US food delivery market share was 57%, while Uber Eats second-place market share was 27% (24 % of UberEats and 3% of Postmates it acquired in November 2020).

Service excellence

What is behind DoorDash’s leadership in the market? There are many factors – but I think the most important is DoorDash’s service excellence – that stems from its culture. This is because a company’s culture – based on the CEO’s values ​​- translates into the way it operates and what its best employees do when the CEO is not looking.

DoorDash’s culture is inspired by what matters to its CEO, Tony Xu. Xu’s mother was a doctor in China. When her parents came to the United States, she could not practice. She worked three jobs for 12 years to support the family, including serving as a waiter in a restaurant. Eventually, she returned to school and opened a medical clinic that she has operated for over 20 years.

This story helps explain DoorDash’s mission to empower underdogs. As Xu wrote in DoorDash prospectus, “DoorDash exists today to allow those like my mother who came here with a dream to do it themselves. Fighting for the outsider is part of who I am and what we stand for as a company. i am humiliated by [our customers’] their relentless desire to create and build, and their contribution to their communities.

DoorDash’s culture is based on values ​​that improve the situation of its stakeholders (restaurants, delivery people and consumers). Values ​​include:

  • Observe the customer, not the competition. DoorDash makes short-term sacrifices to uphold its reputation for customer excellence. When it suffered an outage in the third month of operation, DoorDash reimbursed each consumer, costing them “a double-digit percentage” of their bank account.
  • Get 1% better every day. DoorDash maintains the daily pressure to improve in a measurable way reduce delivery times, increase efficiency or improve customization.
  • Stay in direct contact with the customer. Xu and other DoorDash executives take one day per month to deliver or engage in customer support, menu creation, or merchant support. DoorDash believes this contributes to its “peak spending2 conservation and capital efficiency”.
  • Dream big, start small. As I wrote in Develop your startupBefore taking on new capital, companies must perfect the execution of a new service so that it becomes more efficient with scale. DoorDash follows this approach – it “starts projects in a market, with a small team and with very little capital and asks them to earn their way to increase investment.”

These values ​​improve the situation for DoorDash stakeholders. Here’s how:

  • Merchants. Its local logistics platform enables traders, such as restaurants, to increase their income by reaching new customers and to obtain “additional sales that leverage their investments in fixed costs”.
  • Consumers. DoorDash’s platform provides consumers with a wide selection of services – including delivery to their home or work or ordering and pickup from the merchant – that provide ease of use, speed of delivery and quality. superior to those of the competition.
  • “Dashers”. DoorDash’s nationwide scale gives delivery people – nicknamed dashers – flexible opportunities to earn extra cash while providing them with essential information regarding deliveries up front – “including guaranteed earnings, time and distance. estimated, the merchant’s name and the consumer’s filing information, “according to its prospectus.

In a nutshell, DoorDash is a leader because its culture shapes its operations in a way that makes merchants more profitable, consumers more satisfied, and delivery people better off than competing platforms.

Growth above expectations

Service excellence will not necessarily propel the actions of a public company. To do this, the company must exceed growth expectations and raise its forecasts every quarter. To do this, companies must set and achieve ambitious short-term performance targets and invest in new markets with high growth potential, the theme of Disciplined growth strategies.

DoorDash has followed this prescription fairly regularly since its IPO in December 2020. The stock has risen 47% from $ 175 when it IPO to some $ 257 on November 12. Since then, stocks have lost 37% of their value.

Its latest financial report could offer a clue for the downside. After all, on November 9, DoorDash announced faster than expected revenue growth along with a higher than expected loss and the announcement of a deal to pay $ 8.1 billion in shares to acquire Wolt – a Finland-based delivery platform operating in 23 countries, according to CNBC.

Specifically, DoorDash’s third-quarter revenue of $ 1.28 billion was $ 100 million higher than Refinitiv’s estimate – up 45% from the previous year – while its loss of 30 cents per share was four cents on consensus.

The number of new customers DoorDash acquired in the quarter is down from record highs in 2020. Additionally, DoorDash’s revenue growth is slowing significantly from 222% in the first quarter to 70% in the second quarter, according to the the Wall Street newspaper.

The good news is that total orders rose 47% to 347 million and the average order size increased in the quarter, according to CNBC. And consumers spent more on orders in the quarter – $ 302 per customer – up 112% from the third quarter of 2019, according to BSM.

Future growth is expected to slow. For the fourth quarter, Wall Street is forecasting growth “of just under 27%, its slowest quarter of growth as a public company.” And next year, that growth is expected to slow to a quarterly average of less than 20% before taking the acquisition into account, ”the Journal noted.

Investing in new markets

Can DoorDash grow faster? To his credit, he has invested in new growth.

DoorDash has grown beyond food delivery. To this end, it supplies basic necessities through partnerships with “CVS as well as regional and national convenience stores”. It recently partnered with Albertsons to expand its grocery delivery services and, in September, announced plans to add alcohol delivery to its app, according to BSM.

Partnerships with restaurants are also a source of growth. DoorDash has made deals with Little Caesars Pizza, Wendy’s, Chick-fil-A and “McDonald’s, the country’s largest fast food chain, which also offers delivery with Uber Eats,” BSM noted.

DoorDash’s acquisition of Wolt passed three tests. As Xu told investors last month, the deal “brings extraordinary talent, world-class product and operational expertise that will accelerate our progress” by adding 22 new markets for DoorDash.

The deal will accelerate DoorDash’s access to these new markets – giving access to some 700 million consumers worldwide – and Wolt’s platform will support foodservice and non-restaurant categories such as cosmetics and clothing. ‘electronic.

Indeed, Xu noted that Wolt is growing much faster than DoorDash. As he said, Wolt “hit $ 2.5 billion and the annualized gross order value is increasing triple digits. [130% in the third quarter, according to the Journal]. He did it while increasing his results at the same time. “

It seems to me that the main cause of the DoorDash stock drop is a report that famous short seller Jim Chanos is betting his stocks fall because he is losing money.

On December 3, he explained that DoorDash should be able to profit “when everyone is ordering food and everyone is staying at home and you have a captive audience.” If not now when? If the capital markets become much less friendly… valuations are destroyed for companies that lose money ”, according to La Rue.com.

Chanos hasn’t been right for a long time. Like Institutional investor pointed out, he took advantage of the 2008 financial crisis when he managed $ 7 billion. By 2018, his stack had dropped to $ 2 billion. And in 2020, its assets under management declined by more than 50% from the previous year to $ 405 million.

If DoorDash can accelerate its top line growth, now is a great buying opportunity. Otherwise, no amount of profitability will move the inventory.

Carol N. Valencia