Investors in DoorDash stock were rewarded on Thursday when the company posted revenue beat expectations and gave rosy guidance for the future. The stock popped 8% in after-hours trading as investors digested the good news.
Let’s take a closer look at DoorDash and the impressive quarter it just had.
What is DoorDash?
DoorDash is a technology company that has revolutionized the food delivery industry. Using their mobile app and website, customers can have meals delivered to them from their favorite restaurants in as little as 30 minutes. Founded in 2013 by Stanford University students Andy Fang, Stanley Tang, Tony Xu, and Evan Moore, DoorDash is a well-established member of the so-called “gig economy”.
Their technology platform discretely connects local businesses with independent Drivers who deliver restaurant orders with haste and convenience to customers within specified delivery areas. It eliminates the need for middlemen or broker fees normally associated with traditional food delivery services.
DoorDash offers corporate catering solutions through its platform which allows large groups to coordinate orders easily and have meals delivered without compromising on quality or taste. In late 2019 DoorDash also acquired Caviar, a market leader in premium restaurant delivery services expanding their reach across both coasts of the U.S., making it one of the largest food delivery companies in the world servicing over 4,000 cities within all 50 states of America and Canada.
Consumers enjoy exclusive access to special offers and promotions available through DoorDash which further incentivizes them while encouraging loyal repeat business for Door Dash merchant partners. As end 2020 statistics revealed 204 million customers were actively subscribed to their service patronizing almost 50% of U.S restaurants operating from 11 million active local businesses; proving that Door Dash is serious about transforming how people order food online in conjunction with their commitment to strengthening local economies one place at a time while increasing avenues for entrepreneurial drivers across all cities they have service points most recently launching into Mexico with planned expansion into Europe projected throughout 2021-2022.
Recent Financial Performance
DoorDash, Inc., an American technology company, has been experiencing success over the past year. In the fourth quarter of 2020, total net revenue increased by 154% year-over-year to $1.1 billion, while gross profit rose 90% to $257 million. Additionally, active Dashers rose 60%, and DoorDash’s marketplace expanded with more orders and higher order values.
Looking forward, DoorDash expects its 2021 adjusted EBITDA to be between $200 million and $250 million as it continues to invest in its growth initiatives such as delivery infrastructure and its omnichannel solutions program. It also expects growth in its subscription products offering, including DashPass and Storefronts.
The strong fourth quarter financial performance has been reflected in the stock price of DoorDash shares which have seen a steady increase since their December 2020 initial public offering (IPO). As of early May 2021, DoorDash shares were up nearly 55% from their IPO for $167 per share. Investors see potential for further growth as people continue to look for delivery options during the pandemic and signs that consumer habits may be shifting towards online food delivery permanently post-COVID-19.
DoorDash Stock Price Surge
DoorDash stock price surged on strong earnings. On Wednesday, February 24th, after the company released better than expected fourth quarter earnings, DoorDash stock popped more than 15%, closing at $163.23. Revenue, earnings and customer numbers exceeded expectations, providing further bullish momentum for DoorDash stock. The rosy guidance on the call also drove shares higher.
Let’s take a closer look at the details.
Reasons Behind the Surge
Investors are feeling more optimistic about DoorDash’s future performance in the wake of the company reporting strong third quarter earnings. As a result, shares of the food delivery platform surged as much as 37% in pre-market trading before opening on Nasdaq. This marks the highest level for DoorDash’s stock since its initial public offering (IPO) in December 2020.
Several factors have contributed to the surge in DoorDash’s stock price. Firstly, revenue for its latest quarter came in at $879 million, beating estimates by over $150 million and marking an increase of 129% year-over-year. The company reported an adjusted earnings per share (EPS) of $0.44, nearly quadrupling analyst expectations and up from an EPS loss a year ago. Furthermore, DoorDash expects to end 2021 with more than eight million active users and over 340,000 merchants across 4,000 cities across North America and Australia.
The strong financial result is attributed to gains made due to Covid-19 such as higher tipping amounts and increased order volume due to rising demand during the pandemic. The dismal outlooks seen early this year have changed drastically due to health protocols imposed under stay-at-home orders shifting customer preference away from dining out towards food delivery services such as DoorDash. It appears that restaurant industry trends will continue beyond 2021 as customers are expected to remain cautious when it comes to gathering indoors as social distancing is expected to stay for some time yet even after Covid recedes into history.
The demand for restaurant delivery services is only one example of how companies have successfully adapted their business models during difficult times. DoorDash could be set up for long term success if they continue expanding their marketplace share.
Analysts’ Reactions
Analysts have reacted positively to the surge in DoorDash’s stock prices following strong earnings for Q4, 2020.
Wall Street analysts remain confident in DoorDash’s prospects as the fourth quarter earnings met or exceeded most analysts’ expectations on revenue, profits and customer growth. In particular, DoorDash has grown incredibly strong since going public in December 2020.
Since then, the stock has seen incredible increases that have made many analysts bullish on the future of DoorDash and its potential for long-term success.
BMO Capital Markets analyst Kevin Mao increased his price target for DoorDash due to overall market strength, noting that he expects that health of consumer spending data and pent up demand in 2021 could support further upside to his previous stance.
Wells Fargo praised DoorDash’s strength in markets restricted due to COVID-19 regulations and noted how the company could capitalize on this sudden restriction of foot traffic by creating an environment with enhanced safety protocols.
In addition, Baird analyst Colin Sebastian points out that while the underlying trend toward grocery delivery already existed before January 2020, it was expedited by Covid-19 pandemic social isolation mandates which pushed companies like DoorDash from convenience pastimes into essential services.
Overall analysts remain confident about the future of DoorDash’s stock as companies have seen high demand for delivery services throughout quarantine regulations. There is still a large demand for food delivery services over 2021.
Impact on DoorDash’s Competitors
As DoorDash stock prices surge after a strong earnings report, the company’s competitors feel pressure.
This news of DoorDash’s impressive revenue beat has implications for its rivals in the food delivery space. In this article, we will discuss the immediate impacts this news has had on other food delivery platforms such as Uber Eats and Grubhub.
Grubhub
Grubhub is one of the primary competitors of DoorDash in the food delivery market, with a growing presence in North America. With the surge in DoorDash’s stock prices, signals have been despatched to Grubhub on what is expected of them. Market analysts speculate that Grubhub must take bold steps to stay competitive.
To meet these expectations, Grubhub should focus on expanding its global reach, developing new technologies and strengthening its business model. The company must deploy strategies such as increasing market penetration by opening more facilities in new markets, improving operational efficiency by deploying automated systems and exploring new partnership opportunities.
By doing so, Grubhub can maintain its competitive edge against DoorDash and stay ahead of other competitors in the industry.
Uber Eats
Uber Eats, as an integral part of the ride-hailing giant Uber Technologies Inc, is currently one of the most formidable competitors of DoorDash. Uber Eats faces competition in categories such as customer loyalty, logistic capabilities and product selection. With DoorDash’s stock prices surging on strong earnings, Uber Eats and other competitors have been greatly impacted.
Since its IPO in June 2020 at around US$102, DoorDash’s stock prices have risen to US$237 on March 5th 2021 due to outstanding customer growth and robust delivery services that provide customers with convenience. This growth further clenched the competitive rivalry among all existing delivery platforms including Uber Eats.
In response to DoorDash’s financial success and user momentum, Uber has shifted its strategic focus from ride-hailing services to food delivery services globally. According to data released by Edison Trends in October 2020,UBER Eats was catching up quickly regarding market share growth. However, in terms of user loyalty, UBER still lags by a great margin compared with DOORDASH due to constantly low user recommendation rate and unsatisfied customer service feedback rating after significant investments and efforts being made during the past few years; this discourages customers’ potential long-term future patronages toward UBER’s services particularly after they experienced DOORDAsh’s consistent quality over time and loyalty rewards program which provides financial incentives for using its service regularly over others’ platforms in exchange for accumulating credit points or discounts when ordering food periodically throughout their partnership journey with the company.
Postmates
The strong earnings of DoorDash, the leading U.S. on-demand prepared meal delivery company, have had a significant impact on its competitors in the restaurant delivery space, particularly Postmates.
Following the surge in DoorDash’s stock prices, many investors have pivoted to bet on Postmates instead as they now consider it to be an undervalued buy given its late-stage unicorn status.
Postmates is a service provider facilitating short distance and restaurant deliveries in more than 3,500 U.S cities and 40 countries combined. During the first quarter of 2021, total bookings for Postmates rose by 71% year-over-year and its market share surged from 10% to 18%. As demand for food delivery continues to grow and competition intensifies among players such as GrubHub, UberEats, etc., investors are eyeing Postmates as a potential outperformer in this market due to its larger geographical coverage compared with its competitors.
By leveraging its competitive edge — lower cost compared with DoorDash — and deep discounts offered through promotional campaigns run by third parties who benefit from advertising their brands using Postmates’ efficient near-instant delivery services; Postmates has been able to stand out amongst major players in this market. Moreover, having raised $2 billion in venture capital funding since 2019 (reflecting a $2 billion+ valuation), investors are confident that there could be more room to grow even after all the attention that DoorDash’s stock surge has brought into focus on the sector. It remains to be seen whether or not Postmates can capitalize on such an opportunity. Still, nevertheless there is strong optimism amongst investors given how results oriented they already appear to be post their investment decision into the company so far.
Outlook for DoorDash
DoorDash, the online food delivery company, saw its stock prices surge after reporting strong earnings and rosy guidance. The company beat Wall Street’s top and bottom line targets, and its shares shot up 22% in after hours trading Wednesday.
The strong earnings report has investors optimistic about the future of DoorDash, and many analysts are predicting even greater success for the company.
Let’s look into what the experts say about DoorDash and what this means for the company going forward.
Analysts’ Forecast
The strong earnings from DoorDash have led to an overall increase in optimism among investors and analysts, with many predicting that the stock will continue to rise shortly. Most analysts forecast that DoorDash stock prices will likely remain elevated, with strong growth potential as the company expands its already-large presence in the food delivery market.
Several Wall Street investment banks have raised outlooks for this company. Analysts at Piper Sandler recently upped their rating of DoorDash stock from “Neutral” to “Overweight” while raising their price target range from $160-$170 (previous prediction was $120-$130). They noted that they expect the company to continue growing its top line and gaining market share with several digital trends in its favor such as online grocery, meal delivery services and restaurant delivery being on the rise.
Morgan Stanley also upgraded their rating of DoorDash shares from equalweight to overweight, as well as revise their price target on them from $153 to $225. The analysts commented that they believe further upside potential of 45% or more exists due to continued strong demand for food delivery amid the pandemic.
Most other Wall Street firms have also increased their outlooks for DoorDash following these recent earnings results. The average price target for this stock is currently hovering around ~$197– suggesting a further 10-12% upside potential exists over current levels. Given these very positive sentiment among market watchers, investors may want to take note of what’s happening here and act accordingly – buying more if they feel optimistic and selling if they don’t – so that investors ensure they are making profitable investments when it comes to this digital food delivery business.
Potential Risks and Challenges
Despite positive earnings and stock performance, DoorDash faces several potential challenges and risks. As the spread of coronavirus continues to affect economies worldwide, DoorDash may see pressure on its financials related to changes in consumer spending. Moreover, competition remains fierce in the food delivery category as companies like Uber Eats and GrubHub continue to invest heavily in products and expand their market share.
Additionally, geographic legislation remains challenging for DoorDash as it seeks to enter new markets. In some states, individual cities have drafted ordinances that limit the operations of delivery companies such as DoorDash by capping the fees for services. Further, government regulations in local markets can also complicate operations due to restrictions on food safety, employee wages and more.
Lastly, rising costs associated with scaling up its infrastructure remain risky for DoorDash. The company has seen increasing costs for marketing initiatives, customer acquisition efforts and general overhead expenses since it went public late last year. As it continues to scale up its operations across many different geographies, these expenses will likely increase further – making it important for the company to control them to drive further growth through increased efficiency of its current investments.
Conclusion
In conclusion, DoorDash has seen a significant surge in stock price following their strong earnings reports. This comes as no surprise as the company has been rapidly expanding into industries such as meal delivery, grocery delivery and digital payments, while also increasing their presence in several new markets across the US.
With solid management and future expansion plans coupled with growing demand for convenience services, life will likely continue to improve for company shareholders. Investing in DoorDash could prove to be a lucrative option.
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