As the world emerges from the pandemic, tech investors have been struggling to answer a fundamental question: Which consumer behaviors developed over the past two years will stick—and which will prove to have been fleeting Covid-era trends? The back and forth has played out throughout earnings season, from Peloton and Netflix’s disappointments to Microsoft and Apple’s home runs.
The bottom line is that no one’s going back to 2019 patterns; we’re all shaping a new normal. Working from home is no longer a temporary measure—the phenomenon is changing the labor force. (I put more miles on my road bike last year than on my car and suspect I will do the same in 2022.) Business travel appears permanently reduced, with some meetings and trade events likely to remain online, where costs are lower and access is higher.
While weeks of earnings reports have generally created more questions than answers, this past week brought one bit of clarity: Results from DoorDash (ticker: DASH) showed that food delivery is one pandemic habit that’s likely to stick.
To be clear, the stock market is littered with reopening casualties, and DoorDash hasn’t been immune from the downdraft.
With interest rates on the rise, investors have steered away from companies with high multiples and a lack of profits. Wall Street has dealt especially severe punishment to any company coping with postpandemic slowdowns.
Zoom Video Communications (ZM) hit a 52-week low this past week. The stock has now essentially erased its Covid-era rally, falling more than 75% from an October 2020 peak.
Shares of Shopify (SHOP), the e-commerce software pioneer, continued to fall this past week after executives offered cautious commentary about the business amid inflation worries and product shortages. There are also signs that people are going back to physical stores for at least some purchases. Shopify shares lost 23% on the week, extending their slide to 60% since a November peak.
DocuSign (DOCU) is down 63% from its pandemic peak because of slowing growth in its e-signature business, while video-tools provider Vimeo (VMEO) is down 77% since spinning off from IAC/Interactive (IACI) last May. Even Netflix (NFLX), a winner long before the pamdemic, hasn’t been immune. Shares of the streaming pioneer are off 44% on slowing subscriber growth.
So, the idea that food delivery would be one of the lasting winners from the pandemic is a bit surprising—and the volatility in DoorDash stock suggests that skepticism remained high heading into earnings. DoorDash came public in December 2020, smack in the middle of the pandemic. The company’s initial public offering priced at $102 a share, opened at $182, and closed that first day at $189.51. But the stock got caught in the recent tech downdraft, plunging more than 60% from its November 2021 peak of $245, to a recent price around $96.
Last week’s earnings report provided some positive signals. Revenue for the December quarter and the outlook for the March quarter were both a bit ahead of Wall Street estimates, and there was especially encouraging user data. Monthly average users in the quarter grew 22% from a year ago, to a record 25 million. Total orders were up 35% to 369 million, and gross order volume was 36% higher at $11.2 billion.
In a research note, Wells Fargo analyst Brian Fitzgerald noted that DoorDash accounts for just 5% of U.S. restaurant industry sales, with those 25 million people accounting for a single-digit percentage of the population. Fitzgerald, who has an Overweight rating and $170 target on the stock, sees “plenty of runway” ahead, with new growth opportunities in advertising, international markets, and delivery of goods beyond restaurant meals.
The company is also making a growing push to turn meal delivery into a habit. The company has more than 10 million members for its DashPass plan, up by a million members in the latest quarter.
The program has an Amazon Prime–like effect on DoorDash’s business—members are more loyal and tend to order more meals. DoorDash is pursuing partnerships with corporate accounts to make DashPass an employee perk—News Corp, the parent company of Barron’spublisher Dow Jones, now offers free DashPass membership to employees.
Robert Mollins, an analyst at Gordon Haskett and another DoorDash bull, writes that investors were worried about tough comparisons heading into the quarter, along with Uber’s (UBER) recent comment that it had gained market share in food delivery.
DoorDash deflected all of those concerns with its strong results, impressive guidance, and market-share gains of its own. Evercore ISI’s Mark Mahaney, another DoorDash bull, thinks the market may be consolidating into two market leaders—Uber Eats and DoorDash.
So, is DoorDash now a bargain? Wall Street certainly thinks so—the average analyst target is about twice the current stock price. While still generating losses, DoorDash expects to turn profitable in 2023.
Meanwhile, the stock now trades for a relatively modest fives times estimated 2023 sales, which is about in line with Chipotle Mexican Grill (CMG), and cheaper than the seven times you’ll pay for the wizard of burgertech, McDonald’s (MCD). Risks remain—and Uber is cheaper still, at a little over two times sales—but the food-delivery business is just getting going.