Food delivery platform provider DoorDash, Inc. (DASH), which is headquartered in San Francisco, is known for offering an array of services that connect merchants, consumers, and “Dashers” in the United States and internationally. DASH’s stock has gained 18.2% in price over the past three months with growing investor optimism over its plans to acquire Helsinki-based technology company Wolt to accelerate its product development and increase international scale.
However, closing yesterday’s trading session at $215.25, DASH’s stock is trading 16.3% below its 52-week high of $257.25, which it hit on November 15. The stock has declined 12.5% in price over the past five days.
While the gig economy’s growth, spurred by the COVID-19 pandemic, boosted the company’s business, DASH’s revenue has decelerated significantly over the past few quarters. In addition, growing driver acquisition spending due to a shortage of workers, and an increasingly crowded market of app-based gig economy companies, could negatively impact its business. So, the stock could witness a pullback in the near term.
Here is what we think could influence DASH’s performance in the near term:
Impact of Labor Shortage
With many workers voluntarily quitting jobs amid the reopening of the global economy, labor shortages have emerged as a massive problem for businesses worldwide. According to the latest labor data of the U.S. Bureau of Labor Statistics, the quit level and rate increased to a series high of 4.4 million and 3%,respectively, in September. While the pandemic accentuated the gig economy’s growth by allowing more workers to engage in freelance services, labor shortages have resulted in gig economy companies scrambling to meet the supply end of their platforms. This has led to higher sales and marketing expenses for these companies.
DASH’s Dasher acquisition costs have increased as a percentage of GOV year-over-year, while its adjusted sales and marketing as a percentage of Marketplace GOV was 4.1% in the third quarter, up from 3.9% in the second quarter.
Acquisition Can Put Pressure on Financials
On November 9, DASH agreed with Wolt Enterprises OY, a Finnish delivery company, to acquire Wolt for approximately €7 billion in an all-stock transaction. The food delivery company expects to expand its international presence and improve its long-term profit potential through this acquisition. Although Wolt’s global platform for local commerce should allow DASH to expand its market reach, it could take a toll on its already weak cash reserves.
Weak Bottom Line Growth and Profitability
DASH’s net loss expanded 134.9% from the prior-year period to $101 million in the third quarter. ended September 30, 2021. It reported a $0.30 loss per share during this quarter. Furthermore, the company’s adjusted EBITDA stood at $86 million, down 24% sequentially. DASH’s adjusted EBITDA margin came in at 7% for the quarter, compared to 10% in the prior-year period. For the nine months ended September 30, 2021, DASH’s net decrease in cash, cash equivalents, and restricted cash came in at $1.48 billion.
The company’s 0.99% trailing-12-month asset turnover ratio is 6.7% lower than the 1.06% industry average. Also, DASH’s trailing-12-month net income margin and EBIT margin are negative 13.7% and 12.6%, respectively. And its trailing-12-month ROA and ROE are negative 9.8% and 36.2%, respectively.
Currently, DASH looks extremely expensive. In terms of non-GAAP forward P/E, the stock is currently trading at 729.66x, which is 4,516.9% higher than the 15.80x industry average. Also, its 15.24 forward EV/Sales multiple is 935% higher than the 1.47 industry average. And its 120.72 forward Price/Cash flow ratio compares with the 12.99 industry average.
POWR Ratings Reflect Bleak Prospects
DASH has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. DASH has a C grade for Quality. This is reflective of the stock’s weak profitability.
The company has a Value grade of D, reflective of its premium valuation. Also, it has a D grade for Growth, which is in sync with its weak financials.
In addition to the grades we have highlighted, one can check out additional DASH ratings for Sentiment, Stability, and Momentum here. DASH is ranked #36 of 37 stocks in the D-rated Internet – Services industry.
Analysts expect DASH’s EPS to remain negative next year. Even though optimism surrounding its overseas expansion plans has helped DASH’s stock gain significantly over the past three months, the company remains unprofitable. Its labor shortage woes could negatively impact the food delivery service operator’s business. So, we think it is best avoided now.
How Does DoorDash, Inc. (DASH) Stack Up Against its Peers?
While DASH has an overall POWR Rating of D, one could check out these other A-rated (Strong Buy) stocks within the Internet – Services industry: Liquidity Services, Inc. (LQDT) and Cimpress N.V. (CMPR).
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DASH shares rose $2.75 (+1.28%) in premarket trading Monday. Year-to-date, DASH has gained 50.79%, versus a 26.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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