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Is DoorDash A Buy Right Now?

DoorDash dishes out $8.1 billion to acquire EU delivery platform Wolt, sending shares to a new all-time high on Wednesday in its biggest acquisition to date

The acquisition of Wolt will allow DoorDash (NASDAQ: DASH) to expand internationally, gaining 2.5 million new monthly active users spanning 23 countries. The companies are well aligned in their values, looking to deliver for local commerce. For the most part, this means restaurant and grocery deliveries, but both companies are now expanding into other products and industries.

What does DoorDash do?

Well it dashes to doors, of course. DoorDash is a technology company focusing on quick and easy deliveries primarily dealing in fast-food and groceries. They also have a subscription service ‘Dash Pass’ which eliminates any fees on orders over $12. More recently, it has launched an advertising platform that allows businesses to create ‘sponsored listings’ in its app to increase visibility, and merchants only have to pay if an order is placed. 

What does Wolt do?

Wolt is on a mission to make cities better places to live — so yeah, pretty well aligned. The company was founded in Helsinki in 2014 and now has over 10 million customers, with over 30,000 restaurant and retail partners on board, and an average of three orders per customer in any given month. 

The acquisition

DoorDash will acquire Wolt in an all-stock transaction worth $8.1 billion, which will be valued at $206.25 per share.

DoorDash’s Q3 earnings

DoorDash isn’t growing as fast compared to pandemic-induced levels but it is still making headway. In its most recent quarter, revenue grew 45% year-over-year to $1.3 billion, and total orders grew 47% year-over-year to 347 million. Although EBITDA (earnings before interest tax depreciation and amortization) was $86 million and remained flat year-over-year, the company has invested more into marketing and consumer acquisition as it rolls out new product offerings, bringing the total number of non-restaurant stores to over 40,000. This could correlate well with the future of ‘Dash Pass’ which reached a record high of 9 million members at the end of Q3. 

Is DoorDash a good long term investment?

Possibly, but it comes with a handful of risks. It is definitely meeting the needs of consumers in busy city environments and takes convenience to a whole new level, but there are a tonne of competitors; UberEats, GrubHub, Deliveroo, Postmates, to name but a few.

The problem for all these businesses is it’s already a relatively low margin industry given the overheads. Net revenue margins were only 12.2% in Q3 and the payout for ‘dasher’ (what it calls its deliverers) was $2.8 billion, which they intend to increase over time. It’s great to see a business look after the key stakeholders that help run the machine, but the overall business model could prove ineffective and continue to cut into margins over time.

It would be interesting to see a make-up of the other product deliveries the company is catering for aside from food and groceries, and how it will tackle that market long-term. In reference to the DoorDash shareholder letter, the total retail market is estimated to be $4.1 trillion for DoorDash’s regions and a further $2.6 trillion for Wolt’s regions, which sounds great, but its market is deliveries so is it really that relevant?

For now, when it comes to most products in the retail segment, most people would be happy ordering from Amazon (NASDAQ: AMZN), and only have a day or two to wait otherwise, so you could be waiting a while for an investment to pay off here.

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