Since DoorDash (NYSE: DASH) made its market debut in early December at a higher than expected price of $102 per share, Uber’s (NYSE: UBER) share price has surged 13%. Investors seem to have come to the conclusion that the hefty price tag put on DoorDash means that Uber’s food delivery service, UberEats, is now also worth more, thus increasing Uber’s overall value.
If we look at both businesses’ financials, we might find the answer as to why DoorDash shares are skyrocketing. Investors are hopeful that DoorDash’s revenue growth of 268% in the third quarter of 2020 will continue this year as it continues to dominate the U.S. market by focusing its efforts on suburban neighborhoods, where deliveries are more valuable. DoorDash is closer to reaching profitability, the company’s operating margins rose from -72% in 2018 to around -7% over the first nine months of 2020. In comparison, Uber is still in loss-making territory.
However, DoorDash’s current market cap is $64 billion, but the stock is trading at over 17X expected 2021 revenues. While Uber has a higher market cap of $112.32 billion, it is only trading at 5X. For shareholders looking to invest in the delivery sector, Uber might just be the stock with more value.
The COVID-19 effect
Once the pandemic-induced restrictions ease off, Uber’s ride-sharing business is expected to grow as events and venues open back up, so the need for taxi alternatives will be high. While Uber’s food delivery service may be confronted with challenges once restaurants reopen too, at least it has its ride-sharing business to fall back on. Meanwhile, DoorDash will likely see a fall in revenue once consumers have the option to dine out again, with no safety net to cushion the blow. If we think of how lift services will likely evolve over the next year once restrictions are lifted, and how ordering a takeaway might become less popular, Uber is looking like a company with more growth potential.
The two businesses had the perfect environment to grow last year. Consumers were stuck at home and restaurants around the globe were either closed or operating at reduced capacity. Ordering takeaway from UberEats or DoorDash provided hungry customers with fast and easy service as consumers were happy to pay high delivery charges if it meant they got a night off from cooking. Many experts believe that the food delivery trend is going to continue as people will never come back from ordering food on an app because it’s just so easy, even when we’re able to go to restaurants again.
DoorDash is the leading meal-delivery service in the U.S. Market research has found that the company delivered 52% of U.S. consumers’ food delivery sales in December 2020, compared with only 29% for UberEats. Uber does operate in over 30 countries though, each with different regulatory limitations and at different stages of growth. This split in focus may be the reason the company fell into second place.
Why is DoorDash stock more popular?
The thorn in Uber’s side is its huge cash burn, which spooked potential investors when the company made its market debut in 2019. CEO Dara Khosrowshahi has confirmed that the company is going to unload its autonomous vehicle development unit to help get Uber out of red and into the black. Yet, Uber’s food delivery business remains the main worry for investors as DoorDash dominates the U.S. market. Will both companies be able to survive in the meal-delivery space once customers are able to pick up their own food more freely and dine outside of the home?
If DoorDash shares are worth the prices it has witnessed since its IPO, Uber stock might still room to grow. However, Uber will need to focus on its strengths: its ride-sharing business and the future potential from the number of markets it operates in.
If anything, Uber’s ride-hailing business might make the stock a safer bet because once the pandemic is over, lift services are going to be in high demand.
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Financial Writer at MyWallSt
Nicole's favorite stock is Etsy because she loves its original and handmade items. She believes people are going to stop buying mass-produced items and start purchasing ‘one of a kind’ fashions and furnishings. In a world of sameness, Etsy has the advantage.