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Will DoorDash deliver in the long run?

The US’ biggest food-delivery firm DoorDash, newly listed and backed by SoftBank and GIC, may not be a long-term winner, some analysts say.

  • IPO frenzy drove DoorDash’s robust showing during its first public trade
  • The startup has a dominant market share in the US meal-delivery market
  • However, it faces intense competition and a possible dip in demand post-Covid

DoorDash shares slip from IPO high

DoorDash Inc last Wednesday (09 December 2020) made an impressive debut, with hungry investors gobbling up its shares as pandemic-era eating habits continued to buttress its business.

The San Francisco-based company, which arranges deliveries from restaurants, saw its stock opening strong at US$182, then leaping to close its first day of public trade at US$189.51, an 86% spike from its US$102 initial public offering (IPO) price.

The eye-popping float in New York, one of the year’s largest IPOs, raised almost US$3.4 billion.

The food-delivery giant’s first-day closing price valued it at a staggering US$72 billion, including employee-owned shares. That exceeded the valuations of companies such as Twitter and Marriott International.

On Friday (11 December), DoorDash’s shares finished at US$175, down nearly 6% on the day, but still 72% above the offering price.

Should DoorDash investors fix their appetites?

Two of the four analysts that cover DoorDash currently recommend a ‘buy’ while the other two rated it ‘hold’. Their average target price is US$111.50, implying a 36% downside risk based on Friday’s close.

DoorDash has said it commands half of the US meal-delivery market share, twice as large as its nearest competitor, UberEats, and also overtaking GrubHub and Postmates.

Oanda analyst Edward Moya said DoorDash is ‘the perfect Covid-19 trade that is happening right as many large cities brace for further lockdowns, likely boosting the demand for takeout delivery’.

However, given the vaccine breakthroughs, there may soon be a return to pre-pandemic life, which could lower demand for at-home meals. Some investors thus have 'a downbeat assessment' of DoorDash’s long-term value, Moya added.

Likewise, LightStream Research analyst Mio Kato, who publishes on Smartkarma, believes that when the ‘new normal’ sets in, DoorDash may temporarily struggle to maintain the level of demand growth from their existing customer base.

Kato added that the company might have to spend more on advertising to acquire new customers to offset this deterioration in spend per user, which could create several quarters of weak or negative growth and deteriorating margins.

Besides, DoorDash remains unprofitable amid heated competition from rivals such as Uber Technologies; its losses totalled US$149 million for January-September 2020.

Vision Fund and GIC among DoorDash’s largest outside investors

After last week’s debut, Japanese tech giant SoftBank Group’s Vision Fund became DoorDash’s largest outside investor, holding 20% - a stake it had built since 2018 for US$680 million.

Singapore’s sovereign wealth fund GIC, meanwhile, now owns 8.4% of DoorDash. Immediately after the first-day price jump, GIC’s stake was valued at US$5 billion. GIC first took up about US$135 million of shares in 2018.

Also sitting on the startup’s board is Alfred Lin, a partner at venture capital firm Sequoia Capital, which backs DoorDash and Airbnb Inc.

How to trade DoorDash with IG

Are you feeling bullish or bearish on DoorDash’s stock?

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

  1. Create a live or demo IG Trading Account, or log in to your existing account
  2. Enter <DoorDash Inc> in the search bar and select the instrument
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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