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:
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.