DoorDash Is On To Something

Matthew chapter 18 verse 15 states, "If your brother or sister sins, go and point out their fault, just between the two of you. If they listen to you, you have won them over."

I always consider the key part of this Bible verse the statement "between the two of you" being the most important aspect. While we are instructed to point out faults, by no means are we to do this publicly or in any way that is disrespectful to someone. At the same time, this is meant for encouragement. At the same time, I must first always focus on my own faults as the primary issues before being in a position to attempt to help others.

As select aggressive growth plays have been targeted by Wallstreet and short-term investors the past couple of months, I find it equally important to focus on the unchanging mid-term opportunities that have become much stronger as the recent sell-off for these companies has showed no sign of slowing. Markets are always volatile and emotional, so like the Bible verse above, it's important to continue to point out the trends and facts, that are the key drivers for the a company's trajectory and future.

As markets have been topsy-turvy, I've taken some chances adding to positions pre-earnings with Airbnb, Inc. ABNB, DoorDash, Inc. (DASH), and Coinbase Global (COIN) being the most recent. I'd like to provide an update and some commentary on DoorDash.

DoorDash is very interesting as there's a lot of push-back on the company's potential and valuation. My opinion is that DoorDash, and Instacart are here to stay as an integral part of delivery and merchant services. DoorDash to this point, is expanding further into retail verticals from its dominant position in restaurant deliveries in the U.S. DoorDash strategically cornered the most profitable market in the U.S., while taking the overall leading market share in a roughly three-year time frame for food deliveries. There really is no limit when it comes to delivery and how an innovative company like DoorDash can continue pushing into verticals Traditional delivery companies are not as innovative when it comes to technology and platforms, especially for small and medium sized businesses.

Like many leading aggressive growth companies that proved highly resilient during the pandemic, DoorDash has received a lot of flack with respect to perceptions of an inevitable reversal from its exponential growth. Q1 2021 witnessed the opposite as the company continued to dazzle. Here's DoorDash's key financials updated on a Last Twelve Month, LTM basis.

  • Revenue: $3.6 billion

  • Operating Cash Flow/OCF Margin: $543 million/15%

  • Total Orders: 1 billion

  • Marketplace Gross Order Volume, GOV: $31.5 billion

At year-end, DoorDash provided GOV guidance with the mid-point at $31.5 billion. After Q1 2021, this has been increased to $36.5 billion. When considering average order value trends and total orders (I like to model using these metrics to equate to GOV), and factoring for Revenue as a percent of GOV, DoorDash's Revenue expectations for 2021 are likely going to land somewhere from$4-4.5 billion. With OCF inflection exploding to 15% already, the company is poised to continue its momentum moving forward.

The logic for DoorDash's mid-term potential has always been predicated on the pandemic's over-dependence on deliveries not reverting back to pre-COVID demand. Instead, the logic is predicated on DoorDash seeing average weekly deliveries from pre-COVID customers going from 1-2 per week and 4-6 times per week during the pandemic, to 3-4 times as the new-normal. By expanding into more retail verticals, this further increases market penetration of deliveries for DoorDash, with both B2C and B2B deliveries on the table.

For the mid-term, DoorDash is on a trajectory towards $10 billion in Revenue. Clearly, the delivery model has been much more Cash Flow positive versus ride hailing for companies like Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT). As deliveries continue to grow across the U.S., DoorDash will be challenged to continue to execute and stay ahead of the competition. I think it will be very important to consider Instacart's business more closely once it goes public. For the time being, DoorDash is the clear leader as the industry has consolidated - a clear sign that the U.S. competition has been beaten.

DoorDash is poised to see further Cash Flow inflection over the mid-term, although I do suspect that the short-term could see a regression from Q1 2021 serving as a peak. Regardless, the company is reasonably priced deserving a premium to Uber and Lyft based purely on Cash Flow advantages, and could afford investors an annualized 15% or so return from here over the mid-term. I don't think it's time to go crazy buying DoorDash, but if the Stock Price, SP sees some selling pressure back below $130, it may be a good time to accumulate more into the position.

13 views0 comments