DoorDash stock has done phenomenally well, rising +55.3% over the past 6 months and +17.2% YTD, driven by consistent earnings beats vs consensus estimates, leading to a stock re-rating.
Some key achievements:
- GAAP net income profitable for the first time in Q3, setting it up for possible S&P500 inclusion as early as 1Q25
- MAUs reached an all-time high of 42mn in Dec’24 while subscribers are now >22mn
- US New Verticals saw accelerating order growth for three consecutive quarters. In 4Q24, 25% of MAUs ordered from a new vertical category, up 5ppts YoY
However, I remain cautious. I think that 1) enthusiasm around new verticals (e.g. Grocery/Convenience)appears excessive; 2) Misleading margins. Barely profitable even with 60-70% market share, along limited levers left to improve its unit economics
Enthusiasm around new verticals (e.g. Grocery/Convenience) appears excessive
#1 Online grocery market in the US is already near stable state, following the pandemic-driven surge. This means that DASH must take substantial market share to meet the Street’s high-teens GOV growth expectations.
The pandemic drove a once-in-a-generation surge in online grocery adoption in 2020, but growth has since moderated. In the US, the market expanded 80–90% from 2019 to 2020, pushing penetration from 4.5% to 6%. However, growth has since slowed to high single digits, with penetration stabilizing around 8%, just below China’s 9%, a benchmark for market maturity. This suggests the online grocery market has reached a near-steady state, limiting further growth via organic market expansion. As a result, DASH must capture substantial market share from competitors to achieve the Street’s 2025E GOV growth target of high teens.
Bulls may counter #1: Bulls may argue that a <10% online grocery penetration looks low when compared to overall e-commerce penetration at 30–35%. I disagree.
- High price disparity (10-30%) between online and offline grocery shopping – driven by price markups, service fees, delivery fees, and tips – makes it largely accessible only to affluent consumers. Channel checks suggest that >50% will not pay for the extra convenience especially since formal retail is already very accessible especially in most densely populated urban cities.
- In contrast, traditional e-commerce benefits from cost savings on rent, often making online shopping cheaper than physical retail, a dynamic that does not apply to groceries.
Bulls may counter #2: Furthermore, bulls (especially global and EM focused PMs) like to draw parallels to the strong momentum that Zomato, Swiggy, and Zepto are experiencing in India’s quick commerce (grocery delivery) sector. I disagree.
- Grocery and food delivery thrive better in emerging markets (e.g., China, India, Indonesia) due to high Gini coefficient and low labour costs, ensuring ample supply of couriers and strong demand from wealthier consumers willing to pay for convenience – dynamics that do not translate as well to developed markets like the US.
- The Indian market is unique for several reasons: 1) most people prefer home-cooked meals and often hire chefs, rather than opting for takeout; 2) formal retail is less established, making grocery delivery a necessity rather than a discretionary product; 3) Indian players have been focusing on a 1P model, where, with sufficient scale and infrastructure, they can offer prices comparable to traditional retailers.
#2 Scale is the key moat in grocery delivery; DASH’s late entry and lower scale make market share gains a costly battle to win.
My channel checks suggest that while Instacart has been losing market share to both DASH and Uber, it still has a significant lead of 20-25% market share vs Uber (5-10%) and DASH (5-10%). Customer loyalty in the delivery business is almost non-existent, and platforms primarily compete on price, speed, and product assortment – factors that are all driven by and a function of scale. This scale advantage (note: NOT network effect, there is none here) is the true and probably only economic moat for any delivery business, as it enables better pricing (cost to serve is lower), faster delivery (more drivers), and a wider variety of products (more negotiating power to onboard products, even exclusively). We see this play out time and time again in other markets and other similar verticals – e.g. Grab’s 70-80% market share dominance in ride hailing in Singapore enables it to charge 20+% commission vs some competitors at 0% - despite ride hailing being an almost 0 customer loyalty business as well.
Despite DASH’s early traction, its late entry leaves it significantly behind in scale compared to incumbents like Instacart and more so against traditional retailers like Walmart. While playing catch-up is not impossible (e.g., Grab vs. GoJek in Indonesia), it will be an extremely costly battle – one that DASH is unlikely to afford given the current capital market conditions and the end of the zero-interest-rate environment. DASH’s hesitance on giving more segment level disclosures and insights into their grocery business says it all. I elaborate below.
Bulls may counter: Bulls may argue that DASH’s strong subscription program (DashPass) could drive loyalty. However, this is not unique to DASH, as every platform has its own subscription offering. In fact, Uber may have an advantage here, given its strength in other verticals (e.g., mobility, despite DASH’s partnership with Lyft), allowing it to offer more attractive cross-product deals.
#3 Lack of segment transparency creates uncertainty around growth and margins of new verticals
DoorDash has historically provided limited segment-level disclosures, directing investor focus on aggregate metrics. While this gives the company flexibility in shaping its earnings narrative, it is a red flag in my opinion. A similar approach is seen with GoTo (IDX: GOTO) in Indonesia, which avoids breaking out Food Delivery and Ride-Hailing to prevent unfavourable comparisons with its competitor’s (i.e. Grab) stronger unit economics. Nevertheless, more favourable disclosures in future (while it looks unlikely now given that the company DNA seems to prefer less disclosures) could be an upside risk to my short thesis.
Misleading margins. Barely profitable even with 60-70% market share, along limited levers left to improve its unit economics
A key challenge in analyzing such consumer technology stocks is that reporting for the same line item across tickers can vary significantly, as many line items are non-GAAP. For example, some companies may include tips in GMV while others don't. Some may include delivery fees and driver payouts into revenue and others may net it out. Companies like Uber also have headquarter costs that are not attributed to the individual business segments.
#1 Margins are deceptively high due to accounting, which the Street may have wrongly given DASH credit for
At face value, DASH’s 17.7% Adjusted EBITDA margin on revenue looks extremely impressive especially when benchmarked against peers. However, this is misleading, as DASH nets delivery fees and discounts from revenue, resulting in a lower revenue base than its competitors, who do not follow this practice. In reality, after accounting for adjustments like stock-based compensation, DASH’s EBITDA margin on GMV is just 1.1%, compared to Uber at 1.5% and Asian peers like Meituan and Zomato at a much higher 3-3.2%. Adjusted EBITDA on comparable revenue drops to just 9% from 17.7% on reported revenue. Some investors (especially generalists or those who don’t look into internet names often) may have wrongly interpreted DASH’s numbers vs peers and therefore given DASH more credit than it should.
#2 Few levers left that DASH could pull to improve unit economics
DASH’s market dominance (60-70% market share) in US food delivery translates to a cost structure that is already fairly optimized compared to peers. The market is largely rationalized and in a steady state, unlike some global peers like Grab, which faces intense competition in Indonesia and maintains elevated discounts that could decline as the market further consolidates. Therefore, there are few levers left that DASH could leverage to significantly improve their profitability.
- Discounts as a % of comparable GMV is just 1.4%, lower than Meituan. While surprisingly above Uber, the gap (0.6% vs 1.4%) is narrow, and further reducing discounts will not be needle moving. As long as there is some competition, DASH will need to provide some discounts to 1) incentivize new users and 2) retain top end, high AOV spend and frequency users.
- Take rate on comparable GMV is at 29.4% (vs 18.4% on reported GMV), which is in line with Uber and significantly higher than its Asian peers. Hence, there is unlikely significant headroom for growth here. Further monetization may cause restaurants or drivers to back out, which impacts quality of service and hence consumer retention ultimately.
#3 Challenging to reaccelerate growth, especially in a mature food delivery market like the US
Like grocery delivery, food delivery has reached a near steady-state penetration following the COVID-19 surge, with US food delivery penetration even declining from 2022 to 2023. Even in emerging markets like Southeast Asia, where penetration appears low at 14-15%, growth has largely plateaued. Southeast Asian players like Grab and GoTo faced significant softness in 2023, resorting to lower-cost offerings (e.g., Saver Deliveries) to sustain investor growth expectations – at the expense of AOV and profitability.
Bulls may counter: Bulls will argue that DoorDash expanded internationally (via M&A) and went into new verticals precisely because of core US growth slowing down. The acquisition of Wolt added 22 net new countries that DoorDash services and international revenue have started to become material in 2022/23, accounting for 5%/10% of revenue respectively. However, adding 22 markets to expand food and grocery TAM by just 50% raises concerns. Food delivery is a hyper-localized business where execution hinges on deep regional expertise. For example, Grab’s success over Uber in Southeast Asia underscores this dynamic, as does Foodpanda’s decline – its overextended footprint diluted focus, allowing Grab to steadily erode its market share across the region. DoorDash being spread thin across so many markets raises material execution risk.
At 25-30x 25e forward EV/EBITDA, DASH is still valued as a "growth" stock despite clearly reaching steady state. Like many other of its peers, DASH often like to cite statistics like "DoorDash services address <10% of the world’s population and it has just >12% user penetration in the markets in which it operates" to create a narrative of large growth headroom. However, the reality is that food/grocery delivery is a convenience and luxury service and 25-30% (food) and 8-10% (grocery) penetration is already steady state even for mature markets.
