3 Analysts Debate DoorDash's Stock As IPO Quiet Period Ends

DoorDash Inc DASH evolved from its 2013 roots to become the largest third-party restaurant delivery platform in the U.S. with 390,000 merchants, 1 million couriers and 18 million customers. The company went public in late 2020 and a handful of Wall Street analysts released their first thoughts on the stock.

The DoorDash Analysts: BofA Securities analyst Michael McGovern initiated coverage of DoorDash with a Neutral rating and $157 price target.

Goldman Sachs analyst Heath Terry initiated coverage of DoorDash with a Neutral rating and $135 price target.

Needham analyst Brad Erickson initiated coverage of DoorDash with a Buy rating and $200 price target.

The BofA Thesis: The COVID-19 pandemic forced millions of new consumers to eat from home, but the food delivery space remains in its very early stages, McGovern wrote in the initiation note. Third-party delivery apps combined for $42 billion in bookings in 2020, representing just 7% of the total $590-billion U.S. restaurant spend, the analyst said. 

DoorDash's market share is estimated at around 53% and the company's share growth accelerated throughout 2020.

The company's dominant position in a long-term growth category will translate to scale advantage, while its leadership status in suburbs will also generate superior unit economics, he said. 

Yet DoorDash's pace of growth in 2021 could slow versus 2020, and the company faces tougher comps compared to its peers, McGovern said. 

Dash's implied enterprise value of $54 billion translates to 12 times revenue, and 22 times gross profit versus the comp set at four times revenue and nine times gross profit, the analyst said.

A premium multiple is justified given the company's superior scale and ability to gain share, but it is difficult to justify incremental upside moving forward, according to BofA.

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The Goldman Sachs Thesis: DoorDash developed a strong connection with consumers during the pandemic, and this will create a "stickiness" to its platform, Terry wrote in the initiation note.

Consumers are likely to order fewer meals through DoorDash in 2021 and beyond, but the company should still be able to generate 30% or more adjusted EBITDA margins in the future, the analyst said. 

Encouragingly, DoorDash has taken steps to expand above and beyond its core restaurant delivery business to include convenience, grocery and general merchandise delivery options, he said.

This increases DoorDash's total addressable market from around $300 billion in off-premise restaurant sales in 2019 to include $700 billion in e-commerce volume and $2 trillion in offline retail, according to Goldman Sachs.

DoorDash is still less than 8% penetrated within the "most narrowly defined version of its addressable market," Terry said. 

Yet expectations for growth over the years are already factored into the stock's valuation, the analyst said.

Shares are trading at nearly 20 times 2022 gross profit estimates with a three-year compounded annual growth rate of 29% versus its comps at 10 times on 35% growth, he said. 

The Needham Thesis: DoorDash offers investors an "open-ended" growth story given its "underappreciated" ability to expand to other categories, Erickson wrote in the initiation note.

Exposure to this kind of narrative will "never come cheap," the analyst said. 

DoorDash boasts the ability to become a leading on-demand, last-mile fulfillment provider in North America, he said. 

Restaurants are merely the "compelling hook" for the company to win over millions of high-value lifetime customers, Erickson said. 

"How much would investors pay for a leading player addressing $1.8T of consumer spend with the possibility of trillions more in adjacencies over time already generating cash flow? A lot, in our view."  

DASH Price Action: Shares of DoorDash were trading lower by 2.74% Monday afternoon at $138.62. 

Photo courtesy of DoorDash.