DoorDash: Can It Innovate Its Way to Profitability?

Shares of food delivery firm DoorDash (DASH) has been under considerable pressure of late, just like most of the other pandemic winners that have fallen from grace.

Indeed, DoorDash has been facing tough comparables for most of 2021. With the page turned on a new year, DoorDash could face some sort of relief, even in the face of the latest high-multiple tech sell-off. Not only will comparables get easier, but the company is investing considerable amounts in setting itself apart from the pack in the food delivery market.

With initiatives to lower delivery times (ultra-fast in the range of 10-15 minutes) in specific cities and improving logistical capabilities, DoorDash has the means to keep its growth alive, even as people feel safer going out to grab their food or groceries.

Leading the Charge in the Food Delivery Market

The food and grocery delivery market was given a jolt through the pandemic. To remain sticky with its prior users, though, the value proposition needs to get better.

That means shorter delivery times at a lower cost. While the race to the bottom in the food delivery space could weigh on DoorDash’s profitability prospects over the medium term, leaving the firm on the receiving end of rate-induced growth sell-offs, I do think the damage in DASH stock has mostly been overdone.

At writing, the stock trades at a modest 7.8 times sales. Profits are nowhere in sight, but after such a vicious ~60% downside move, I do think most negativity is already baked in.

Further, I like the direction DoorDash is headed with its ultra-fast delivery push and think the firm is well-positioned to take share in its ultra-competitive, albeit less-than-profitable market. That said, it will need to open up its wallet over, pushing profitability prospects further out of sight.

Should autonomous vehicles (AVs) actually be on the way, though, DoorDash could stand to be a massive beneficiary as it looks to leverage its strong network effects. Unlike many other high-tech companies that are less than profitable, DoorDash has a realistic means to eventually make a push into profitability. For that reason, I remain bullish on DASH stock despite the rising-rate environment that’s up ahead.

DoorDash’s Pathway to Profitability Seems Hazy

Sales growth will no longer cut it, but that doesn’t mean all unprofitable growth companies should be avoided. Companies like DoorDash that can make a jump into profitability may be the babies that have been thrown out with the bathwater.

While DoorDash could be a year or more away from making a big profit, it’s hard to ignore the pathways towards profitability. The company is on the right path, but the timing of such a move into the green seems cloudy at best and extremely distant at worst.

While the food delivery space is crowded, DoorDash has some enviable logistical capabilities that could allow it to remain a frontrunner as it looks to improve its service. Ultimately, such logistical capabilities and network effects set the stage for a profitability push. Still, a set stage doesn’t mean that DoorDash will finally perform for investors.

In the company’s latest quarter, the firm posted a solid revenue beat. Still, the biggest takeaway was the acquisition of Finnish food and merchandise delivery firm Wolt in a deal worth around $8.1 billion. The deal, which should close in the first half, did not come cheap. It raises the stakes significantly but could pay off once AV tech is ready for prime time.

Wall Street’s Take

Turning to Wall Street, DASH stock comes in as a Moderate Buy. Out of 20 analyst ratings, there are 11 Buys and nine Hold recommendations.

As for price targets, the average DoorDash price target is $236.13, implying an upside of 123.3%. Analyst price targets range from a low of $175.00 per share to a high of $280.00 per share.

The Bottom Line on DASH Stock

DoorDash is leading the charge in its market, which remains less than profitable at this juncture. In due time, though, I think autonomous food delivery could transform DoorDash from a money-losing enterprise to an incredibly profitable business.

When will AVs hit the roads? Nobody knows. However, I’d argue that driverless food delivery is likely to arrive before self-driving taxi services, given the increased liability of the latter. DoorDash has experimented with autonomous vehicles in the past, and it will likely continue to do so moving forward.

Add the potential for autonomous food-making into the equation, and I think DoorDash can quickly innovate (or acquire) its way to higher margins and, ultimately, profitability over the next 10 years.

DoorDash may seem like a hopeless money loser over the medium term. With great management that has an eye on innovation, don’t expect the firm to be one forever, especially as next-generation autonomous technology looks to take off.

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