Is DoorDash Ready To Sprint Higher?

• Turning to the quarterly operations and margins, the company’s costs increased at all levels
• The company is expecting revenue to increase on a sequential and YOY basis
• At least five analysts have come out with price target increases

DoorDash (NYSE: DASH) has been struggling with profitability from the get-go and things haven’t changed much over the years. The one thing that has changed is the company’s shifting focus from a pure-play on food delivery to expanded verticals and increased traffic which is supposed to aid profitability. While the shift is aiding revenue, the cost to the company may be more than it can bear because margins continue to shrink. The question now is if the company can continue to operate at the tremendous loss it posts on a quarter-to-quarter basis because the guidance for margin didn’t get any better with the Q2 earnings release.  

DoorDash Bottoms On Mixed Quarter 

DoorDash had another tough quarter in which company efforts to boost traffic and sales paid off but at the cost of the margin. The company reported $1.61 billion in net revenue for a gain of 29.8% over last year and it beat the Marketbeat.com consensus estimate but by a very slim margin. The gains were driven by a 23% increase in orders, a 25% increase in Marketplace GOV, and a 31% increase in contribution per order that was more than offset by rising costs. 

Turning to the quarterly operations and margins, the company’s costs increased at all levels.  The base cost of business rose by roughly 1000 basis points while spending on R&D increased, SG&A increased, and the company’s tax burden increased as well leaving the net loss up 160% versus the same period last year and there is no good way to sugar coat this news. On the bottom line, the GAAP loss of $0.72 not only more than doubled from last year but it missed the consensus mark by $0.32 and there is still bad news to come. Not even looking at the guidance, the company’s share count is up nearly 9.0% on a YOY basis and offsetting just how bad the losses are. Adjusted for the additional shares, the company lost closer to $0.79 per share.

Now, the guidance. The company is expecting revenue to increase on a sequential and YOY basis but that’s the only good news in the outlook. The company is also expecting adjusted EBITDA to come in a range of $25 to $75 million which is down more than 25% sequentially at the top end of the range and greater than 75% sequentially at the low end, not something investors will want to see regardless of the revenue gains. 

“Low penetration rates do not suggest an easy road to growth. To the contrary, we expect consumer expectations to rise relentlessly and competition to remain fierce, so success will require exceptional innovation and execution. Nonetheless, the low current levels of penetration suggest a large opportunity for growth if we execute well,” says the company in the Q2 press release. 

The Analysts Put A Bottom In DoorDash 

The analysts, more than anything else, are putting a bottom in DoorDash because their sentiment is shifting. The Marketbeat.com consensus rating firmed over the last year from a Hold to a Moderate Buy with a price target more in-line with reality. The consensus price target, which projects about 70% of upside, is down in the 12-month, 3-month, and 1-month comparison but firmed in the wake of the Q2 report. At least five analysts have come out with price target increases but there is a caveat, the price increases all came from analysts with sub-consensus price targets. 

The Technical Outlook: DoorDash Bottomed But … 

The price action in DoorDash bottomed a month or two before the Q2 release was issued but don’t count on a reversal. For one thing, the downtrend is still intact and for another, there is resistance at the 150-day moving average. If that level can not be surpassed the best this stock will do is move sideways within the newly established range and there is a chance for lower prices as well. If, however, the market can get back above the 150-day EMA a move up to $125 is possible.