DoorDash: 5 Compelling Reasons to Buy the Dip

Key Points

• With a 65% market share, DoorDash is the nation's largest food delivery service.
• DoorDash’s network includes over 550,000 partner restaurants and retailers, and over 32 million consumer customers.
• DoorDash charges restaurants a commission of up to 30% and also collects delivery and service fees from customers, with take rates exceeding 12%.

The pandemic made restaurant delivery services a regular fixture in the daily lives of busy consumers. The surge in business has not died down in the post-pandemic era, as delivery services have become a normal part of life. Consumers who would have considered paying 30% to 40% more for a restaurant meal through a delivery service no longer hesitate to pay the premium in the name of convenience.

DoorDash Inc. NASDAQ: DASH is the leading restaurant and food delivery service in the United States, which, with its subsidiary Wolt, commands a whopping 65% of the market share. Its biggest competitors are Uber Technologies Inc.'s NYSE: UBER Uber Eats, with around 23% market share, and Just Eat Takeaway.com N.V. OTC: JTKWY (which owns GrubHub), with a 9% market share.  

Analysts currently have DoorDash stock at a Moderate Buy -- should you buy this computer and technology company during a dip? Here are five reasons it may make sense.

1. The Massive Moat Makes Barriers to Entry Very High

DoorDash dominates the food delivery service, and its 65% market share makes barriers to entry much more expensive. Keep in mind that the massive moat includes its growing network of restaurants. While restaurants can offer delivery through multiple services, it can get disorienting when using more than one. For this reason, DoorDash is the incumbent that restaurants will stick with to avoid confusion and keep things convenient for the restaurant and the customers.

2. Its Restaurant Network Infrastructure Is Big and Getting Bigger

DoorDash's network of restaurants and customers enables it to play market maker, connecting sellers (restaurants) with buyers (customers). The company integrates directly with leading POS and technology solutions that include Toast Inc. NYSE: TOST, Block Inc. NYSE: SQ, Square and Shift4Payments Inc. NYSE: FOUR.

DoorDash charges restaurants a fee of up to 30% and also imposes delivery and service fees on customers. Restaurants might increase their menu prices on orders placed through DoorDash compared to in-person dining to offset these costs. DoorDash has over 550,000 restaurants, 37 million active customers, and 2 million active delivery contractors, aka Dashers, in its network.

Restaurants use DoorDash to gain exposure and reach customers, while customers use DoorDash to have the largest selection of food options and to discover new places. Its Wolt delivery service operates in 30 countries, from Albania to Serbia.

3. Its Margins and Cash Generation Are Growing

The take rate is the percentage of the total bill that DoorDash takes per transaction, i.e., the net revenue margin. In the past two years, DoorDash has increased its take rate from 11.7% to 12.9%. The company grew revenues 26.7% YOY in its Q4 2023 earnings report to $2.30 billion, crushing analyst estimates of $2.25 billion. Adjusted EBITDA rose to $363 million versus $320 million to $380 million previous guidance. Its Marketplace grew 22% YOY to $17.64 billion versus the $17 billion to $17.4 billion previous guidance. Its total orders grew 23% YOY to 574 million.

4. Subscription Memberships are Rising

DoorDash has been growing its monthly subscription plans, DashPass and Wolt+. DashPass costs $9.99 per month, and members have access to potentially hundreds of restaurants in their area and $0 delivery fees on orders over $15. Service fees still apply but are discounted on applicable orders. Membership rose to over 18 million users at the end of Q4 2023, up from 15 million users in the year-ago period.

5. The Company's Offerings Are Expanding

With the growing network of Dashers, DoorDash is also growing its same-day grocery, staples, retail, liquor, flowers and medicine delivery business. It’s also experimenting with delivery drones. The company has already contracted with Aldi, Safeway, Giant, Balducci’s, Food Lion, The Fresh Market and Target Co. NYSE: TGT. DoorDash has over 150,000 non-restaurant partners Sephora, Petco, Party City, Staples, DICK’S Sporting Goods Inc. NYSE: DKS, Best Buy Inc. NYSE: BBY and CVS Health Co. NYSE: CVS.

The DASH daily candlestick chart illustrates a bull flag pattern that commenced after the flag pole peaked at $142.76. The parallel descending upper and lower trendlines formed the flag, with a trigger on a breakout through the $135.71 level. The daily relative strength index (RSI) is bouncing back up through the 50-band. Pullback support levels are at $125.05, $109.00, $103.91 and $93.53.

DoorDash analyst forecasts and price targets are on MarketBeat.