Even as they cut back elsewhere, Americans still appear willing to pay for the convenience of dinner and groceries delivered to their door. And that's helped keep the rally rolling for DoorDash (DASH) stock.
↑ XShares of the app-based food and grocery delivery company have surged 20% since DoorDash reported better-than-expected sales and adjusted earnings for its June-ended second quarter on Aug. 1. That has helped reignite a rally that has seen DoorDash stock more than double over the past 18 months. The company's latest results seemingly shrugged at concerns that consumers are cutting back on discretionary spending.
"We're seeing really strong demand on the consumer side," DoorDash Chief Executive Tony Xu told analysts in August. "So, we're not actually seeing some of the challenges that you may be hearing about or reading about in other headlines."
With steady growth and a leveling of its costs, analysts project DoorDash could turn profitable in the second half of the year. In the meantime, DoorDash stock has formed a cup-with-handle base with a buy point of 131.21, according to MarketSurge pattern recognition.
But there are challenges ahead. DoorDash stock is still trading well under highs near 260 it reached late in 2021, as well as a 52-week high from earlier this year. While DoorDash dominates U.S. restaurant delivery, it is spending big to expand to new markets and categories with strong competitors.
DoorDash Beats Revenue Expectations
For its second quarter ended June 30, DoorDash pulled in a better-than-expected $2.6 billion in sales, up 23% from a year earlier. The total value of orders on its marketplace increased 20% to $19.7 billion. There were roughly 635 million total orders made through DoorDash during the three-month span, up 19% from a year earlier.
However, DoorDash posted a wider-than-expected loss of $157 million, or 38 cents per share. But DoorDash stock investors more closely watch the company's earnings before interest taxes depreciation and amortization. DoorDash's adjusted earnings before interest, taxes, depreciation and amortization increased 54% to $430 million. That beat expectations of $391 million.
DoorDash stock gained 8% in trading the next day. That helped the stock bounce back after a disappointing first-quarter report and broader economic concerns that weighed on shares. DoorDash's Relative Strength Rating has climbed to 87 out of a best-possible 99, according to IBD Stock Checkup. That means it has outperformed 86% of stocks tracked by Investor's Business Daily over the past 12 months.
DoorDash is working to recover a 52-week high of 143.34 from late March.
Praise piled in from analysts in client notes following the report. Jefferies analysts titled their client note on DoorDash's earnings statement "Defying Gravity." RBC Capital Markets analyst Brad Erickson told clients that it "turns out, reports of DASH's demise were greatly exaggerated."
The 'Convenience Economy'
DoorDash's gig economy competitors similarly defied economic concerns in the second quarter. Ride-hailing and food-delivery giant Uber (UBER) beat estimates in the second quarter and reported healthy consumer spending. Grocery delivery company Instacart (CART) had a similar message with its second-quarter report last month.
"At a time when it seems like the U.S. consumer is tipping over, retailers are guiding down, restaurants are seeing weaker foot traffic, and travel stocks are missing, how is it that Uber and DoorDash are able to beat and raise on growth?" Bernstein analyst Nikhil Devnani pondered in a client note last month.
He added that it appears Wall Street has "underestimated the stickiness of the convenience economy."
In other words, inflation-strained consumers will still pay a premium for a service if it saves them time or hassle.
"We are seeing this strategic behavior around making trade-offs for consumers, but there is still value attached to convenience," Emarketer e-commerce and retail analyst Sky Canaves told Investor's Business Daily.
Further, Canaves noted that some higher-income customers could justify delivery as a way of cutting back, if it means they avoid buying drinks or the additional courses that may accompany a sit-down restaurant meal.
DoorDash Stock: 'Earliest Innings' For Digital Transition
On a conference call with analysts on Aug. 1, Xu attributed the company's result to the broader economy remaining in the "earliest innings" for a transition toward digital purchasing of restaurants and retailers.
"We're still just single-digit penetration in restaurants and outside our restaurants, we're even lower than that," Xu said. "We see a long runway for growth there."
Founded in 2013 as Palo Alto Delivery, DoorDash operates in more than two dozen countries and delivers food and other products not just from restaurants but also supermarkets, retailers and convenience stores. DoorDash offers delivery from more than 150,000 non-restaurants, ranging from grocers to retailers like Lowe's (LOW) and Michaels.
The pandemic sent restaurant-related sales soaring and paved the way for DoorDash to go public in December 2020. DoorDash stock rocketed up more than 80% above its initial public offering price. From there, shares continued climbing to a high of 257.25 in November 2021.
But a rough 2022 included a steep fall for its stock and layoffs. Strong sales and growing free cash flow have helped DoorDash bounce back but the stock still has a ways to climb.
DoorDash Competitors Team Up
Investors are watching how DoorDash competes in new categories. The company captures about two-thirds of all U.S. food delivery spending, according to estimates by Bloomberg Second Measure.
But as it expands further into grocery and convenience items, it is running up against specialists like Instacart and giants like Walmart (WMT) and Amazon.com (AMZN).
Amazon, for instance, in April launched a grocery subscription service for most of the U.S. It also offers its Prime members access to discounted food-delivery from DoorDash competitor GrubHub.
Other rivals are teaming up as well. Uber in May announced a partnership with Instacart to offer its food delivery services within the Instacart app.
DoorDash has 18 million members for its DashPass membership product, which offers fee-free delivery from some merchants and other benefits for $9.99 per month. But Wedbush analyst Scott Devitt wrote in May that the Uber and Instacart deal could spark consolidation for members currently paying for services like Uber One, DashPass and Instacart+.
"We view DoorDash as the most vulnerable given the lack of differentiated benefits versus Uber One," Devitt wrote in May. He is neutral on DoorDash stock.
DoorDash doesn't offer ride-hailing benefits like Uber. But it is adding some perks for members from outside its main platform. Recently the company struck a deal to include a Max streaming account with DashPass.
Asked by IBD whether the company anticipates further partnerships, DoorDash spokesman Ali Musa said the company is "always adding to the value of DashPass, including exclusive promos and items, as well as access to off-platform benefits."
Meanwhile, DoorDash is also expanding its international presence. That includes through a $3.5 billion purchase of Finnish delivery startup Wolt in 2022 that expanded DoorDash's European operations.
DoorDash Stock: Rising Analyst Support
DoorDash's performance this year has won it more respect from Wall Street analysts. For much of 2023, more analysts had either a neutral or sell recommendation for DoorDash stock than a buy rating. As of Sept. 5, 60% of the 43 analysts following DoorDash rate it a buy, according to FactSet, and its has zero sell calls.
Analysts are, on average, projecting DoorDash will eek out its first annual GAAP profit this year of 3 cents per share, according to FactSet. That's after losing $1.42 per share last year and posting a deficit of $3.68 per share in 2022.
Another factor to watch for DoorDash is regulation. DoorDash's couriers work as independent contractors. Lawmakers in several jurisdictions have questioned whether so-called gig workers on DoorDash, Uber and Lyft (LYFT) should be classified as employees.
DoorDash, Uber and Lyft scored a recent win in California, when a judge upheld Proposition 22 vote, a 2020 ballot measure allows companies such as Uber, Lyft and DoorDash to classify their employees as independent contractors in the state.
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