Shares climbed for a second session as markets shifted focus to key US data prints this week for further insight into the health of the world’s biggest economy. The best-performing concept is Food Dilivery.
Considering the different perceptions of the stock, this time TigerPicks chose $Uber(UBER)$ and $DoorDash, Inc.(DASH)$ to have a fundamental highlight to help users understand it better.
$Uber(UBER)$
Uber Technologies, Inc. develops and operates proprietary technology applications, it operates through three segments: Mobility, Delivery, and Freight. The company was formerly known as Ubercab, Inc. and changed its name in February 2011. Uber Technologies, Inc. was founded in 2009 and is headquartered in San Francisco, California.
$DoorDash, Inc.(DASH)$
DoorDash, Inc., together with its subsidiaries, operates a commerce platform that connects merchants, consumers, and independent contractors in the United States and internationally. The company operates DoorDash Marketplace and Wolt Marketplace. It also offers membership products, including DashPass and Wolt+. The company was formerly known as Palo Alto Delivery Inc. and founded in 2013 and is headquartered in San Francisco, California.
Uber: A Sticky Situation
The company's 2Q24 quarterly results and outlook reported earlier last week confirmed my positive sentiment on the stock.
Uber beat on top and bottom lines and reflected that green shoots from its serious venture into the groceries market (under its delivery segment) have more potential upside to show. The company reported revenue of $10.7 billion, up 16% year over year, ahead of expectations at $10.5 billion and EPS of $0.47 versus the $0.39 expected.
Looking to 2HFY24, I expect Uber to show more upside on:
1)Uber's diversification strategy into grocery offerings
2)The company's hyperfocus on affordability in delivery and mobility amid global economic headwinds
I stuck to my buy rating in May at a moment when the stock was selling off on investor panic, and since that article, Uber has outperformed the $S&P 500(.SPX)$ . I reiterate my bullish sentiment now as I anticipate Uber will continue to have the upper hand over the peer group in delivery and ride-sharing and, by extension, outperform the peer group and S&P 500. Uber soared ~11% post-earnings, actively closing the performance gap between the stock and the S&P 500, as shown below. Uber stock is now down ~9%, against the S&P 500's down ~6% on the one-month chart.
Valuation
Uber is a growth stock, and that is due, for the most part, to its aggressive market penetration strategy and healthy top and bottom-line growth. Uber's price/earnings for C2024 is 75, significantly higher than the peer group average at 41.2. EV/Sales for C2024 came in at 3.2, higher than the peer group average of 2.6. The median PT for the stock was $90 in May and witnessed a downward trend through June to $87.
It started to rebound in July to $88 and is currently at $89. The mean PT was at $87.7 in May and went down to $85.8 in June. It rebounded in July to $86 and is currently at $86.5.
According to Data from refinitiv, 20% of Street analysts give the stock a strong buy, and over 70% give it a buy. No analysts gave the stock a sell, and only 8% gave it a hold. I think this shows that the market is optimistic about Uber, and I share the sentiment. I believe that Uber's efforts with the grocery and retail initiatives and its prioritization for customer affordability justify its higher valuation multiples.
I continue to be optimistic about Uber on the basis that their business model offers the flexibility to sustain growth in the long term. Uber is also looking for new legs of growth by the quarter; this can be seen through its expansion efforts this year. I believe that the success the company had with $Instacart, Inc. (Maplebear Inc.)(CART)$ not even a few months after the official launch shows how seriously management is about diversifying the service to the fullest.
I'm also watching the new partnership with $BYD Co., Ltd.(BYDDF)$ , which was announced in July and is expected to bring 100,000 new electric vehicles to Uber drivers. The electrification of Uber's mobility and delivery segments is promising; according to management, Uber drivers are "switching over to eclectic at five times the speed that normal drivers are."
DoorDash Reiterating A Buy
DoorDash announced 2Q24 earnings last Thursday after the bell, confirming my positive outlook on the stock. I think Dash is now better positioned to beat its Marketplace GOV guidance of $19.4 billion - $19.8 billion for next quarter, as I see momentum backed by expansion to international markets and its grocery offering.
My positive sentiment back in May was based on my belief that "significant levels of ongoing investment in new categories and international markets" that caused the post-1Q24 sell-off would "pay off big time and pave the next leg of growth for Dash," and the second quarter of FY24 results led me to believe we're now in that next leg of growth.
Dash soared 13% in extended trading and hit a high of $123.5 per share after the company beat top-line estimates by $90 million, reporting revenue up 23% year-over-year to $2.63 billion, and grew its Marketplace GOV 20% year over year. EPS was less impressive, with management reporting a GAAP EPS of -$0.38, missing estimates by $0.29 but reporting a narrower loss than a year ago quarter during which the company reported GAAP EPS of -$0.44. Dash stock outperformed the S&P 500 over the past month, as shown below, and I expect it to continue to outperform the S&P 500 in 2HFY24.
Growth catalysts I'm still watching
I believe we continue to see momentum in the grocery offering, and management believes the company has been "very strong" in that regard. On the day of earnings, the company updated its three-year longstanding partnership with Chase, making Dash the exclusive partner in restaurant and grocery delivery for all DashPass cardholders.
I also believe this helps with the order frequency, which has been one of the things management has been focusing on for a while now, along with the quality of the service associated with said orders. And that's coming from the CFO Ravi Inukonda himself. The company isn't just focused on driving restaurant frequency and other new businesses' frequency up since this "blended basis" isn't how they look at this cohort business; attention to detail is where it's at.
Every investment is a risk, and I believe Dash is being mindful of which basket to put its money in. So, regarding the selection investment, management will continue to expand its selection as long as it is "driving incremental GOV" and increasing conversion. But tactical investments go hand in hand with "offering the best combination of inputs for customers, the best selection, the best quality of service in terms of delivery quality, the best affordability, and the best support" which is one of my favorite things about Dash. I think this will go a long way to sustainable profitability, maintaining and retaining customers into FY25.
What about valuation?
Dash is pretty expensive, but I think it's worth it considering Dash is a growth stock. The EV/Sales ratio for C2024 is 4.3, significantly higher than the peer group average of 2.6, and the ratio of its biggest competitor, Uber Technologies, Inc. (UBER), at 2.9. I don't think Dash is overvalued as a growth stock, especially with its recent expansion in 1. Offerings, and 2. Its growing international presence. According to Data from Refinitiv, 20% of Street analysts give the stock a strong buy, and 40% give it a buy. No analysts give Dash a sell, and 40% give it a hold. I believe this reflects investor confidence in the stock and gives Dash the opportunity to prove itself as an upcoming leader in the delivery industry.
The median PT for the stock was $136 in May and maintained in the high $130s range until July before being revised up to $142.5. The mean PT had an upward trajectory as well, from $135.3 in May to $142.4 now, which, in my opinion, backs my positive sentiment on the stock.
In my opinion, Dash is also a financially healthy company. This quarter's adjusted EBITDA came at an all-time high of $430 million, significantly higher year-over-year and quarter-over-quarter at $279 million and $371 million, respectively. If I had to sum up this quarter's metrics in one word, I'd say it is commendable; I see management's efforts to "drive overall frequency up" drawn all over this earnings report.
Management has a positive sentiment and is pleased with the 2Q24 results as "it reflects years of investment and product level focus that drove strong growth and improved unit economics" and has a goal of growing "as fast as we can by being inside of the range from an EBITDA perspective…in Q3 as well." I believe management's optimism is backed by Dash's expansion into international markets and adding "new merchants to our U.S. marketplace in the grocery, beauty, home improvement, alcohol, and sporting goods categories."
What's next?
I remain positive on Dash for 3Q24. I'm not saying we'll see expansion to international markets blossom in a quarter or two, but I am definitely keeping an eye there for the mid to long-term. I believe there's a robust opportunity there for Dash, especially considering the company's partnership with Wolt that closed back in 2021 and gained excitement due to "the fact that they had leading retention and frequency in every market that they competed in."
Since then, improvements have been implemented, and that is what's driving share gains across their end markets. The company continues to see strong retention and order frequency, especially in the international portfolio with a positive gross profit. What the company is prioritizing is driving scale, which will eventually drive efficiency, in my opinion, this formula was used in the U.S. market, and it is the same formula being used in the international one.
I understand it might take longer for the scale strategy to show up in top-line growth as retail outside the U.S. isn't as developed yet. However, I believe it's only a matter of time before the international market will follow in the steps of the U.S. I would advise investors to keep an eye on Dash for opportunities to jump into the stock.
Stock Price Forecast:
Here are the target price forecasts of Uber and DoorDash for the next 12 months from analysts.
Based on 32 Wall Street analysts offering 12 month price targets for Uber Technologies in the last 3 months. The average price target is $87.93 with a high forecast of $100.00 and a low forecast of $71.00. The average price target represents a 21.64% change from the last price of $72.29.
Based on 29 Wall Street analysts offering 12 month price targets for DoorDash in the last 3 months. The average price target is $144.25 with a high forecast of $185.00 and a low forecast of $115.00. The average price target represents a 16.51% change from the last price of $123.81.
Resource:
https://seekingalpha.com/article/4712645-uber-q2-earnings-more-upside-ahead-reiterating-buy
https://seekingalpha.com/article/4711697-doordash-delivers-earnings-review-reiterating-a-buy
What are your thoughts on $Uber(UBER)$ and $DoorDash, Inc.(DASH)$ ?
Or do you know other companies in the industry?
Please leave your comment below.
Comments