Food-delivery platform DoorDash DASH -4.73% is now trading nearly 90% above its initial public offering price just as vaccines are being broadly distributed in the U.S. and restaurants in some of its largest markets are poised to reopen outdoor dining. So why isn’t this stock a screaming short?
The answer may be more about convenience than taste. In addition to restaurant delivery, DoorDash has been building up its market share in third-party delivery for other goods, such as those from the likes of 7-Eleven, Wawa, Circle K and CVS. Post-pandemic, those ancillary opportunities could prove to be more central to DoorDash’s growth thesis than bearish investors are appreciating.
The bulk of DoorDash’s appeal heading into its December IPO was how quickly it was able to go from 0 to 60 in food delivery. The company says it had just 17% U.S. market share in terms of total sales in January 2018 but that its share had grown to 50% as of last October—nearly twice that of its next-largest competitor, Uber Eats. Now it turns out that in more nascent markets like convenience delivery, DoorDash has been growing even more quickly.
A report out from Edison Trends Thursday shows DoorDash now owns 58% of U.S. convenience-store spending via third-party delivery apps, more than twice that of its next-largest competitor, goPuff. Last January, Edison Trends had DoorDash’s share at around 5% and goPuff at 70%. For all of Uber’s talk of leaning strongly into auxiliary delivery services, Uber Eats’ market share in third-party convenience goods is now just 8%, according to the report.
For DoorDash, the convenience market may be more than just icing on the cake. Based on Edison Trends’ analysis, overall online consumer spending at convenience stores grew nearly 350% in 2020, nearly three times faster than online restaurant consumer sales. DoorDash customers increased their convenience-store spending by 162% sequentially from the third to the fourth quarter, according to EdisonTrends’ data—a good sign for DoorDash’s first earnings report as a public company coming up late next month.
Opportunities outside of traditional food delivery seem to be a big part of what separates analysts who remain positive on DoorDash from those who find it to be overvalued. In his initiation report, Truist analyst Youssef Squali pegs the potential addressable market in grocery and convenience, including e-commerce and brick and mortar, at roughly $50 billion for the industry as a whole, with an additional $22 billion coming from specialty food stores and $60 billion coming from beer, wine and liquor stores. Relative to the highly concentrated grocery market, he notes more fragmented areas like convenience delivery could be more profitable. Meanwhile, Angelo Zino from CFRA Research initiated coverage on DoorDash with a sell rating, not mentioning the convenience opportunity once.
Cautious investors worry that food-delivery demand will subside as the pandemic eases, but that doesn’t mean demand in other areas will shrink. Analysts’ estimates compiled by Visible Alpha show DoorDash’s average order value declining 23% from 2020 to 2025, but monthly orders per active customer growing nearly 30% over that period. More options should continue to bring in more customers to DoorDash’s platform, which is especially strong in suburban markets where convenience shopping isn’t necessarily walkable. Analysts are forecasting DoorDash’s monthly active customers to grow by 21% this year alone.
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In his DoorDash initiation report, JPMorgan’s Doug Anmuth calls food delivery a “forever changed category,” noting that while growth may slow, activity will remain elevated, given consumers’ value of convenience and selection. He cites new verticals, such as convenience, grocery and pharmacy, as key growth drivers.
Relative to a restaurant outing, frequenting the corner store was always more of a chore than a treat. It may well be that even as diners race back out to eat post-pandemic, they’ll continue to order up their everyday goods.
For DoorDash, that is a convenient narrative indeed.
Write to Laura Forman at [email protected]
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