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Analysts are mostly optimistic about DoorDash

Many saw plenty of growth ahead as they initiated coverage of the delivery giant this week.
Photograph courtesy of DoorDash

Financial analysts signaled a mostly positive outlook on DoorDash this week as many firms initiated coverage of the delivery company following a post-IPO quiet period.

DoorDash saw its value skyrocket upon going public early last month, with shares closing at nearly $190 on the first day of trading. The price has come down a bit, to about $142 as of Tuesday morning, but still represented a market cap larger than most restaurant chains

Analysts who are bullish on the company cited confidence regarding the biggest question nagging DoorDash: whether delivery can continue the rapid growth it has enjoyed during the pandemic.

“A key debate on the stock over the coming year is whether DASH can grow post-pandemic assuming people's dining habits revert somewhat,” wrote Brad Erickson, analyst with Needham, which gave the stock a “Buy” rating. “While we model 2021 roughly flat year over year, our analysis gives us conviction that strong growth for the full year can continue, even off of 2020's elevated levels.”

Even those with a more tempered view said delivery demand has been permanently altered.

“Growth will slow, but we also believe food delivery is a forever-changed category and activity will remain elevated as consumers continue to value convenience and selection, and restaurants continue to value the incremental revenue stream,” wrote JPMorgan analysts, according to a summary published by Seeking Alpha. The investment bank gave DoorDash a “Neutral” rating.

Others who are optimistic about DoorDash noted its position as the country’s largest delivery provider—particularly in the suburbs, where it has 58% market share. 

“Due to DoorDash’s early focus on the suburban markets and smaller metropolitan areas, the company is particularly well-positioned for continued growth in these markets,” wrote William Blair analysts. The firm gave the stock an “Outperform” rating.

It’s also growing in major hubs like New York City, according to Needham, which tracks delivery share in the city. “Bottom-line: We believe [Grubhub] is the #1 player in NYC but [DoorDash] is showing the most outsized share gains,” analysts wrote.

And others said DoorDash’s 50% overall market share represents just the tip of the iceberg for the delivery market. Investment bank JMP Securities said the market is approximately 9% penetrated.

“We believe there remains significant growth ahead as newer cohorts likely follow prior cohorts’ lead by spending more each year as contribution margins expand,” JMP analysts wrote in rating the stock “Outperform.” 

Analysts also highlighted the company’s potential to diversify beyond restaurant delivery. Needham wrote that DoorDash’s dominance of restaurants is “both a moat as well as a Trojan horse that can allow [DoorDash] to expand its service to a broader array of horizontal consumer categories over time; something that we don't think investors fully appreciate.” 

However, some remained skeptical about DoorDash’s chances as life returns to normal after the pandemic.

“As we're going to move much more into the physical space in the spring and the summertime, DoorDash’s business is going to slow down,” Boris Schlossberg, managing director of FX strategy for BK Asset Management, said in an interview on CNBC

“There is nobody I think ultimately happy with the DoorDash model,” he added. “The restaurant owners hate paying the fees, the customers don't like paying the extra commission, and the [drivers] themselves are really not earning that much money.”

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