DoorDash Stock: Can it Keep Delivering Returns?

Key Concepts

• DoorDash’s Evolution: From a Stanford project to a leading logistics platform aiming beyond food delivery to encompass broader local commerce.
• Profitability & Unit Economics: Achieving profitability hinges on scale, optimizing the “take rate,” and managing labor costs.
• Labor Model & Regulation: The independent contractor model is crucial to DoorDash’s economics but faces ongoing legal and regulatory challenges.
• Expansion & Acquisitions: DoorDash is expanding into new verticals and geographies through strategic acquisitions.
• Valuation & Investment Recommendation: Despite strong market position, the current valuation is deemed too high for a “pass” recommendation.
• Convenience Economy Trends: Demographic shifts, particularly with Gen Z, are driving growth in the convenience economy.

DoorDash: From Stanford Project to Potential Logistics Giant

DoorDash originated as a solution to a local bakery’s delivery challenges, evolving from a Stanford class project involving manual order coordination via phone and payment processing with Square card readers. Early operations leveraged the “Find My Friends” feature on iPhones for efficient driver assignment. The company strategically focused on suburban markets, gaining market share overlooked by competitors like GrubHub and Uber Eats, particularly benefiting from larger order sizes. The COVID-19 pandemic dramatically accelerated DoorDash’s growth, increasing its market share from 17% to 50%. DoorDash’s trajectory is often compared to Uber’s, where prolonged cash burn eventually yielded profitability at scale. The company aims to become a comprehensive local commerce delivery service, handling groceries, household goods, and more, expanding its addressable market. DoorDash is now the US market leader in meal delivery and has expanded internationally, acquiring Volt in Germany (now owned by DoorDash), and competing with Uber Eats, Lieferando, and others. Scale is essential for profitability, but achieving it has historically involved significant cash burn, though DoorDash recently demonstrated its first operating profit. The company’s success depends on finding the optimal “take rate” (commission) per transaction.

Business Model, Economics, and Valuation Deep Dive

DoorDash’s 30% market share in US food hailing is considered relatively inexpensive given its cost structure. Labor costs are the biggest expense, and classifying workers as independent contractors is central to its economic model, allowing it to avoid employee benefits. While facing legal challenges, the independent contractor status is likely to persist due to consumer preference for lower prices and public support, exemplified by California’s Prop 22. DoorDash adapts to varying government regulations globally, including New York City’s minimum earnings requirements for delivery workers ($21.44/hour) calculated via standard or utilization methods.

DoorDash generates revenue through restaurant commissions (15-30% + $350 activation fee), consumer fees, DashPass subscriptions, and advertising. An example order breakdown ($32.90 total) shows DoorDash capturing approximately $5 per average $33 order. Gross Order Volume (GOV) is $80 billion globally for DoorDash versus $75 billion for Uber Eats, with DoorDash holding a larger lead in the US. The take rate has increased from 10% of GOV in 2018 to 13.4% in the last 12 months, driven by advertising, which now has a $1 billion annual run rate with higher margins. Order batching has increased average customer orders per year from 39 (2020) to 62, outperforming Uber and Grubhub.

DoorDash is expanding into non-restaurant delivery (alcohol, groceries, pet supplies, etc.), with 25% of monthly active users ordering from non-restaurant merchants in late 2023. Key acquisitions include Caviar ($410M in 2019), Vault ($8.1B in 2022), Deliveroo ($3.9B in 2023), and Seven Rooms ($1.2B in 2023). The addressable market is estimated at $6 trillion (restaurants + groceries). A projected 10-year scenario forecasts $300 billion GOV, a 13% take rate, $39 billion revenue, $6 billion operating profit, and a potential valuation of $150-210 billion, implying an 8-12% annual return. However, the current investment recommendation is a “pass” due to the stock being fully valued, potential dilution from stock-based compensation (90% of management compensation tied to RSUs), and acquisition risk. Concerns also include potential immigration crackdowns and economic sensitivity.

Final Assessment & Future Outlook

Initial enthusiasm for DoorDash has waned due to its current valuation, which has risen 70% in the last 12 months. While acknowledging Tony Xu’s strong leadership and DoorDash’s solid US market positioning, the stock is considered “priced for perfection.” The current valuation requires “incredibly well” performance for many years to justify it, making it no longer an “asymmetric opportunity.” Future profitability boosts could come from partnerships with drone companies and autonomous delivery vehicle makers, but this is considered too speculative. Controlling stock-based compensation could strengthen DoorDash’s position alongside Uber in the convenience economy.

The convenience economy is expected to continue growing, driven by demographic trends: 64% of Gen Z use food delivery more now than a year ago, compared to only 15% of Baby Boomers, and the anticipated wealth transfer to Gen Z. DoorDash benefits from a flexible supply of drivers responding to demand in real-time, similar to Uber, contrasting with fixed-supply models. The upcoming 50th episode will be a portfolio review.

Conclusion

DoorDash has successfully navigated the challenges of the food delivery industry and is positioning itself as a broader local commerce platform. However, its current valuation reflects significant future growth and efficiency gains, leaving limited room for error. While the company’s leadership and market position are strengths, the investors believe the risk-reward profile is no longer favorable, making it a “pass” at the current price. The long-term success of DoorDash will depend on its ability to continue innovating, managing labor costs, and expanding into new verticals while maintaining its competitive edge.