DoorDash Reported Strong Q2 Growth; Shares Overvalued
The firm reported mixed second-quarter results with revenue beating the FactSet consensus estimates, while losses were a bit more than expected.
We are maintaining our $142 fair value estimate of narrow-moat DoorDash (DASH) and continue to view the very high uncertainty rated stock as overvalued. The firm reported mixed second-quarter results with revenue beating the FactSet consensus estimates, while losses were a bit more than expected. In our view, DoorDash’s network effect moat source remains intact, demonstrated by continuing growth in orders, order frequency, merchants on the firm’s platform, and improving take rates.
While the firm continues to execute well and is maintaining its market leadership in the U.S., we think the benefits of the post-pandemic phase for DoorDash may be limited when compared with Uber, which not only has the growing delivery business but also ride-hailing, for which the economic and pandemic recovery represent a tailwind in the short and long term. This narrower scope is forcing DoorDash to invest more aggressively in widening its delivery service and geography scope in areas that are very competitive. For this reason, we think that while DoorDash and Uber will hold the number one and the number two positions in delivery within the U.S., DoorDash’s stock price may be displaying too much optimism about how quickly and at what cost the firm can diversify its business within and outside of the U.S. market. At current levels, we prefer Uber, as our $69 fair value estimate on the stock represents a 61% potential upside.
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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.