Time to Ring the Register on DoorDash Stock?

Key Points

• DoorDash is the largest online food delivery company in the U.S., with a 65% market share.
• Its revenues grew 39.8% in Q1 2023, but it still can't generate a profit with a GAAP loss of ($0.48).
• Student loan payments resuming in Q3 2023 may cause students to cut back on delivery services.
• DoorDash is expanding its categories for delivery to include groceries, pharmacy, gifts and home products, as well as home services like housecleaning, laundry and dog walking.
• DASH shares at up 61% year-to-date (YTD) and a 5.3% short interest.

Food delivery platform DoorDash Inc. NASDAQ: DASH shares have climbed 61% in 2023. While it's still trading well below its all-time high of $257.25, achieved in November 2021, investors may use the recovery to consider ringing the register. DoorDash is a hypergrowth story that accelerated through the pandemic as stay-at-home mandates forced people to order restaurant takeout and groceries online.

This introduced DoorDash to millions of new users and accelerated their growth, which has yet to experience normalization due to the stickiness and convenience of its app. The company grew revenues by almost 40% and its market share to nearly 65% of the food delivery market. That's impressive, except that it can't earn GAAP profits. The company competes with Uber Technology Co. NASDAQ: UBER owned delivery services Uber Eats and PostMates, the second largest delivery services in the country.

Asset-Light   

DoorDash operates a delivery platform that connects customers with restaurants and "independent" drivers. Customers order food from the establishments, and drivers deliver the food to the customers. Meanwhile, DoorDash has built up its network of restaurants and bulked up its supply of independent drivers. It’s a very simple asset-light business plan. DoorDash doesn’t pay a salary or minimum wage, nor pay for the maintenance and expenses for delivery drivers.

Profit-Less

DoorDash is a middleman that facilitates transactions and takes a cut of the transaction. One would assume that such an asset-light business should be wildly profitable. Wrong. Despite growing to be the largest food delivery app in the U.S., it has yet to turn a profit. The company is in a constant P.R. campaign to justify its payout policies for its drivers and goes out of its way to promote merchant and customer satisfaction polls.

The company lost ($0.48) per share in its Q1 2023 earnings report but grew revenues 39.8% YoY. Its Adjusted EBITDA rose 278% YoY to $204 million versus $120 to $170 million consensus analyst estimates. Gross order volume (GOV) grew 29% YoY to $15.9 billion, beating prior guidance of $15.1 to $15.5 billion.

Premium Pricing

Gordon Haskett's research has revealed that restaurant menu prices tend to be higher when ordered through the DoorDash app. Adding in the premium pricing, delivery fees and tips, DoorDash food delivery can cost up to 50% more than ordering in the restaurant. Surprisingly, the uncertain economic backdrop hasn't hurt DoorDash's growth as it continues to drive higher revenues.

Analyst Downgrade

On June 14, 2023, Gordon Haskett downgraded shares of DASH to a Hold from Buy and a $72 price target, down from $73. Gordon Haskett analysts point out that the restart of student loan repayments in September 2023 will be a true test of the elasticity of the model when nearly 27 million consumers have to adjust their discretionary budgets to afford loan repayments. Future earnings beats may already be priced into shares.

Expanding Offerings

DoorDash is expanding into other areas and new categories for delivery services, including groceries, pharmacy from CVS Health Co. NYSE: CVS, pet supplies, gifts from stores including Walmart Inc. NYSE: WMT and Target Co. NYSE: TGT, essential home products from Home Depot Inc. NYSE: HD and Lowe's Companies Inc. NYSE: LOW It also offers home services like house cleaning, dog walking and laundry. It's also growing its international business, seeing robust growth opportunities. 

DoorDash analyst ratings and price targets are at MarketBeat.

Weekly Seed Wave Breakout Pattern

The weekly candlestick chart for DASH shows a nice recovery from the $41.37 lows made in October 2022. It staged a rally on the weekly market structure low (MSL) buy trigger at $58.05 to a high of $70.13 in February 2023. After a pullback to the $51.50 level, DASH triggered a second higher MSL buy trigger at $61.78.

The breakout through the prior $70.13 high triggered a seed wave formed after two consecutive and higher MSL trigger breakouts. A seed wave is a powerful breakout pattern with defined potential reversal zones (PRZs). These PRZs make for good exit points before the stock reverses back.

PRZs enable investors to sell into the strength rather than stop out on the weakness. The PRZs are based on the Fibonacci (fib) extensions 1.27, 1.414 and 1.618 or 127%, 141.4% and 161.8%, respectively, from the low of the first MSL to the high. This provides exit opportunities are $77.79, $81.87 and $87.66, which is the 1.618 PRZ.