DoorDash Trading at Steep Premium to Uber and GrubHub as Investors Bet on Growth Beyond Food

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  • DoorDash is trading at about 17 times revenue, if you assume the latest quarter for a full year.
  • That compares to a multiple of less than 8 for Uber and Lyft and is much higher than Amazon or Google, which the company cites as competition.
  • Revenue at DoorDash soared 268% in the third quarter, largely because of the pandemic.

After DoorDash's first day on the market, it's clear that investors are more excited about the food delivery company than they are any of its peers.

DoorDash soared 86% to $189.51 in its market debut on Wednesday, a day after pricing at $102, which was above its range of $90 to $95. The closing price values DoorDash at $60.2 billion, based just on current shares outstanding.

Investors are swarming to DoorDash, betting that the company's 268% revenue growth in the third quarter has legs that will extend into a post-pandemic world. While rapidly expanding its business this year, DoorDash has dramatically reduced its losses and started making money on every order, showing a path to bottom line profitability. The company is also counting on a subscription offering that will make it less reliant on restaurants by bringing consumers stuff from other local businesses.

The coming days, weeks and months will show if DoorDash justifies such a hefty premium to its slower-growth competitors. DoorDash is being valued at 17 times revenue, assuming you take the last quarter and extend it over a year. By the same metric, Uber is valued at less than 8 times revenue, and GrubHub agreed to be acquired earlier this year for under 4 times sales. Lyft, which has a very limited food delivery business, trades for about 7.5 times revenue on that basis.

Eric Schiffer, CEO of private equity firm Patriarch, said that if you just think of DoorDash as doing in the future what it does today the valuation is "stone-cold crazy." The bet is that DoorDash will take its popularity with younger audiences and its smooth user experience and move deeper into commerce, where Amazon is dominant.

"The valuation considers a reckless war into these other arenas and the fact that they are far more in touch with that consumer experience than other players and can leverage that," said Schiffer, who's based in Los Angeles and doesn't own a stake in the company. "They've got the Covid wave, great momentum and they're dazzling the imagination, but longer term, unless they make it clear they can execute organically and cross the chasm, they're going to face a bloodbath."

DoorDash said in its prospectus that it now has 390,000 merchants on the app, ranging from fast food restaurants like Chick-Fil-A, Chipotle and McDonald's to Thai, Indian and Mediterranean restaurants that have been forced to rely on delivery since the pandemic closed their doors.

By establishing itself as the leader in food delivery, well ahead of Uber Eats and GrubHub, DoorDash's revenue exceeded 200% growth for the last two quarters.

Two years ago DoorDash launched DashPass, a $10 monthly subscription that allows customers to get unlimited orders from participating restaurants without paying a fee each time. As of now, that's almost exclusively for restaurants.

"In the future, we envision this membership program becoming a wallet for the physical world, where a consumer can access not only restaurants, but all the local businesses in their community, and receive benefits while shopping in-store, at home or anywhere in between," DoorDash said in the prospectus.

The company already has a fleet of available delivery people, or dashers as DoorDash calls them, who deliver food as contractors. Uber got into food delivery by starting with ridesharing and then repurposing drivers to do other things. DoorDash can potentially do the same, beginning with food and moving into other markets.

DoorDash says in its filing that as it expands, the competition becomes Amazon and Google, which have "substantial resources, users and brand power." They also have much more reasonable valuations even with large businesses in software and technology that create stronger margins.

Amazon trades for under 4 times forward sales and Google parent Alphabet's multiple is below 6.

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