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Quick Summary

DoorDash (DASH) operates the largest food delivery service in the U.S., with 40,000 merchants, 20 million consumers, and 1 million Dashers (independent delivery drivers) on their platform every month. DoorDash has 3 lines of business. By far the largest is the Marketplace, where consumers order from restaurants through the DoorDash smartphone app, and the order is fulfilled either via delivery by a Dasher or customer pick-up. DoorDash charges both commission fees (a percent of the dollar amount of the order) from the merchant and a delivery fee to the consumer. Also under the Marketplace segment are DashPass fees, a monthly subscription offering for consumers. The second line of business is Drive, a white-label logistics service. With Drive, restaurants are responsible for creating their own demand (either via their own app, or website, etc.), and then paying DoorDash fees for fulfilling an unbranded delivery service. The final and smallest line of business is Storefront, a software platform for restaurants to create their own e-commerce experience, with DoorDash handling payment and delivery logistics. The company went public in December 2020.
 

Does The Company Have Rise and Recurring Revenues?

SOMEWHAT. DoorDash's growth has been phenomenal, with a 3-year compound annual revenue growth rate of 150%. The firm saw revenue triple in both 2019 and 2020, and it is set to nearly double in 2021. Certainly, the company has benefited from being in the "right place at the right time", with lockdowns and capacity limits at restaurants across the country due to the COVID-19 pandemic driving substantial new demand. The question now is, will those habits continue? 2021 seems to support that they will. Organically, DoorDash has expanded its services to deliver products from liquor and beer/wine stores, convenience stores, grocery stores, pharmacies, and even cosmetics shops! International growth is another opportunity, with DoorDash recently expanding into Japan and then purchasing of Wolt, a similar firm operating mostly in Europe. Worldwide, there is a very big market here - close to $600 billion - so the opportunities for growth are considerable for a firm doing about $5 billion in revenue. Recurring revenue is a difficult one. Orders are generally one-offs, so we don't believe the model is structurally recurring. However, DashPass is recurring and accounts for about a quarter of orders, and DoorDash's service is likely used frequently by many of its customers.
 

Does The Company Have Durable Competitive Advantages?

SOMEWHAT. Investors need to recognize that this is a highly competitive market. DoorDash has many direct competitors, including Uber Eats, Instacart, and Grubhub, as well as restaurants that have their own delivery services. There are little stopping merchants from creating their own delivery logistics or switching to a competitor, and many consumers use multiple delivery services. That said, we think DoorDash is developing a very real NETWORK EFFECT. First, it is separating itself rapidly, with a 57% market share, more than double 2nd place Uber Eats at just 24%. 3 years ago, Grubhub was far larger and Uber Eats was about the same size. This allows DoorDash to secure the most attractive restaurants, including big names like Chipotle, McDonald's, and Chick-Fil-A, as well as a "partner of choice" for smaller, local merchants. More and better restaurants lead to more and more consumers choosing DoorDash to order, creating a "flywheel of growth" effect on both the supply and demand sides. This is difficult for a competitor to break once it gets rolling - and we think DoorDash is reaching escape velocity already.
 

GreenDot Rating: Green

DoorDash is a "sneaky attractive" company, one many investors may initially write off, but one with attractive economics (it is already cash flow positive) and a strengthening network effect. It's a good business with a huge potential market and budding competitive advantages. The big question here is simple: will delivery services continue to be as popular post-pandemic? That is impossible to say, but clearly many consumers have been introduced to the concept over the past 2 years and will likely use it a lot more than they would have otherwise. Given the risks, investors should be careful to choose an attractive valuation before entering the stock. It gets a GREEN (attractive) rate.

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