DoorDash: The Dip to Buy

In the ever-evolving landscape of the stock market, where fortunes are made and lost in the blink of an eye, one company stands out as a beacon of opportunity amidst the chaos. DoorDash, the food delivery giant, has seen its stock price plummet 27% from its all-time high, set during the tech frenzy of 2021. But is this a sign of impending doom, or a golden opportunity for savvy investors to buy on the dip? Let's dive into the numbers and the narrative to find out.

First, let's take a step back and look at the broader market trends. The US stock market finished 2024 up 24% as measured by the Morningstar US Market Index. This is a strong overall performance, but it also means that the market is trading at a slight premium to its fair value estimate. This could be a sign of overvaluation and potential future corrections. In comparison, DoorDash's stock price decline is more pronounced than the broader market's performance, indicating that the company's specific challenges may be driving the decline.

But what are these challenges? DoorDash's expansion into new verticals, such as grocery and retail, has significantly impacted its market share and competitive position in the food delivery industry. The company's platform now offers over 11 million products in the grocery and retail categories, which has helped to capture more consumer spending. This diversification strategy has been successful, as evidenced by the fact that around 42 million people use DoorDash every month, and 25% of them used it to shop in those other categories in December. This expansion has also attracted major retailers like Lowe's, Ulta Beauty, and Walmart (Canada) to the DoorDash platform, with customers now able to order from 44 of the top 100 retailers in the U.S. using DoorDash. This momentum indicates that DoorDash is successfully encouraging users to shift more of their shopping onto its platform.

The impact on market share is evident, with DoorDash's platform having a 67% market share in the U.S., far ahead of Uber Eats at 23%. The company's order frequency from some of its most mature customer cohorts continued to grow throughout 2024, further solidifying its dominant position. During the fourth quarter of 2024, DoorDash processed a record $21.2 billion in gross order value (GOV), representing a 21% increase compared to the same quarter in 2023. This growth in GOV translated into $2.8 billion in revenue during the fourth quarter, a 25% increase from the year-ago period. These figures highlight the financial benefits of DoorDash's diversification strategy.



However, there are potential risks associated with this diversification. The food delivery industry is highly competitive with razor-thin profit margins and very few barriers to entry. DoorDash spends billions of dollars every year on marketing to maintain its dominance, which makes it difficult to deliver consistent profits. In 2024, DoorDash spent $2 billion on marketing, more than any other operating cost. Despite this, the company managed to reduce its operating loss by 93% to just $38 million and generated a GAAP profit of $123 million. This progress is encouraging, but the high marketing costs remain a significant risk.

On the other hand, the opportunities are substantial. By expanding into new verticals, DoorDash can attract a broader range of customers and increase order frequency. The company's adjusted EBITDA came in at a record $1.9 billion in 2024, marking an impressive increase of almost 60% compared to 2023. This indicates that the diversification strategy is not only increasing revenue but also improving profitability. Additionally, the fact that DoorDash now makes over 7 million deliveries every single day shows the scale and potential for further growth.

In summary, DoorDash's expansion into new verticals has strengthened its market share and competitive position in the food delivery industry. While there are risks associated with high marketing costs and intense competition, the opportunities for increased revenue, profitability, and customer base are significant. The company's success in 2024, with record revenue and profits, demonstrates the potential of this diversification strategy.

So, should you buy DoorDash on the dip? The majority of analysts tracked by The Wall Street Journal have assigned the highest-possible buy rating to the stock, with a consensus price target of $225.38, implying a potential upside of 26%. However, investors should be wary of the company's valuation, as the stock market as a whole is trading at a slight premium to fair value estimates. This suggests that while DoorDash's financial performance is strong, its stock may be overvalued relative to the broader market.

But here's the thing: markets are cyclical, and what goes down must come up. DoorDash's stock price decline may be a temporary setback, or it could be the beginning of a longer-term correction. Either way, the company's fundamentals are strong, and its diversification strategy is paying off. If you're a long-term investor with a high risk tolerance, now could be the perfect time to buy DoorDash on the dip. Just remember to do your own research and invest responsibly.