Stock DoorDash: High Risk, Low Reward (NYSE: DASH)


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In recent times, the food delivery industry has undergone a drastic transformation as the post-pandemic world has reduced the demand for food delivery services. Among the companies negatively affected by these headwinds is DoorDash (NYSE: dash), which has fallen more than 56% since the start of the year. Basically, DoorDash seemingly preserved despite the macro conditions. However, its valuation has too little upside potential to justify the many risks the company faces.

Company presentation

Based in San Francisco, Calif., DoorDash is a middleman, providing delivery personnel to transport meals from restaurants to customers. The majority of their revenue comes from fees and commissions, which come from both restaurants and consumers. Their subscription model, DashPass, also contributes to their revenue, as users pay $9.99/month for reduced service fees.

Consumers choose DoorDash for its distinction from other food delivery apps, such as Uber Eats or GrubHub. Rather than primarily serving large cities like their competitors, DoorDash focuses on smaller (often suburban) areas, catering to new locations and gaining niche target audiences. DoorDash is currently a market leader, with a 53% market share. The overall market has a growth CAGR of 13.68% and is expected to reach around $1.45 trillion by 2027.

DoorDash Marker Sharing


Revenue Analysis

In Q3 2022, DoorDash recorded total revenue of $1.7 billion, which showed a 33.9% year-over-year increase and exceeded estimates of $70 million. The company’s EPS of -0.77 did not perform as well, however, as it missed the consensus of $0.12. In the fourth quarter, management expects Marketplace GOV (gross order value; the profit DoorDash makes on sales commissions) to increase, particularly in the range of $13.9 billion to $14.2 billion, as the number of DoorDash partner restaurants continues to grow.

Fundamentals of sound

Overall, DoorDash has shown strong performance at a fundamental level. Management reported that their monthly active user (MAU) count “continued to grow,” noting that even in a time of declining food delivery, DoorDash has been able to grow. Additionally, they revealed that they have seen “all-time highs” in their DashPass subscription program, which investors appreciate for its recurring nature and customer loyalty.


Like most tech companies, the ongoing increased inflation could prevent DoorDash’s growth from reaching its full potential. Studies indicate that as prices continue to rise, consumers tend to reduce their spending on non-essential items – food delivery is one of them. In fact, 53% of American adults said they had recently changed their eating habits due to inflation, which basically means they are choosing to order food less often to save money. Not to mention that due to their past deceptive practices, legislation has been passed to ensure that restaurants set their own menu prices. To offset their DoorDash fees, restaurants mark up their DoorDash menu prices an additional 10-20%, making it even more expensive for consumers in an inflationary environment.

outlook for discretionary food companies



DoorDash’s public reputation has been significantly affected by its treatment of workers and restaurants. This has already led to regulations and potentially invites more stringent regulations in the future.

First, DoorDash was known to charge restaurants up to 30% commission. Although the restaurants are apparently recording more revenue, the low-margin nature of the business means less profit. In San Francisco, for example, 62% of restaurant owners say they lose money every time they order delivery services. As a result, cities like San Francisco and New York have already capped delivery charges at 15%.

DoorDash continued to come under scrutiny for its treatment of its drivers. In 2020, DoorDash settled a lawsuit after being accused of pocketing millions of dollars in tips. Consequently, a law was passed in California that banned this practice the following year. Since the drivers are classified as independent contractors, they do not have the benefits and insurance policies guaranteed to employees. Worse, because workers aren’t compensated for fuel costs or time spent waiting, they earn an average of about $5.34 an hour, well below minimum wage.

DoorDash’s treatment of workers and small businesses has damaged its reputation. However, its profits continued to climb due to a series of legislative victories. In 2022, San Francisco lowered its cap to allow delivery companies to charge more than 15% for additional benefits, offered by DoorDash. In 2020, Proposition 22 passed in California, which allowed gig workers to continue to be classified as independent contractors, but provided some benefits. However, the company later had to raise prices to customers in California in order to meet these costs.

In the long term, however, worker and restaurant dissatisfaction will continue to be a lingering risk. For one thing, Biden’s labor department is continuing the fight to classify gig workers as employees. Dissatisfied restaurants offer special offers for direct orders and sometimes assemble their own delivery fleet to reduce their reliance on delivery apps.


To value the business, I performed a DCF analysis assuming the following:

  • 20% CAGR growth for 5 years

  • 4% Terminal growth rate

  • 9% cashback rate (taken from Finbox)

My DCF model gave me a price target of $77.2, which is about a 22% upside from current price levels. However, I still don’t believe the valuation is attractive as 20% is hard to sustain and any disruption could significantly affect its valuation. The stock was much more attractive in the $40 range just a few weeks ago, but the market has now priced most of the optimism into DASH.

DoorDash DCF analysis



DoorDash rode the wave of venture capital and made it a good deal for everyone: consumers, delivery drivers and merchants. However, amid macroeconomic conditions and the need to become profitable, one of these three stakeholders will have to shoulder the brunt. Although DoorDash has performed well so far, its valuation does not present enough reward to justify the risks the company faces. Until DoorDash can implement a more sustainable business model, I don’t look favorably on its long-term performance. In the short term, however, I think DoorDash can be a “buy” if market sentiment pushes the price too far below its intrinsic value.


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