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DoorDash (DASH) Best Idea Short Thesis:
- Exploding GMV, But Not Profitability: When DASH was a private company, profitability was not an issue. The Pandemic came, and DASH's business exploded as stay-at-home lockdowns fueled online delivery services and losses abated. From 2019 to 2022, gross order volume jumped from $8 billion to $51 billion. In 2019 the company recorded an EBIT loss of ($666 million), which improved to ($463 million) in 2021. In 2022 those losses will accelerate to ($896 million.) Now the company is laying off employees to improve profitability. In the current economic environment, DoorDash must still prove that the company's business model can achieve economic profitability, and the scale is not there.
- The Race To The Bottom: As noted above, the economics of food-delivery companies such as DoorDash is highly challenging. The pandemic taught us that the industry is characterized by meager switching costs and arguably no value differentiation among competitors. Thus, food-delivery services are a commodity with price competition driving the industry dynamic. The company's attempt to take on a more significant piece of the pie and deliver grocery and convenience items with the same characteristics suggests that more significant operating losses are coming.
- The Economic Cycle: DoorDash has never operated in a recession, and as of 3Q22, DASH’s delivery services have not yet seen the impact of a recession. Is a recession coming? We believe it will likely hit in 2023, and over-priced delivery services will likely experience among the sharpest consumer spending cuts. Even if the economy does not enter a recession, inflationary pressures, especially wage inflation, will continue to put expense pressure business model of delivery services.
