Ever since its IPO late last year, DoorDash (NYSE:DASH) has been a roller-coaster ride for investors. DASH stock IPO was priced at $102 but immediately jumped 80% on its first trading day. The stock reached a low of $120 before rebounding to the current price of $177.
Given the strong move upward, is DASH stock still a buy at these price levels?
Let’s take a closer look.
DoorDash Grew Rapidly During the Pandemic
DoorDash recently released first-quarter results were amazing and have surpassed Wall Street’s expectations. These results showed the boost the pandemic has given to the company as well as demonstrating its staying power. Many investors feared that revenue for food delivery apps like DoorDash would decline once the pandemic subsides. This was not seen in the Q1 2021 numbers though.
Despite many parts of the U.S. slowly returning back to normal, DoorDash still showed strong revenue growth. The company’s revenue for Q1 2021 was $1.08 billion, a 198% increase when compared to the same time last year. Revenue was higher than that of the previous quarter. Q4 2020 revenues were $970 million. This indicates that the company’s revenue growth momentum is still ongoing as DoorDash grew 11.3% from Q4 2020 to Q1 2021.
I believe the company can continue to sustain this momentum even post-pandemic as there are a number of factors working in its favor. The first factor is that social distancing norms are set to remain for the foreseeable future. Furthermore, consumers have gotten used to the convenience of ordering delivery through the app with 53% of adults saying that purchasing takeout or delivery food is “essential to the way they live.”
Combine this with a shift of a portion of the workforce to a remote or hybrid remote working arrangement along with a full recovery of the economy. I believe that food-delivery service companies such as DoorDash still have plenty of room to grow.
DoorDash Is a Market Leader
Food-delivery apps like DoorDash rely on a business model called “winner take most.” Simply put, scale is incredibly important to this business. At market maturity, there will only be a very small handful of firms making all the money. This is why it was important for DoorDash to rapidly grow during this pandemic and the company has performed admirably.
Digging deeper into the numbers for the quarter, the company’s other operational metrics were impressive as well. Total orders grew 219% from last year while marketplace gross order value grew by 222% year over year.
The company has more than doubled its number of DashPass subscribers and DashPass average order frequency is at an all-time high. The increase in DashPass subscribers means that the company’s customer base is becoming more “sticky” as they stick with one food-delivery app in order to maximize rewards and benefits.
In fact, DoorDash had among the most loyal customer base among food-delivery app companies. DoorDash saw 56% of customers use them exclusively in Q1 2021 compared to 40% for UberEats (NYSE:UBER) and 33% for Postmates. As of May 2021, DoorDash is the clear overall market leader with a 57% market share distributed across a wide geographical footprint. Second-place Uber has a 25% market share including Postmates.
Investor Takeaway
I believe DoorDash should be considered at these price levels. DASH stock is currently trading at 16x sales valuation. The company is slowly moving towards profitability. It has guided for positive EBITDA in the range of zero to $300 million for 2021.
Considering the company’s leadership in this competitive industry and the “winner takes most” dynamic of the market, I believe DASH stock is one to own for the long run.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
