DoorDash, Inc. (NYSE:DASH), a technology company that operates a food delivery platform, has delivered strong fourth-quarter (Q4) 2021 results that sent its shares soaring. However, it has failed to keep the positive momentum going as expectations about rising interest rates and geopolitical conflicts were two strong factors to push its shares lower. DASH stock is now down almost 50% year-to-date.
DoorDash went public in December 2020, and very soon became successful. From an initial public offering (IPO) price of $102 per share, on the first trading day DASH stock closed at $189.51, delivering profits of 85% in just one day.
Currently, the stock is trading around $72, nearly 30% below its IPO price. Things in the stock market change so fast that a hot IPO can go out of favor. But what else has changed amid the pandemic lockdowns and the reopening of the economies that could help DoorDash grow its business?
Consumer Behaviors Amid the Pandemic
The food-delivery business made significant gains during the pandemic lockdowns. The idea that consumers’ behaviors changed both during and after the pandemic is very credible. Why order and wait to eat your favorite dishes at home when you can just go and visit your favorite restaurants?
DoorDash’s latest Q4 2021 earnings report has proved that its food delivery business is too strong to die.
Yearly — but Not Quarterly — Sales Growth
Ask any person interested in business to choose one of two companies to invest in: one that generates $100 million per year and one that generates $10 million per year. Chances are that most people will tend to choose the larger company.
Then propose a follow-up to your question: the larger company is unprofitable but experiences high growth that lately seems to have slowed down, but the smaller company is a profitable one. Which one is the choice now? Chances are that adding the metric of profitability adds a whole new perspective to the investment choice.
It is all about reading the whole story and being open-minded. DoorDash is a great example of putting this concept into practice. The Q4 2021 earnings report was a mixed one for DoorDash as the earnings per share (EPS) GAAP of negative $0.45 was a miss by negative $0.18 and revenue of $1.3 billion was a beat by $16.28 million.
The good news is on a year-over-year basis, revenue increased 34%, total orders increased 35%, the GAAP gross margin grew to $637 million versus $477 million in Q4 2020, and monthly active users grew 22% to a record number of more than $25 million. The firm also announced new quarterly records for important business metrics like total orders and marketplace gross order volume.
Among the top news was that DoorDash ended Q4 2021 with $4.4 billion in cash and no debt. Operating cash flow is positive at $167 million and free cash flow is positive at $97 million.
On a negative note, there was a net loss of $468 million for 2021 versus a loss of $461 million in 2020. When will DoorDash turn profitable? As of 2018, it is consistently losing money.
Another worrisome factor is that there is an evident revenue growth slowdown in the last two consecutive quarters. After a peak of quarterly growth in late Jun. 2021 of 14.76%, in Q3 and Q4 of 2021, sales growth fell to 3.16% and 1.96%, respectively.
The Future for DASH Stock
DoorDash has informed us that its marketplace has a lot of room to grow. I assume that this means the firm is exploring new services to innovate and capture market share as it did with convenience and grocery services back in 2020.
DoorDash aims to attract more merchants in its marketplace to become a world-class local commerce platform. Not just for delivering food, but for much broader goods and services.
DoorDash has a lot of cash to grow its operations. It is losing money, though, and a slowdown in revenue growth does not help much to support its stock price. This is especially so now that 2022’s narrative has a lot of risk.
DoorDash increased the weighted-average number of shares outstanding in 2021 to 336,847 million compared to 62,390 million in 2020. This is another reason to worry investors. In 2022, the retention rate, active monthly users, and margins should improve a lot for DoorDash to stop its stock price decline.
On the date of publication, Stavros Georgiadis, CFA 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.