DoorDash (NYSE:DASH) surged by 22% last Friday after posting quarterly results on May 13. Why did investors load up on the stock?
DASH posted revenue more than doubling in the second quarter. Adjusted EBITDA of $43 million beat consensus estimates. Gross margins are on the rise. The firm benefited from strong average order rates for its existing customers. New customers are joining the service.
As DashPass subscribers grow, the stock justifies its unfavorable valuations. On its Q1 presentation, DoorDash concluded that it is in the early phases of a transformation toward omnichannel local commerce. In the quarter, it helped provide value to its customers and merchants. This led to stronger volume from its digital channels.
The earnings opportunities for “Dashers” will continue growing. Local economies need local businesses and DoorDash is filling that void.
Risk
The post-pandemic scenario risks hurting DoorDash transaction volumes. Just as customers stop relying on streaming video and visit movie theatres, they will head to restaurants. Food delivery volumes may stall.
DASH has an excessive market capitalization that dwarfs the value of many restaurants. For example, Restaurant Brands (NYSE:QSR)(TSX:QSR) has a diversified channel but trades at a better P/E and lower price/sales.