High Value at a Premium Valuation
DoorDash managed to raise over $3 billion in its initial public offering after offered shares rose to $195.50 each, valuing the company at over $60 billion. Since then, DoorDash share price fell to the low $140s, translating into a market cap of about $45 billion.
Some analysts argued that DoorDash IPO is the most ridiculous of 2020.
“At a valuation of $25.4 billion, DoorDash earns our unattractive rating and would be the most ridiculous IPO of 2020. We think this proposed public equity offering holds no value — $0 — beyond bailing out private investors before unsuspecting public investors realize the business is not viable in its current form,” David Trainer, Kyle Guske II and Matt Shuler wrote for MarketWatch earlier.
However, many would beg to disagree. Today, numerous Wall Street research firms initiated their coverage of DoorDash stock, with ratings mostly placed on the neutral side.
“We see the company as one of the leaders in the burgeoning last-mile delivery market accelerated forward by COVID. We believe DASH's dominance of restaurants gives it both a moat and a differentiated Trojan horse to expand into other categories, which is underappreciated. Our restaurant channel checks, which have been historically instructive for competitors, suggest DASH is gaining share in NYC,” Needham analyst Brad Erickson said in a note.
Erickson has a price target of $200 per share on DASH stock, which, if achieved, would translate into a market cap of over $63 billion. Similarly, Mizuho’s James Lee is positive on DASH but admits that the valuation is high.
“The company is the market leader for on-demand food delivery in the US, capitalizing on the significant opportunity of $850bn in restaurant spending. Although competition is intense, we can expect to see rationalization over the next few years due to consolidation and industry players seeking profitability, if we use China as a proxy. That said, we expect DASH to maintain its dominant market share,” Lee wrote in today’s note.
The key question that remains for DoorDash is how it plans to be profitable. The company’s business model is expected to continue thriving as the pandemic has shifted consumer behaviors toward foodservice delivery. However, the profitability remains an issue, as investors saw in the cases of DoorDash’s peers Uber Eats and Grubhub.
Almost one month after DoorDash made its public debut, analysts are still torn on whether the company offers an attractive investment proposal given the high value it offers, but which comes at a premium valuation.