Like a speedy delivery from your favorite restaurant, DoorDash (NYSE:DASH) came in a little hot in Wednesday’s market debut. The leading food-delivery platform priced its IPO at $102, but that didn’t stop hungry investors from bidding the shares even higher on its first day of trading.
DoorDash opened at $182, fetching as much as $195.50 before closing at $189.51. A beefy price doesn’t mean much without context. There were 317.7 million shares outstanding after the offering, but this doesn’t mean that you can multiply the share count by the stock price to arrive at a market cap just above $60 billion and leave it at that.
There are a lot of restricted stock units and stock options at microscopic exercise price points — representing an additional 68.7 million shares — that aren’t technically included in the 317.7 million shares outstanding. There are also another 39.7 million shares reserved for future issuance under its equity compensation plans. So we’re looking at first-day close for a company worth $73.2 billion on a diluted basis now and more than $80 billion if we look ahead to how the current equity compensation plans play out.
DoorDash is a fast-growing company in a booming niche. There’s a lot to like here. However, after a huge pop at the open, maybe it’s not the smartest decision you can make if you want some skin in the restaurant delivery game. You may want to try Uber Technologies (NYSE:UBER) on for size.
Stacking up the competition
It’s easy to see why investors’ mouths are getting watery at the notion of sinking their teeth into the DoorDash IPO. Revenue soared 204% to hit $885 million in 2019, and the pandemic has only made us hungrier for third-party apps bringing takeout orders to our door. You don’t see too many companies where business more than tripled one year and then accelerated a year later, but we’ve seen DoorDash revenue skyrocket 226% through the first three quarters of 2020.
Uber’s growth isn’t going to impress you after taking in DoorDash’s beefy gains. Revenue at Uber has actually declined nearly 12% through the first nine months of 2020, but this is because Uber Eats is just one part of the business here.
Rides (or personal mobility) are what put Uber on the digital map. Hailing an Uber to drive you around is naturally not very popular these days with folks working from home and not going out as much for social endeavors. Uber’s 18% decline in revenue for its latest quarter is a sharp contrast between a 53% plunge in mobility revenue and a 125% gain in delivery. DoorDash is still growing faster than Uber Eats, but the latter is no slouch.
Uber’s market cap of $95 billion may seem even more outlandish than DoorDash’s, but keep in mind that Uber itself is a much larger company overall. DoorDash has a strong lead in the U.S. food delivery market, but Uber is an international player. Its trailing revenue is nearly $13 billion, several times the $2.2 billion in revenue that DoorDash has delivered over the same four quarters.
It will be a lot easier for Uber to expand Uber Eats internationally than it will be for DoorDash to head into new territories. Uber already has the drivers in place; the locals already have the app installed.
Core cash in DoorDash
DoorDash is impressive. Margins are widening, and it’s been able to post a positive contribution profit and adjusted EBITDA through the first nine months of 2020. Uber Eats is still in the red when it comes to adjusted EBITDA. But even with its gross bookings cut by more than half, we’re seeing Uber’s flagship ridesharing business continue to generate positive adjusted EBITDA.
Uber’s car-hailing platform gives it optionality that DoorDash cannot provide investors. Right now, restaurant delivery is thriving. With the spike in COVID-19 cases, we’re seeing folks hesitant to dine indoors (if it’s even allowed where they live). What happens when this all passes? DoorDash and Uber Eats are checking in with scorching triple-digit percentage growth right now, but will it always stay that way? When the time comes with the pandemic less of a concern — ideally sooner rather than later in 2021 — folks will return to restaurants. And they might hail an Uber to get there.
There’s a lot to like in third-party delivery apps right now. They’re trendy. Last month’s favorable ballot measure in California makes it easier to financially survive. Sector consolidation, with DoorDash and Uber Eats making big acquisitions, will give the thinning number of parent companies more competitive wiggle room. But Uber has the added advantage of being a company with a global footprint generating nearly six times the revenue of DoorDash. It’s the one that will continue to thrive when folks return to restaurants. It’s relatively cheaper than DoorDash by nearly every measuring stick.
There are many things to consider when investing in IPO stocks, but one of the biggest risks is that the better investment may already be on the market. Uber isn’t a cheap stock, but it’s cheaper than DoorDash — and with the inside track to be the better-performing stock in the year ahead.