DoorDash (DASH) reported mixed second-quarter earnings results on Thursday, August 12, which left investors feeling ambiguous. This sentiment was reflected in the stock price, which tumbled 5.2% at market close on Thursday, and then again closed 3.5% higher the following day.
While the loss per share was wider by almost 43% year-over-year, revenues surged 83.1% from the year-ago quarter figure.
DoorDash develops technology that connects customers with merchants through an on-demand food delivery application. During the second quarter, a surge in Selling, General and Administrative expenses, and Research and Development expenses, due to competitive and expansive efforts, dragged on the company’s bottom line. (See DoorDash stock chart on TipRanks)
Moreover, the company expects that greater competition in the coming years will require aggressive investments in restaurants, Platform Services and new categories and geographies.
Nonetheless, there are numerous upsides that the business is witnessing, that are expected to contribute to the long-term growth and profitability of the business.
Needham analyst Bernie McTernan weighed in on the company’s earnings call commentary as well as its fundamentals and reiterated a Buy rating on the stock. He also increased his price target to $230 from $195, suggesting an 18.1% upside from current levels.
According to McTernan, the high volume of orders that DoorDash received despite the pandemic stole the show during the second quarter, highlighting that sticky customers are the company’s strong suit. The frequency of orders was impressively high for both DashPass and non-DashPass customers.
Notably, DashPass subscribers are exempted from delivery charges on eligible orders. Likely as a result of this policy, the sequential growth of DashPass customers was two times faster sequentially than the year-over-year growth of non-Dash Pass customers.
McTernan also expects sales and marketing costs to decrease moderately in the second half of this year, and now expects adjusted EBITDA at $305 million compared to the previous projection of $240 million.
Nonetheless, the analyst also predicts a slowdown in customer growth and marketplace order per customer in 2022.
“We are broadly increasing our estimates with the greatest upside risk if frequency can continue to grow in 2022 driven by DashPass penetration and new category expansion, while higher than expected investment in these new categories and international represents the greatest downside risk to our adjusted EBITDA estimates,” said McTernan.
With the company’s non-restaurant business (delivering items from grocery and convenience stores) growing faster than the restaurant food delivery business, the analyst believes that DoorDash wields a lot of influence as a leader in delivery.
He said, “Ultimately, we think that DASH will be able to deliver all goods that consumers need within an hour, have an expiration date, and/or are produced by a local vendor.”
Wall Street’s Take
Overall, the stock has a Moderate Buy consensus based on 8 Buys and 5 Holds. The average DoorDash price target of $195.73 implies 0.5% upside potential from current levels.
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
