The food delivery business has witnessed massive growth, mainly during the pandemic. And the reason is obvious – individuals stayed indoors and ordered groceries and meals. When it comes to the online food delivery space, DoorDash (DASH) and Uber (UBER) turn out to be fierce rivals.
The businesses of DoorDash and Uber seem to be different fundamentally. Yet both these organizations are hit by similar challenges and are also benefiting from similar tailwinds. The following sections will be enlightening investors as to which one is likely to be a better buy.
Right now, I’m bullish on both DoorDash and Uber over the long-term, given these stocks’ recent declines.
Differentiation Between the Businesses of DASH and UBER
The business of DoorDash is less complicated. The fees and commissions charged by this company from customers and restaurants are responsible for its entire revenue. Last year, the company produced more than 99% of its revenue within the United States.
On the other hand, Uber heavily depends on overseas markets for growth. The company operated its platforms across 71 nations in 2020. The markets outside of the United States were accountable for roughly 79% of all trips taken on the company’s application.
Last year, the mobility segment of Uber was responsible for 55% of its revenue. This segment houses its ride-hailing service. Uber’s delivery segment offers food delivery services and is responsible for 36% of its revenue.
The freight business of Uber contributed to a share of 9% of its revenue in 2020. Thus, the remainder of its sales mainly came from its advance technology group (ATG) business.
Rate of Growth for DoorDash and Uber
Uber experienced both highs and lows because of the pandemic. With a lesser number of individuals going out, Uber’s mobility business struggled. But owing to an increased number of people processing online food delivery orders, its delivery business flourished.
On the other hand, the delivery business of DoorDash experienced robust tailwinds because of the pandemic. Slow-growing businesses didn’t hold behind this business. However, with the improvement of vaccination rates and more reopening of businesses, its growth faced a deceleration. In contrast, Uber’s growth was again accelerated.
Moving forward, analysts predict that Uber’s revenue growth should come in at around 40% for 2022, while DoorDash is likely to experience growth around 21%. Accordingly, from a forward-looking growth perspective, Uber certainly looks like a better pick.
This higher growth rate is meaningfully factored into Uber’s valuation, which currently sits at nearly twice that of DoorDash. Despite near-term headwinds around rising interest rates, investors still fundamentally value these companies on the basis of future growth. On this metric, Uber still comes out ahead.
Profitability Challenges Faced by Both DASH and UBER
Despite this bullish growth outlook, losses for both Uber and DoorDash continue to foil the investment thesis for more conservative long-term investors. Looking at these companies side-by-side over the first half of last year, the numbers are staggering.
Uber net loss did decrease from $8.5 billion in 2019 to $6.8 billion last year. In the first half of this year, the company actually managed to turn a net profit of $1.0 billion. This was in comparison to a $4.7 billion net loss from the first half of last year.
DoorDash’s net loss was $461 million last year in comparison to $667 million of 2019. However, it doubled year-over-year from $106 million to $212 million in the first half of this year.
Based on an adjusted EBITDA, DoorDash reported a net loss of $475 million in 2019. But it produced a positive adjusted EBITDA of $189 million in 2020 and $156 million in the first half of this year.
Uber’s adjusted EBITDA recorded an $868 million loss in this year’s first half. This was in comparison to a $1.4 billion loss of a year ago.
Analysts anticipate that both companies will continue to move toward sustained profitability in 2022. However, the speed at which these companies grow their earnings is likely to be a key sticking point for many investors.
What are the Analysts Saying about UBER Stock?
According to TipRanks analysts rating consensus, Uber is a Strong Buy. Out of 18 analyst ratings, there are 18 Buy recommendations.
This stock has an average price target of $68.67, implying an upside of 95%. Analyst price targets range from a high of $82 per share to a low of $55 per share.
Bottom Line
Interestingly, both Uber and DoorDash face similar problems. Investors looking at both these stocks are faced with a conundrum.
On the one hand, forward-looking growth looks great. On the other, questions remain about how profitable this growth will be long-term.
Additionally, this rising interest rate environment makes the outlook for both stocks even more uncertain. How quickly these companies can churn out impressive profits is likely to drive these companies’ valuation over time.
Right now, that’s uncertain. However, the recent dips with these stocks on these macro headwinds certainly makes both companies appealing. Right now, my pick of the two is Uber.
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