DoorDash Stock Looks Set To Deliver as Takeout Becomes a Way of Life

From a “best-of-times/worst-of-times” perspective, 2020 was surprisingly good for companies like DoorDash (NYSE:DASH). The food-delivery service went public earlier this month, earning a valuation of $38 billion. That put DASH stock among the top initial public offerings of 2020. It wasn’t long lasting, as the newly minted shares slid by 7% the day after their debut.

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While this is not concerning in itself, many analysts are now questioning the durability of DASH stock in the long-term. IPOs are traditionally known to push stock prices to unsustainable levels and later decline. So as the novelty of its market debut wears off, is DASH stock still a worthy buy? Here’s my take.

A Blockbuster IPO For DASH Stock

DoorDash’s IPO is one for the books, with some even calling it the most successful IPO of 2020. The food-delivery service priced its offering at $102 a share. DoorDash sold 33 million shares, raising $3.37 billion in the transaction. Those quickly rose to $182 a piece.

What’s behind the success of the DoorDash IPO? Primarily changing consumer habits in the wake of the pandemic. With restaurant doors closed for much of this year, food delivery companies function more as an essential service than a convenience. The delivery service’s prominent role in this sector helped garner a lot of support as it made its public debut. In terms of financial performance, DoorDash had a spectacular year — to say the least.

The company’s recorded revenue for the nine months through September at $1.9 billion, up 226% from the previous year. The team led by Tony Xu, co-founder and CEO, cut losses for the period to $149 million from $533 million in the first nine months of 2019.

The pandemic, in part, tripled DoorDash’s volume this year to 543 million orders. However, it’s also worth noting that the company has not been profitable since June 2020. Investors in the bull camp are hoping the IPO will change this.

Worth Your Time And Money?

DoorDash was among the companies that thrived in the pandemic economy. With online orders at an all-time high and recording its first profit since its inception, 2020 was a great year. DoorDash also holds a majority market share in suburbs and has plans to expand globally in the coming years. Adding to its food business, CEO Xu floated the idea of expanding services beyond the food delivery space.

Given the important role that food delivery businesses have played in our lives this year, I’m willing to bet that they will have continued success in a post-pandemic world. One major reason for this is sticky pandemic-era consumer habits. Even as we move toward a new normal, there is a good chance that people will continue to order food and groceries online.

Uber (NYSE:UBER) stated that a majority of its profits came from its Uber Eats delivery service and remains confident in its ability to sustain demand in the long-term. The company cemented its position in the sector with a $2.65 billion acquisition of Postmates. For DoorDash, a permanent shift in the online delivery trend will do wonders for its stock price. Its strong position in the crowded food delivery space will result in some hefty gains.

A second advantage that DASH stock holds over its peers is its presence in the suburbs. While most food delivery services cater to more metropolitan areas, DoorDash controls 58% of the market in the suburbs. This will ultimately be its key to success in the long-term. According to a report by The Wall Street Journal, after major metropolitan areas, the suburbs show the highest levels of growth. DoorDash’s ability to turn a profit during the pandemic can be attributed to its presence in the ‘burbs.

The Bottom Line

The food delivery sector is definitely a crowded one but DoorDash has managed to leap ahead of its competitors to dominate the space. While its recent successes are largely due to the pandemic-economy, the company still has a lot going for it. A permanent shift in consumer habits and a strong market position will give DASH stock a long runway for growth. The company’s successful IPO only serves as proof of this.

Although there is reason to question the durability of DASH stock, I strongly believe that it is a worthy investment for the long-haul. The pandemic presented the company with an unexpected opportunity to prosper this year. But this success also hints at a more permanent shift in changing consumer habits in a post-Covid world.

On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.