While many analysts are hastening to give food-delivery IPO DoorDash, Inc. (DASH 0.75%) optimistic price targets and bullish reviews, internet-based Citron Research bucked the trend to call the company's shares massively overpriced. Citron dubbed DoorDash "the most ridiculous IPO of 2020" and assigned a $40 price target, an approximate 74% downside at the time.
Citron argues DoorDash's colossal $50 billion valuation is greatly overinflated, citing "zero differentiation between Uber Eats, Postmates, Caviar, Grubhub, DASH, or any local provider" as one indicator. It also observes the "business model has no brand loyalty," with customers exclusively interested in delivery cost.
Citron highlights the fact that DoorDash is valued at a 19 times multiple of sales, while its major competitors are valued much lower. In mid-2020, Grubhub (GRUB) was at a 4 times multiple, while Postmates was acquired for $2.65 billion, or another 4 times multiple, and Uber (UBER -0.43%) is valued at 6 times sales. At a 4 times multiple, Citron says, DoorDash's shares would trade at $32.
The analyst also notes the food-delivery industry is low-hanging fruit for government officials "looking to crack down on big tech" and says "the race to the bottom has begun."
DoorDash's value is indeed much higher than expected, with the company pricing its IPO at $102 rather than the originally forecast $75 to $85 per share. Some value derives from its 51% market share, but the IPO almost immediately rocketed to more than $195 per share. While the price has retreated since, some perspectives still indicate the stock's price is something of a "bubble."
While Citron Research's cautionary rating caused the shares to trade lower yesterday, DoorDash is posting explosive gains again today as Susquehanna Financial Group joins its voice to the bull-case chorus.