Starbucks (SBUX 0.07%) and DoorDash (DASH +3.95%) are both pioneers in digital orders. Starbucks started accepting mobile payments back in 2011, just four years after the first iPhone launched, and expanded that digital platform to include mobile orders and other online features.
DoorDash, which was founded in 2013, became the largest third-party food delivery platform in America. Its streamlined platform overtook Grubhub (GRUB +0.00%), which mainly expanded through fragmented acquisitions, and Uber (UBER +0.06%), which leveraged its lead in the ride-hailing market to provide food deliveries.
Image source: Getty Images.
Starbucks' stock has risen more than 15% over the past 12 months, even as it closed many of its stores throughout the COVID-19 pandemic. DoorDash went public last December at $102, its stock surged to $190 on the first trading day, and it currently trades at about $140.
DoorDash might seem like the more exciting investment for growth-oriented investors, but is it smarter to stick with Starbucks' stable returns instead? Let's take a fresh look at both companies to find out.
The pandemic generated headwinds for Starbucks
Starbucks' global comparable store sales grew 3% in fiscal 2019, which ended last September. Its revenue and adjusted earnings rose 7% and 17%, respectively.
In fiscal 2020, its global comps tumbled 14% as the pandemic severely throttled its growth. Its revenue and adjusted earnings fell 11% and 59%, respectively. Those declines look terrible, but most of the damage occurred during the third quarter between late March and late June:
|
Period |
Q1 2020 |
Q2 2020 |
Q3 2020 |
Q4 2020 |
|---|---|---|---|---|
|
Global Comps Growth |
5% |
(10%) |
(40%) |
(9%) |
Source: Starbucks.
Starbucks had originally expected its global comps to decline 12% to 17% in the fourth quarter. However, store reopenings, more delivery options, and contactless options -- including drive-thru windows and entryway pickup for mobile orders -- helped its exceed its own estimates.
Starbucks also increased its store count 2% in the Americas and 8% internationally year-over-year at the end of 2020, which set the foundations for a stronger post-pandemic recovery.
For 2021, it expects its global comps to grow 18% to 23%, fueled by "sustained" improvements in the U.S. and China, and for its adjusted earnings to soar 131% to 148%. Analysts expect its revenue and earnings to rise 21% and 141%, respectively, this year, followed by more moderate growth next year.
The pandemic generated tailwinds for DoorDash
DoorDash controls about 50% of the U.S. food delivery market, according to Edison Trends, putting it far ahead of Uber Eats and Grubhub.
Image source: DoorDash.
Its revenue soared 204% to $885 million in fiscal 2019, which aligns with the calendar year, and its net loss narrowed from $668 million to $207 million.
In the first nine months of 2020, its revenue surged another 226% year-over-year to $1.92 billion, its total number of orders tripled, and its net loss narrowed from $534 million to $149 million.
DoorDash attributes that acceleration to the pandemic, which forced many restaurants to close their dining areas and rely heavily on its delivery services. However, its growth should decelerate after the pandemic ends and restaurants become less dependent on food delivery platforms.
That slowdown could restart the price war between DoorDash, Uber, and Grubhub. Meanwhile, all three platforms face mounting pressure to provide higher pay and benefits to their couriers, who are still classified as independent contractors instead of employees. Those two headwinds could crush DoorDash's margins and dash its hopes of long-term profitability.
Analysts expect DoorDash's revenue to rise 222% this year, but to grow just 30% in fiscal 2021 as the pandemic ends. They expect its net loss to narrow this year, and possibly rise to a profit next year -- but that path could be bumpy.
The valuations and verdict
Starbucks trades at nearly 40 times forward earnings and four times next year's sales. Those valuations are a bit high, but they indicate investors are confident in the company's long-term recovery. Starbucks also pays a decent forward yield of 1.7%.
DoorDash trades at about 14 times next year's sales, which is a surprisingly low price-to-sales ratio compared to other hot tech stocks with slower revenue growth rates. However, it's cheaper because investors expect a post-pandemic slowdown, and it's unclear if it can keep narrowing its losses amid intense competition and shifting regulations.
Based on those facts, I believe Starbucks will be a better overall investment than DoorDash this year. Starbucks could be buoyed by post-pandemic tailwinds, while DoorDash could be hit by headwinds and tough year-over-year comparisons.
