DoorDash (DASH 0.88%), the largest third-party food delivery company in America, took investors on a wild ride after its IPO last December. It priced its IPO at $102 a share, and the stock soared 86% to nearly $190 on the first trading day.
DoorDash eventually hit a 52-week high of $256 a share this February before being clobbered in the broad sell-off in high-growth tech stocks. Today, the stock trades in the low $130s -- and it could remain out of favor as long as investors are pivoting toward value stocks and reopening plays.
DoorDash isn't the only online food delivery service that lost its luster over the past few months. Just Eat Takeaway (JTKWY 3.59%), the European food delivery giant that plans to acquire DoorDash's rival Grubhub (GRUB) this year, also lost nearly a fifth of its value over the past three months. That decline also dragged down Grubhub, since Just Eat Takeaway plans to exchange 0.671 shares of its own stock for each share of Grubhub when the deal closes.
Faced with these challenges, it might seem futile to invest in any food delivery companies right now. However, I still believe Just Eat Takeaway could be a safer long-term investment than DoorDash, for three simple reasons.
1. Expectations for accelerating growth
DoorDash's revenue surged 226% to $2.89 billion in 2020. Its total number of orders grew 210% to 816 million, while its marketplace GOV (gross order volume, or the total value of all of its orders) jumped 206% to $8.18 billion.
But in its annual report, DoorDash warns that its revenue, total orders, and marketplace GOV will all "decline as a result of a widespread COVID-19 vaccine rollout" in 2021. It expects its marketplace GOV to grow just 22%-34% for the full year, and analysts expect its revenue to rise 29%.
Just Eat Takeaway's revenue rose 54% to 2.4 billion euros ($2.8 billion) in 2020. The company was formed after Netherlands-based Takeaway.com acquired U.K.-based Just Eat last year.
Its total orders, on a combined basis, grew 42% to 588 million during the year. Its total GMV (gross merchandise volume, which is comparable to DoorDash's GOV) rose 52% to 12.9 billion euros ($15.2 billion).
Just Eat also attributed a lot of its growth to the pandemic. But in its annual report, it told investors to "expect a further acceleration of our order growth in 2021 compared with last year."
It plans to drive that growth with more aggressive investments -- which suggests it could gobble up other regional players after it closes its takeover of Grubhub.
Just Eat didn't provide any exact guidance, but analysts expect its revenue to rise 58% this year. Some of that acceleration should come from its upcoming merger with Grubhub, but Just Eat could continue to buy smaller companies to maintain its current momentum. DoorDash, however, doesn't have as many potential takeover targets left in the U.S. market.
2. Better geographic diversification and scale
DoorDash generates most of its revenue from the U.S. and has a smaller presence in Canada and Australia. Just Eat Takeaway provides deliveries in the U.K., Germany, Canada, Netherlands, and other countries.
After it acquires Grubhub, it will become the third-largest player in the U.S. after DoorDash and Uber (UBER 0.97%) Eats. The combined company will also become the largest third-party food delivery company outside of China.
Just Eat's broader geographic diversification could better insulate it from regulatory challenges in individual countries. DoorDash, for example, faces intense pressure in the U.S. to reclassify its Dashers from independent contractors to full-time employees.
Just Eat Takeaway ended 2020 with an adjusted EBITDA margin of 11%, compared to DoorDash's adjusted EBITDA margin of 7%. That gap could widen as Just Eat integrates Grubhub and continues expanding, while DoorDash resorts to aggressive promotions to counter Uber and Grubhub in a post-pandemic world.
Therefore, Just Eat's superior scale could enable it to narrow its net losses and approach GAAP profitability at a much faster rate than DoorDash.
3. A much cheaper valuation
DoorDash is currently valued at $42.8 billion, or 12 times this year's sales. Yet Just Eat Takeaway is only valued at 12 billion euros ($14.1 billion), or three times this year's sales. Grubhub, which has a market cap of $5.9 billion, also trades at three times this year's sales.
Those valuations are illogical. DoorDash generated incredible growth last year, but it will grow at a much slower pace than Just Eat Takeaway this year. It also has less room to grow inorganically, since the remaining independent players in the U.S. (after Uber/Postmates and Grubhub) only account for 1% of the market. Just Eat could still try to acquire other big players in the U.K. and Europe, such as Deliveroo or Delivery Hero, to consolidate the fragmented market.
The bottom line
I'm not saying Just Eat Takeaway is an ideal long-term investment. However, investors who are thinking about buying DoorDash after its recent plunge should take a closer look at its European counterpart instead.