Uber (UBER +3.50%) and DoorDash (DASH 0.21%) are fierce rivals in the online food delivery market. Uber Eats, which was launched in 2014 to complement Uber's core ride-hailing business, now operates in more than 6,000 cities across 45 countries. It also acquired Postmates last December to boost its market share in the U.S.
DoorDash, which was launched in 2013, generates most of its revenue in the U.S., but also operates in Canada, Australia, and Japan. DoorDash controlled 57% of the U.S. food delivery market in July, according to Bloomberg Second Measure. Uber/Postmates ranked second with a combined 26% share, while Just Eat Takeaway's Grubhub -- the former market leader -- ranked third with a 16% share.
Image source: DoorDash.
Uber and DoorDash's businesses are fundamentally different, but both companies are benefiting from similar tailwinds while facing similar challenges. Let's see which gig economy stock is the better buy.
The differences between Uber and DoorDash
Uber generated 55% of its revenue from its mobility segment, which houses its ride-hailing service, last year. Its delivery segment, which provides its food delivery services, generated 36% of its revenue.
Uber's freight business, which provides logistics services, generated 9% of its revenue last year. The remaining sliver of its sales mainly came from its ATG (advance technology group) business, which was developing autonomous vehicles before it was sold to the driverless start-up Aurora this January.
Uber relies heavily on overseas markets for growth. Last year, it operated its platforms across 71 countries, while markets outside of the U.S. accounted for about 79% of all trips taken on its app.
DoorDash's business is less complex: It generates all of its revenue from the commissions and fees it charges restaurants and customers. It generated more than 99% of its revenue within the U.S. last year.
How fast are Uber and DoorDash growing?
The pandemic generated both headwinds and tailwinds for Uber. Its mobility business struggled as fewer people went out, but its delivery business flourished as more people ordered food deliveries online.
Meanwhile, the pandemic generated robust tailwinds for DoorDash's delivery business, which wasn't held back by slower-growth businesses. But as vaccination rates improved and more businesses reopened, Uber's growth accelerated again as DoorDash's growth decelerated.
|
Revenue Growth (YOY) |
FY 2019 |
FY 2020 |
1H 2021 |
|---|---|---|---|
|
Uber |
26%* |
(14%) |
32% |
|
DoorDash |
204% |
226% |
123% |
Data source: Company earnings reports. *Prior to 2020 accounting change. YOY = Year-over-year.
For the full year, analysts expect Uber's revenue to rise 43%, and for DoorDash's revenue to grow 55%. Next year, they expect Uber's revenue to grow 40%, but for DoorDash's revenue to rise just 21%.
Based on those expectations, Uber's stock trades at five times this year's sales, while DoorDash trades at 14 times this year's sales.
Profitability challenges and regulatory headwinds
Uber's net loss narrowed from $8.5 billion in 2019 to $6.8 billion in 2020, then rose to a net profit of $1.0 billion in the first half of 2021, compared to a net loss of $4.7 billion in the first half of 2020. However, that profit mainly came from the sale of its ATG unit to Aurora for about $4 billion.
Image source: Uber.
Its adjusted EBITDA, which excluded that gain, remained in the red with a loss of $868 million in the first half of 2021, compared to a loss of $1.4 billion a year ago. As in previous periods, the losses from its delivery and freight segments offset the mobility segment's positive adjusted EBITDA.
DoorDash's net loss narrowed from $667 million in 2019 to $461 million in 2020, but doubled year over year from $106 million to $212 million in the first half of 2021.
On an adjusted EBITDA basis, DoorDash posted a net loss of $475 million in 2019, but generated a positive adjusted EBITDA of $189 million in 2020 and $156 million in the first half of 2021.
Analysts expect both companies to post narrower losses this year, but neither company will achieve GAAP profitability anytime soon.
That's troubling when we consider the looming regulatory challenges. Proposition 22, the ballot measure that shielded Uber and DoorDash from AB5 (a California law that requires most companies to reclassify their independent contractors as employees), was recently overturned in a California court.
Uber, DoorDash, and other companies plan to appeal the ruling -- but losing that battle could result in surging operating costs and steeper losses. Uber was already forced to pay minimum wages, holiday pay, and pensions in the U.K. by a court ruling, and other countries could still follow that lead.
Which stock is the better investment?
Those challenges are keeping me away from both stocks. But if I had to choose one, I'd pick Uber. Its business is better diversified, it will benefit from reopening tailwinds, and its stock is cheaper.
As for DoorDash, the company still faces too much competition, and it hasn't proven that the food delivery business model is sustainable yet. Its growth will decelerate as the pandemic passes, and it can't fall back on a more profitable business (like Uber's ride-hailing business) to survive the slowdown.
