Shares of DoorDash (DASH 2.88%) are up about 13% over the past year, but some investors are skeptical as the company continues to report steep net losses. In this segment of Backstage Pass, recorded on Nov. 19, Fool contributors Travis Hoium and Toby Bordelon discuss a recent acquisition by DoorDash that could be a game changer for the company's long-term growth prospects.
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Travis Hoium: DoorDash acquired Wolt, which is effectively a very similar company, just primarily operates in Europe right now. So $8.1 billion deal, all-stock transaction. Wolt is bringing $2.5 billion of volume run rate based on their third quarter, they're also growing extremely quickly. But I think really the thing to look at here is that they operate in 23 countries and they have 15 categories. When I think about DoorDash in this delivery business being built out, I was looking through the history of their company.
You start with a product like restaurants, bringing that from the restaurant to your door. Then you go, "Well, I'm bringing food, I've got the drivers. Now, why don't I add convenience stores? Why don't I add alcohol?" I looked at my [laughs] DoorDash app, I have convenience stores, grocery, alcohol, special offers, pet products, gifts, retail, and that's on top of all the food products. From DoorDash's standpoint, if you're thinking about this business strategically, you go, "I've got to expand into as many products as I can and as many locations as I can."
This business is all about scale. Not only in what you're delivering, but where you're delivering it. That's where I think this makes a lot of sense. They're basically acquiring with stock, so you're not using up a bunch of cash in international footprint that is growing really quickly. The other thing, I think, to think about as we think about this space long term, is that there's a ton of competitors.
This is basically a land grab business. Another thing I looked up was, I have 14 food, specifically delivery apps, in my phone. [laughs] Maybe we don't need 14 companies doing that, maybe three is enough. If you're DoorDash, you need to make sure that you're one of those three. You're not just one of those three in any given region, but you're developing the software, so you might as well spread that everywhere in the world that you possibly can.
That's what I think is really interesting about this deal, is the strategic look of it, that this is really another big land grab for them. As they add more and more products and more and more geographies, the business will become harder and harder to disrupt and they become a go-to product. I thought it was interesting, it's a big number for them. But strategically long-term, this could help plant them in a really front position in the industry.
Toby Bordelon: $8.1 billion, right? DoorDash has about $75 billion market cap right now. I don't know how much cash they have on hand. Did they say anything about is this going to be a stock or cash? I assumed cash. All stock?
Hoium: All stock, yeah.
Bordelon: OK, because Wolt is private, right?
Hoium: I believe that is correct.
Bordelon: Right. That's interesting, actually. That you're just bringing on new shareholders is essentially what they're doing. It occurs to me, I'm thinking about what DoorDash does. I look at them like Amazon, what does Amazon do. Amazon sells you stuff and then they deliver that stuff to you. But there's no inherent reason that delivery and selling have to be part of the same business, it's not necessary to operate that way.
Think about UPS and FedEx, but you can certainly see an opportunity where DoorDash or someone like DoorDash becomes the logistics operations for so many retailers and so many businesses, for anything. I think you think beyond this, "Oh, I'm sending someone to pick up something at CVS and bring it to you." I don't think that's the end game. The end game is being a logistics operator for people who want to outsource that for smaller businesses.
Hoium: They operate in the background of a lot of companies. Like Chipotle, you order Chipotle on your phone and get it delivered, you do that through the Chipotle app. But DoorDash is the one that delivers it or at least it is for me.
We could see this be more and more of a white label service, if you will, where they're providing this technology layer and physical infrastructure layer because they have the drivers that they're doing at scale that other companies can then just plug into. We're seeing that already, but now we're expanding this to more and more countries. I think that's what they're trying to leverage right now.
Bordelon: I think so. It's not like it's new, a company like XPO Logistics have done this for higher-end stuff. I ordered a Peloton bike, it was delivered by XPO Logistics. But if I were seeing DoorDash do that at a much different scale or a much different price point, I would say. Opening this up to a lot of businesses potentially is fascinating. I can see the potential here. If they can get to the point where it's like really profitable and they're not overwhelmed by the cost side of things.