The broader stock market is shaky right now, but the technology sector is particularly weak. It's important to keep in mind that although many tech companies have declined in value by 50% or more, not every case represents a buying opportunity. During times of volatility, being selective can be one of your most effective investment tools.
Food delivery giant DoorDash (DASH -0.44%) reported its fourth-quarter and full-year 2021 results on Feb. 16, and despite a positive reaction from investors initially, the company's stock has since resumed its steady (and steep) decline.
Image source: Getty Images.
DoorDash stock is down 62% since hitting an all-time high of $257 a share in November 2021, and here are two reasons it could get worse.
1. DoorDash growth has decelerated
The pandemic created a lucrative environment for DoorDash and its competitors, as their service offered consumers the only way to access their favorite foods during periods of lockdown. DoorDash saw its revenue soar 226% to $2.88 billion in 2020, from $885 million in 2019. In 2021, it continued to ride the wave with a further 69% growth, to $4.88 billion for the year.
But its sequential quarterly results are indicating that a slowdown is in effect.
|
Metric |
Q1 2021 |
Q2 2021 |
Q3 2021 |
Q4 2021 |
|---|---|---|---|---|
|
Revenue |
$1.08 billion |
$1.24 billion |
$1.28 billion |
$1.30 billion |
|
Sequential growth |
11% |
14.7% |
3.1% |
1.9% |
Data source: DoorDash.
While quarterly results are normally compared to the same quarter of the previous year (referred to as year over year), measuring them sequentially can offer early clues about potential growth issues. For example, if the current trajectory remains constant during 2022, it's very possible that DoorDash will experience year-over-year contractions in some quarters this year.
And when revenue growth begins to move in reverse, investors often ascribe a smaller price-to-sales multiple to the company's stock, which would mean further stock price downside could be on the cards.
DoorDash's gross order volume (GOV) is flashing similar signals. Between the first quarter of 2021 and the fourth quarter of 2021, it grew just 12%, which is a long way from the 165% growth during the same period of 2020.
2. DoorDash has an abundance of competition
Companies like DoorDash struggle from a competitive standpoint because their platforms lack differentiation. There are multiple options for consumers that provide very similar services, including Grubhub from Just Eat Takeaway.com (JTKWY 0.69%), and Uber Technology's (UBER 0.96%) Uber Eats.
In such circumstances, consumers tend to vote with their wallets by opting for the cheapest provider, and they don't always remain loyal to one brand. In January 2022, DoorDash had 58% market share in the U.S., according to Bloomberg, so it's by far the dominant player with Uber Eats in second spot at 24%. But with that said, 21% of DoorDash customers also used Grubhub, and a further 21% used Uber Eats.
The consequence of a high level of competition is that it's very expensive to acquire new customers and retain old ones. For the last two years, DoorDash has spent 33% of its revenue on marketing expenses, coming in at a whopping $1.6 billion in 2021. It was more than triple the amount it spent on research and development, and double what it spent on administrative costs.
The end result is a very red bottom line, with the company yet to deliver a full-year profit to investors. In fact, its net loss in 2021 was $7 million higher than it was in 2020, despite having $2 billion in additional revenue.
It raises the question: If DoorDash's best growth did actually occur in this pandemic era, and it still couldn't generate earnings, does it have a shot at being profitable in the near future while still maintaining its dominant market share? With revenue increasing at a slowing rate over the last two quarters, the company might need to lean on its non-restaurant Marketplace offerings, which are focused on local commerce, rather than food alone.
Time will tell whether an expansion of DoorDash's services will resolve some of these issues, but for now, it might be best to watch from the sidelines. After all, there are plenty of other stocks that do represent great value during this tech sell-off.
