The Nasdaq Composite index has jumped 9.5% in November (so far), but one individual stock is performing even better.
On Nov. 1, DoorDash (DASH 3.12%) reported its financial results for the third quarter of 2023 (ended Sept. 30). The online food ordering and food delivery platform delivered an improvement across several financial metrics -- some of which I've scrutinized in the past -- and investors have sent its stock soaring nearly 26% on the month.
Is there more upside to come?
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DoorDash's growth is slowing, but orders and revenue are at a record high
DoorDash is best known for its food delivery platform, which is the largest in the U.S. with a 65% market share. It exploded in popularity at the height of the pandemic as social restrictions prevented consumers from eating out, which led to a boom in ordering in.
At the time, DoorDash's business was producing triple-digit percentage growth in revenue, which sent its stock soaring. But social conditions have normalized as pandemic pressures eased, and that growth has moderated significantly. While the company delivered a record-high $2.1 billion in revenue during the third quarter, it represented year-over-year growth of just 27%. It was the slowest pace since DoorDash came public in 2020.
The company's gross order volume (the value of all goods customers ordered on DoorDash) also marched to a record high of $16.7 billion in Q3. DoorDash has focused on expanding its total addressable market beyond food delivery by entering the grocery segment and retail as a whole. Offering more products for potential delivery will lead to more orders, and drive more revenue.
In June of this year, DoorDash gave its flagship mobile application the largest update in a decade. It now features over 100,000 non-restaurant businesses, and it allows consumers to build separate shopping carts for its newer grocery and retail segments.
The company also acquired last-mile European delivery platform Wolt in 2022, which not only helped DoorDash's expansion into groceries and retail but also made DoorDash more geographically diverse.
DoorDash impressed investors with its improvement at the bottom line
I have been critical of DoorDash in the past because it hasn't yet delivered a consistent true profit (net income) under generally accepted accounting principles (GAAP) -- not even during the height of the pandemic when its business was booming. The only path to profitability involves managing operating costs, and in a highly competitive food delivery industry, that creates risk.
Marketing, for example, is the growth engine behind a platform like DoorDash, and investing less money there can open the door for competitors to steal market share.
However, DoorDash has ventured down that path recently anyway, which is one reason for its slowdown in revenue growth. In the third quarter, it increased its operating costs by just 13% compared to a year ago, with marketing spending up 7%.
Remember, DoorDash's revenue grew by 27% in the quarter. Given its costs grew at a much slower rate, more money flowed to the company's bottom line. As a result, its net loss shrank by 74% year over year to $75 million, which was the best level in DoorDash's history.
Its non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) -- which strips out noncash expenses like stock-based compensation -- nearly quadrupled to a quarterly record high of $344 million.
Upside in DoorDash stock might be limited from here
One of DoorDash's largest competitors is Uber Technologies (UBER -0.38%), which runs the Uber Eats delivery platform. Based on Uber's total trailing-12-month revenue of $35.9 billion and its current market capitalization of $112 billion, its stock trades at a price-to-sales (P/S) ratio of 3.1.
DoorDash stock, on the other hand, trades at a more expensive P/S ratio of 4.7. However, Uber is a more diverse company because it not only offers food and grocery delivery, but it's also home to the world's largest ride-hailing network and a growing commercial freight business. Not to mention, Uber just strung together two consecutive quarters of GAAP profitability, and in the third quarter (ended Sept. 30), its core mobility business still grew its revenue by a robust 33%.
Using Uber stock as a reference point, it's hard to argue for much upside in DoorDash stock from here despite its recent improvements at the bottom line -- especially considering the slowdown in revenue growth those improvements have caused.
However, I expect Uber stock to deliver spectacular returns over the next decade, and that could benefit DoorDash's valuation. But the company will have to prove to investors it can continue to expand its business while making further progress toward GAAP profitability.
