Why DoorDash stock popped as much as 39% overnight

Posted: 18 February 2022 6:02 am
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Earnings were mixed but positive. Investors are watching to see if DoorDash can continue to grow its users and order volume, and at what pace, as the pandemic wanes.

Shares of DoorDash (DASH) soared by as much as 39% after the company reported fourth-quarter revenue that topped Wall Street consensus estimates.

The company also reported a growing user base and increased orders, suggesting that demand for food delivery services remains high.

DoorDash stock closed Wednesday at $US94.89 and popped to a month high of $US131.67 during extended trading. Shares opened Thursday at $US99.79, quickly climbed to a high of $US115.99 before fading lower. At the time of this writing, DoorDash stock was at $US112.17.

Why DoorDash stock is rising

DoorDash reported fourth-quarter and full-year 2021 earnings Wednesday at market close with revenue that beat analyst estimates.

Revenue grew 34% year over year to $US1.3 billion, compared to the $US1.28 billion estimated. DoorDash reported a quarterly loss of 45 cents per share, more than the 25-cent loss expected.

While DoorDash’s earnings were mixed, the pop in share price can likely be credited to the company’s growth in users and orders.

DoorDash reported record monthly active users of over 25 million, a 22% increase from the same quarter last year. Orders grew 35% year over year to 369 million for the quarter, driven by an increase in order frequency.

In addition, the value of orders grew 36%. This suggests that demand for food delivery services remains high, even as people have begun going back out to restaurants.

The company also grew its DashPass member base to more than 10 million. The $US9.99-monthly subscription service offers unlimited deliveries with no delivery fees.

DashPass orders generate lower contribution margins than nonsubscription orders on average, DashPass members have higher retention and order frequency than nonmembers, which helps drive faster growth and higher profit dollar production.

Thinking of buying DoorDash stock?

Despite Wednesday’s pop in share price, it’s a far cry from its mid-November high of $US257.25.

DoorDash benefited greatly during the first wave of the coronavirus pandemic, as many people relied heavily on food delivery services as they hunkered down at home instead of eating out at restaurants.

The company capitalised on the heightened demand, going public in December 2020 at a price of $102 per share, nearly a year into the pandemic. In the three months ending December 31, 2020, DoorDash saw its total orders grow 233% year over year to 273 million.

The company has continued to see increasing order volume since then, but not at the same pace as during the height of the pandemic. In comparison, for the fourth quarter of 2021, DoorDash saw “only” a 35% year over year increase in orders.

For 2022, Wall Street estimates DoorDash will bring in between $US5.61 billion and $US6.79 billion, up from the $US4.89 billion posted in 2021.

Analysts are split on the stock, with 12 giving it either a Strong Buy or Buy and 13 rating it a Hold. There are no Sells on the stock. They see it hitting $US209.40 over the next year, which represents a 87% premium over its current price.

As of last March, DoorDash dominated the online food delivery market in the US with a 55% market share, according to data from Statista. Uber Eats held the second highest share with 22%.

What investors will want to watch next is whether DoorDash can continue to grow its users and order volume and at what pace, now that the pandemic boost has seemingly waned.

At the time of publication, Matt Miczulski did not own shares of any equity mentioned in this story.

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