DoorDash (NYSE:DASH) staged the biggest weekly rally since November 2021. Amid euphoric buying, investors forgot about the short-comings in the online food ordering and food delivery platform. DASH stock has risen by 23% in the last week. After it crossed above the 50-day simple moving average, the company must demonstrate it may monetize its growing user base.
DoorDash posted losses in the last quarter. In the current quarter, it sees order values exceeding consensus. Does that make DoorDash a buy right now?
DASH Stock Rally Expected
The Nasdaq index peaked in mid-November 2021. It failed to break out after the second trading day of 2022, with an accelerated market-selling panic occurring on worries of excessive valuations. Bearishness accelerated for DoorDash after it posted a loss of $2.67 per share in the fourth quarter. With a $33.5 billion market capitalization, speculators could not justify the stock price. The underlying business sustainability is questionable.
DoorDash reported orders rising by 35% in Q4 to $369 million. The marketplace gross order value rose (GOV) by 36% to $11.16 billion. Furthermore, its percentage of monthly average users ordering from non-restaurant merchants rose by 14% in December 2021. This modest growth suggests that the company’s addressable market is expanding. Investors should expect revenue growth to continue expanding this year.
DoorDash allayed investor fears when it set a Marketplace gross order range of $11.4 billion to $11.8 billion, above analyst consensus estimates. It will drive orders by building on its strength. It will also seek more earning opportunities for Dashers. Unfortunately, DoorDash’s shareholder letter did not elaborate on how it will achieve those objectives.
Bigger Losses Ahead
In its 2022 outlook, the company expected Marketplace GOV in the range of $48 billion to $50 billion. However, 2022 adjusted EBITDA will be in the range of $0 million to $500 million. Investors should not ignore this vague outlook. DoorDash will post unexpectedly high expenses this year. This includes stock-based compensation, acquisitions, and high costs from research and development.
In the fourth quarter, DoorDash lost $155 million. Stock-based compensation and certain payroll tax expenses cost the company $133 million. After adjustments, EBITDA was $47 million. EBITDA margin was 4%.
New Initiatives to Drive Growth
Last month, DoorDash announced an express grocery delivery service with Albertsons Companies (NYSE:ACI). The new service will offer consumers faster and more convenient delivery of fresh groceries in under 30 minutes. The company is banking on the fast service that will differentiate its offering from the competition.
Investors need to assess the willingness of consumers to pay a premium for convenience and quick service amid rampant inflation. The Bureau of Labor Statistics posted the consumer price index rose by 7.9% in February 2022. Since the measure depends on a basket of goods, actual inflation for most consumers is likely higher. For example, home and heating costs are a bigger proportion of the monthly budget. To offset higher costs, consumers will need to cut back on unnecessary spending. DoorDash faces higher risks of people relying less on DoorDash’s services in 2022.
To cut costs, consolidate with the competition, and expand its global market, DoorDash is said to have held takeover talks of Deliveroo (OTCMKTS:DROOF) last summer. The rumor is a damaging development for both firms. It suggests that both firms would run unprofitable businesses on their own. However, turning to mergers and acquisitions doesn’t automatically take two unprofitable businesses and make them profitable.
DoorDash and Deliveroo pay too little and have high operating expenses. In the very long term, the industry may turn to automated delivery solutions. For example, drones and self-driving vehicles could replace staff.
Analysts largely ignored DoorDash in the last month. Tom White at D.A. Davidson is the last firm to issue a $135 price target on DASH stock over one month ago, according to Tipranks. More importantly, the stock scores poorly on quality and value. According to Stock Rover, a quant-scoring service, DASH stock has a 39/100 on value and 53/100 on quality.
The stock’s value score is better than in the last year. The stock fell by almost 60% from its 52-week high. Speculators should not use the 52-week high as a reference point. Chances are high that the Nasdaq will not return to those euphoric levels.
In 2021, markets expected “transitory” inflation and smaller interest rate hikes. For 2022, expect the Federal Reserve to increase its hikes to 50 basis points after every meeting. The Russian war against Ukraine accelerated inflation. Yet, structural bottlenecks for raw material will lift costs. Wheat and energy prices will keep rising. Input costs for the food industry will increase from higher wheat prices. DoorDashers face higher transport costs as gas prices rise.
Your Takeaway on Dash Stock
DoorDash faces tremendous selling pressure in 2022. The time to buy DASH stock came and went in the last month. Shares potentially bottomed at $80. Risks will rise again for markets to retest that low. If pessimism mounts, bears may send the stock below 52-week lows next.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.