Rising Labor Costs And Competitive Pressures Will Cripple Margins

Key Takeaways

• Regulatory shifts and higher labor costs, alongside increased eco-compliance expenses, threaten to tighten margins and undermine DoorDash's profitability.
  
• Heightened competition, consumer fatigue over fees, and technological lag risk eroding customer retention, take rates, and long-term earnings power.
  
• Expansion into new verticals, technology-driven efficiencies, and growing subscription and advertising revenues are driving sustained growth, higher margins, and improved earnings stability.

Catalysts

Operates a commerce platform that connects merchants, consumers, and independent contractors in the United States and internationally.

• DoorDash faces significant risk from evolving labor regulations as several jurisdictions move towards classifying gig workers as employees rather than contractors, which could materially increase labor costs and directly impact net margins and overall profitability in the coming years.
  
• Mounting consumer fatigue around high service and delivery fees, particularly against a backdrop of persistent inflation and economic strain, may drive customers to seek alternatives or reduce order frequency, putting sustained downward pressure on revenue growth and customer retention rates.
  
• Intensifying competition and commoditization in the delivery space – fueled by restaurant chains investing in their own direct-to-consumer ordering and other platforms aggressively expanding their reach – threaten DoorDash's ability to maintain premium take rates, likely compressing gross profit and EBITDA in the longer-term.
  
• The push for sustainable delivery solutions and eco-friendly operations, while necessary, is likely to increase operational costs as regulatory demands rise and eco-initiatives must be implemented at scale, ultimately eroding unit economics and further pressuring long-term net margins.
  
• While DoorDash is investing in automation, robotics, and AI to achieve greater efficiency, failure to keep pace with better-capitalized or more technologically advanced competitors could leave DoorDash with a structurally higher cost base, undermining future margin improvement and weakening earnings power over time.

DoorDash Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on DoorDash compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming DoorDash's revenue will grow by 16.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.6% today to 10.6% in 3 years time.
• The bearish analysts expect earnings to reach $2.0 billion (and earnings per share of $4.47) by about August 2028, up from $781.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 62.3x on those 2028 earnings, down from 141.8x today. This future PE is greater than the current PE for the US Hospitality industry at 22.5x.
• Analysts expect the number of shares outstanding to grow by 3.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.42%, as per the Simply Wall St company report.

DoorDash Future Earnings Per Share Growth

Risks

• DoorDash continues to drive strong growth through the expansion into new verticals like grocery, convenience, and retail, with new and existing cohorts reaching all-time highs in both user numbers and order frequency, supporting sustained long-term revenue growth.
  
• The rapid scale-up of high-margin advertising revenues, now exceeding a $1 billion annualized run rate, is improving take rates and gross profit, contributing positively to overall company margins and earnings.
  
• Investments in AI, automation, and proprietary logistics technology are beginning to yield operational efficiencies and improved unit economics across both domestic and international markets, offering a pathway to enhanced net margins over time.
  
• DashPass and Wolt+ subscription programs are showing persistent increases in subscriber growth and engagement, leading to higher order frequency, improved customer retention, and a growing base of recurring, predictable revenue that underpins earnings stability.
  
• The international segment, particularly post-Wolt acquisition, is delivering robust user growth, order frequency, and improving unit economics, suggesting strong long-term global revenue expansion potential and operating leverage.

Valuation

• The assumed bearish price target for DoorDash is $202.43, which represents two standard deviations below the consensus price target of $284.74. This valuation is based on what can be assumed as the expectations of DoorDash's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $360.0, and the most bearish reporting a price target of just $190.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $18.7 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 62.3x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $259.19, the bearish analyst price target of $202.43 is 28.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.