US And European Labor Rules Will Strain Delivery Prospects

Key Takeaways

• Stricter labor regulations and mounting environmental concerns could increase costs and weaken DoorDash's long-term growth and profitability.
  
• Heavy reliance on acquisitions, discounts, and expanding into competitive markets risks sustained unprofitability and challenges to market leadership.
  
• Strategic international expansion, diversification into new verticals, and investment in efficiency and technology position DoorDash for sustained revenue growth and margin improvement.

Catalysts

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

• DoorDash faces persistent risk that stricter labor regulations or increased regulatory scrutiny in major markets, especially in Europe and the U.S., will require gig platforms to reclassify drivers as employees, which would substantially increase costs of operations and compress net margins over the long term.
  
• The company's rapid international expansion, particularly through acquisitions like Deliveroo, exposes DoorDash to underpenetrated but highly competitive markets where profit pools are limited, local leadership is lacking, and the possibility of sustained unprofitability remains high, putting future top-line revenue growth and sustainable earnings at risk.
  
• Consumer demand for sustainability and reduced carbon footprints is increasingly at odds with the nature of third-party delivery, which relies heavily on single-use packaging and frequent vehicle trips; if these environmental concerns shift consumer behavior, DoorDash could see order growth and revenue stagnate or decline.
  
• DoorDash's continued dependence on promotional discounts, affordability initiatives, and expensive customer acquisition to maintain order volume, especially in the grocery and convenience verticals, threatens unit economics, making it more difficult to achieve meaningful operating profitability and consistent increases in net income.
  
• Advancements in autonomous delivery technology by rivals or the emergence of alternative local fulfillment models could threaten the long-term relevance of DoorDash's gig-worker network, leading to declining market share and structurally lower margins as delivery becomes commoditized.

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 17.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 3.0% today to 12.2% in 3 years time.
• The bearish analysts expect earnings to reach $2.2 billion (and earnings per share of $4.46) by about July 2028, up from $339.0 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 46.4x on those 2028 earnings, down from 300.6x today. This future PE is greater than the current PE for the US Hospitality industry at 24.5x.
• Analysts expect the number of shares outstanding to grow by 2.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.86%, as per the Simply Wall St company report.

DoorDash Future Earnings Per Share Growth

Risks

• The continued expansion into new international markets, especially through acquisitions like Deliveroo and Wolt, gives DoorDash significant opportunity to grow its top-line revenue and diversify earnings by capturing profit pools in Europe, positioning the business for sustained long-term revenue growth.
  
• Success in non-restaurant verticals such as grocery and convenience, backed by strong cohort retention and order frequency increases, indicates DoorDash is effectively broadening its average order value and platform usage, which directly supports higher revenue and improved profitability.
  
• The company's disciplined investment philosophy, focus on unit economics, and reinvestment into technology and operational efficiency have driven notable improvements in delivery margins and EBITDA dollars, suggesting net margins and earnings could continue to rise.
  
• The recurring growth and success of DashPass, DoorDash's membership program, increases user retention and order frequency while improving economics at scale, providing a foundation for sustainable increases in both revenue and profit dollars.
  
• Ongoing advancements in last-mile delivery technology, including autonomy and robotics investments, have the potential to reduce delivery costs and expand efficiencies, supporting further margin improvement and long-term earnings growth.

Valuation

• The assumed bearish price target for DoorDash is $179.0, which represents the lowest price target estimate amongst analysts. 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 $315.0, and the most bearish reporting a price target of just $179.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $18.3 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 46.4x, assuming you use a discount rate of 7.9%.
• Given the current share price of $240.46, the bearish analyst price target of $179.0 is 34.3% 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.