New Lyft Partnership Will Increase User Engagement And Customer Retention Through DashPass

Key Takeaways

• International expansion and operational efficiency enhancements could improve margins and drive revenue growth through market share gains and cost leveraging.
  
• Growing grocery delivery and new partnerships might increase user engagement and subscription retention, boosting long-term revenue and market positioning.
  
• Expanding into new markets and non-core areas while managing competition and investment needs could strain profitability and increase operational complexity.

Catalysts

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

• DoorDash's expansion into international markets shows promise for future growth, as seen in the U.S., potentially improving contribution margins through market share gains and efficiencies (impact: revenue and net margins).
  
• Leveraging fixed costs across multiple geographies and products is expected to provide operational efficiencies, enhancing profit margins as DoorDash scales (impact: net margins).
  
• DoorDash's growing presence in the grocery delivery sector, including partnerships with large grocers like Wegmans, suggests potential for increased order frequency and basket sizes, driving higher revenue (impact: revenue).
  
• Investments in the DoorDash Commerce Platform and new partnerships, such as with Lyft, aim to increase user engagement and subscription growth through DashPass, enhancing long-term customer retention and revenue streams (impact: revenue).
  
• Continued development of advertising capabilities and CPG partnerships is anticipated to drive incremental revenue, positioning DoorDash to capture increased market share in local commerce advertising (impact: revenue and earnings).

DoorDash Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DoorDash's revenue will grow by 16.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.7% today to 12.8% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $4.87) by about December 2027, up from $-172.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.4 billion in earnings, and the most bearish expecting $789 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.7x on those 2027 earnings, up from -414.9x today. This future PE is greater than the current PE for the US Hospitality industry at 23.8x.
• Analysts expect the number of shares outstanding to grow by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.28%, as per the Simply Wall St company report.

DoorDash Future Earnings Per Share Growth

Risks

• Increasing competition in the international market and the need for continuous investment to gain market share pose a risk to profitability and may impact net margins.
  
• Expansion into non-core areas like grocery and DashMart could increase operational complexity and costs, potentially affecting net earnings if not managed effectively.
  
• The pressure to achieve price parity with in-store prices for grocery deliveries might compress margins or require subsidizing costs, impacting profitability.
  
• Sales and marketing efficiencies are expected to slow down, which could limit further leverage-related margin improvements and impact net earnings growth.
  
• The need for ongoing investment in technology and infrastructure for initiatives like autonomous delivery and enhanced Dasher experience could heighten capital expenditures, affecting overall net earnings.

Valuation

• The analysts have a consensus price target of $176.45 for DoorDash based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $217.0, and the most bearish reporting a price target of just $135.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $16.1 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 44.7x, assuming you use a discount rate of 7.3%.
• Given the current share price of $171.81, the analyst's price target of $176.45 is 2.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.