Deliveroo Acquisition And SevenRooms Integration Will Fuel New International Markets

Key Takeaways

• DoorDash's acquisition and integration strategies, focusing on Deliveroo and SevenRooms, enhance international presence and restaurant services, potentially boosting revenue and margins.
  
• Emphasis on grocery delivery, autonomous tech, and DashPass growth drives revenue and profit growth via improved efficiency and consumer retention.
  
• International expansion and high M&A activity could strain profitability due to competitive pressures, integration risks, and regulatory challenges impacting net margins.

Catalysts

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

• DoorDash's acquisition of Deliveroo is expected to enhance its international presence, particularly in Europe, by adding more scale and unlocking potential profit pools. This could drive increased revenue and net margins by leveraging economies of scale and improving unit economics.
  
• The integration of SevenRooms into DoorDash's platform could strengthen its restaurant-focused services by adding marketing-as-a-service capabilities, potentially boosting earnings through enhanced product offerings and improved merchant relationships.
  
• DoorDash's emphasis on expanding its grocery delivery business, with increasing selection and habituation of consumer usage for larger baskets and diversified use cases, is likely to contribute to growth in both revenue and order frequency, enhancing overall earnings.
  
• The ongoing investment in autonomous delivery technology aims to improve operational efficiency and reduce delivery costs, which could enhance net margins over the long term by optimizing the cost structure.
  
• Continued growth in DashPass subscriptions, driven by enhancements in value proposition, supports higher consumer retention and order frequency. This is expected to positively impact revenue growth and profit margins by increasing the lifetime value of subscribers.

DoorDash Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DoorDash's revenue will grow by 18.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.0% today to 13.9% in 3 years time.
• Analysts expect earnings to reach $2.6 billion (and earnings per share of $5.59) by about May 2028, up from $339.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.6 billion in earnings, and the most bearish expecting $1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.4x on those 2028 earnings, down from 237.6x today. This future PE is greater than the current PE for the US Hospitality industry at 21.9x.
• Analysts expect the number of shares outstanding to grow by 2.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

DoorDash Future Earnings Per Share Growth

Risks

• DoorDash's international expansion, particularly with Deliveroo, subjects it to new competitive pressures and market challenges in Europe, which could impact profit margins as they work to grow their market position.
  
• The increased focus on affordability initiatives could drive a lower net revenue margin in the short term, affecting overall profitability as the company reinvests to stimulate order growth.
  
• The substantial investment in capital expenditure for autonomy and other technology upgrades could strain cash flows and require significant returns to justify the spending levels.
  
• Regulatory challenges, such as city-mandated delivery fee caps, could pressure net margins and affect the balance between consumer pricing, merchant earnings, and Dasher profitability.
  
• The company's strategy of high M&A activity, as seen with Deliveroo and SevenRooms, could shift focus and resources, leading to integration risks and impacting financial stability if expected synergies and market expansion do not materialize as planned.

Valuation

• The analysts have a consensus price target of $218.699 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 $246.0, and the most bearish reporting a price target of just $178.18.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $18.5 billion, earnings will come to $2.6 billion, and it would be trading on a PE ratio of 48.4x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $190.11, the analyst price target of $218.7 is 13.1% higher.
  
• 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.