DoorDash has captured underpenetrated markets through attractive pricing for couriers
Introduction
DoorDash is an e-delivery marketplace that links couriers, restaurants/grocers, and consumers. Uber is the only competitor that can match Dash's scale, and its success is mostly due to network effects and intangible assets. DoorDash's network effect as a moat source is facilitated by its exceptional customer engagement. For Dash to sustain returns over time above its cost of capital, the strength of its network effect and intangible assets is essential.
Warning! GuruFocus has detected 5 Warning Sign with DASH.
Market Assessment
From 39 orders per user in 2020 to 62 orders per user in 2024, Dash, a food delivery platform, grew by 10% annually, surpassing both Uber's 3% and Grubhub/JustEatTakeaway's 1% growth. Dash is quickly growing user engagement and is poised to overtake Uber in terms of trips or orders per user, despite its primary focus on food delivery. Larger basket sizes give Instacart, a grocery-focused company, a GOV ($33 billion projected in 2024) because they offer advantageous operating leverage. To help compete with supermarket behemoths like Walmart and Costco, grocery delivery service Dash has been growing in the market and partnering with Albertson's. Compared to other e-food competitors, this entry into grocery stores should present chances for additional margin growth.
Bull Case
One way to conceptualize the network effect is as "supply informing demand and demand informing supply." Eaters are the demand, and couriers and restaurants/grocers are the supply. By facilitating an online presence and connecting with millions of customers, food marketplace companies such as Dash encourage restaurants to become part of the network. While the food marketplace offers eaters an on-demand service, couriers gain from the establishment of a marketplace where they can receive compensation and work at their own pace. Dash serves as an aggregator in the network created by combining supply and demand.
Dash needs enough eaters, Dashers, and restaurants to reach and sustain critical mass so that everyone wins. This starts a positive feedback loop in which more orders lead to more data and better algorithms, which enhances the application's comprehension of human behavior and improves performance while attracting new users. High engagement makes it possible for DoorDash to gather more data, which improves its value proposition to eateries by giving them insights into the trends and ordering patterns of its customers. Additionally, it improves supply-side stickiness by expanding delivery opportunities, which directly benefits Dashers.
In 2024, Dash fulfilled 2.5 billion orders, surpassing rivals JET/Grubhub and Instacart. Its order volume increased by 26% yearly, while JET's was 1% and Instacart's was 3%. This leads to a top-of-class scale, with a gross order value (GOV) of $80 billion, compared to $75 billion for Uber Eats. Dash's higher growth rates show that it has been more successful than Uber at entering suburban markets. Dash essentially subsidizes its supply-side costs by charging customers a delivery and service fee, restaurants a fee or commission, and a suggested tip payment in order to generate revenue. Restaurant fee caps of 15%20% of total order value are still in place in New York City and San Francisco, but they might be lifted to allow for further margin growth.
Dash's experience with "ghost kitchens," which enable restaurants to expand without significant costs like real estate, is a last growth strategy that enables the reinforcement of network effects. In the end, this idea can sustain the positive feedback loop where supply reinforces demand and vice versa, giving Dashers more revenue opportunities and consumers more options.
Bear Case
Customers are drawn to Uber or Dash for market share and engagement in network effect industries, which frequently produce a winner-take-all atmosphere. Uber sets itself apart from Dash's platform with its own value proposition, which includes ridesharing and food delivery. Switching costs are minimal, though, and customers might favor more affordably priced goods with shorter wait times and a larger selection. In this computation, loyalty programs are important. It is appealing that Dash specializes in food delivery and prioritizes customer satisfaction.
Recently, Dash and Alphabet Wing teamed up to offer drone delivery services in Texas and Virginia. Dash's growth prospects could be jeopardized if drone companies transition from an upstream role to a vertically integrated offering with demand aggregation software and apps. Dash has a lower cost structure because its business model is based on categorizing couriers as part-time gig workers. Dash has, however, incurred legal costs and fought this issue through California's Proposition 22, which may result in other jurisdictions contesting the platform's classification of part-time employees.
Margin Assessment
During the forecast period, Dash, a rapidly expanding technology, is anticipated to hold onto its 2530% market share in the global food delivery industry. However, prolonged market capture will be thwarted by intense competition from Uber and other competitors. With prospects for expansion in grocery delivery and global expansion via its global Wolt platform, Dash has been broadening its geographic revenue sources. As e-grocery catalog sizes increase, consumers are anticipated to favor convenience. Dash is concentrating its growth efforts on suburban markets, where the financial and technological effects will be most noticeable. It is anticipated that revenue growth will surpass significant costs, including those related to onboarding merchants and placing orders with non-partner merchants. By running micro-fulfillment logistics facilities that require little onboarding expertise from merchants, ventures like DashMart increase efficiency.
Increased order batching and better route density should be possible thanks to Dash's continuously evolving machine learning algorithms, which will also increase cost effectiveness per order. The downward trend in sales and marketing costs suggests that network effects have reached a critical mass where they can sustain themselves. Dash is striking a balance between this dynamic and the necessity of entering new markets as it grows. Dash recorded its fourth consecutive GAAP profitable quarter as of March 2025. With an adjusted operating margin of 3.7% in 2025 and a steady increase to 12.4% by 2028, the company is expected to continue to turn a profit in every quarter going forward.
Hedge Fund Bets
On the surface, it may seem like are offloading Dash's shares in cohort but assuming that would be incredibly wrong. Most of these Gurus are single-manager hedge funds who often times need to realize some gains in order to facilitate their LPs get access to their returns. This gets eve clearer when we look at the average buying price of these Gurus who have sold shares of DoorDash. For instance, Aspex, who sold a third of its DASH's holdings had realized a gain of 126% on this stock.
Final Thoughts
To increase its worldwide footprint, restaurant delivery service DoorDash has made a number of calculated acquisitions. It expanded its restaurant portfolio in 2019 when it paid $410 million to acquire a rival restaurant, Caviar. For $8.1 billion in 2022, it purchased the Finnish online delivery service Wolt. It intends to pay EUR 2.4 billion in 2025 to acquire the UK-based food delivery service Deliveroo. DoorDash has been able to reach 26 countries thanks to these acquisitions. Through the proposed $1.2 billion acquisition of SevenRooms, a hospitality technology company, the company will be able to expand its value proposition to restaurants and monetize consumer behavior data. Dash may be able to pursue more significant strategic acquisitions, like Lyft, thanks to its solid financial position and balance sheet. This would enable Dash to compete with Uber as a super-app and diversify its sources of income. By combining the two platforms, the combined entity's appeal would be increased for customers looking for a comprehensive convenience service on a single application.
This article first appeared on GuruFocus.
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