DoorDash (NASDAQ: DASH) is the most popular food delivery platform in America, but it has also expanded into the grocery and retail categories over the last few years, which is really starting to pay off. The company is coming off a strong year in 2024, with a record number of users, record revenue, and record profits.
DoorDash stock has soared by 77% from its 52-week low, but it remains 27% below its all-time high, which was set during the tech frenzy in 2021. The majority of the analysts tracked by The Wall Street Journal think the recent recovery will continue, and they have assigned the highest-possible buy rating to the stock.
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They might be right over the long term, but there is one thing investors should be wary of before buying into the DoorDash story.
Image source: Getty Images.
DoorDash's expansion into new verticals is paying off
Food delivery is DoorDash's bread and butter. Its platform has a 67% market share in the U.S., placing it far ahead of Uber (NYSE: UBER) platform Uber Eats in second place at 23%. However, the company has worked hard to capture more consumer spending by expanding into other verticals, and it now offers over 11 million products in the grocery and retail categories as well.
Around 42 million people use DoorDash every month, and 25% of them used it to shop in those other categories in December. Lowe's, Ulta Beauty, and Walmart (Canada) are just some of the retail giants that joined the DoorDash platform last year. In fact, customers can now order from 44 of the top 100 retailers in the U.S. using DoorDash, which is a great sign of the platform's momentum, but it also leaves plenty of room to grow.
DoorDash now makes over 7 million deliveries every single day, and the company said order frequency from some of its most mature customer cohorts continued to grow throughout 2024. Simply put, entering new verticals was a strategic decision to encourage users to shift more of their shopping onto DoorDash, and it appears to be working.
During the fourth quarter of 2024, DoorDash processed a record $21.2 billion in gross order value (GOV), which is the total dollar amount customers spent on the platform (inclusive of food and product costs, service fees, and delivery fees). It represented a 21% increase compared to the same quarter in 2023, which was tied for the fastest growth rate of last year.
After paying its delivery drivers and deducting the cost of each meal, grocery item, and retail product, which is paid forward to restaurants and stores, DoorDash's $21.2 billion in GOV translated into $2.8 billion in revenue during the fourth quarter. That was also a record high, and it represented 25% growth from the year-ago period.
DoorDash generated record profits in 2024
Food delivery is a very competitive industry with razor-thin profit margins and very few barriers to entry. As a result, DoorDash spends billions of dollars every year to build brand awareness and to ensure it's the No. 1 choice for new customers before they try out other platforms.
In fact, DoorDash spent $2 billion on marketing during 2024, which was more than it spent on any other operating cost by a wide margin. Pulling back on those investments isn't an option if the company wants to maintain its dominance, which makes it very difficult to deliver consistent profits. Nevertheless, it made great progress last year.
DoorDash had $10.7 billion in total costs and expenses in 2024, which represented growth of 16.7% from the prior year. That was a slower increase than in 2023, when the company's total costs jumped by 19.5% to $9.2 billion. As a result -- and combined with the fact revenue grew by 24% for the year -- DoorDash managed to reduce its operating loss by a whopping 93% in 2024, to just $38 million.
But thanks to a reduction in "other" nonoperating expenses, and a modest increase in interest income, the company actually generated a GAAP (generally accepted accounting principles) profit of $123 million. That was a big positive swing from the company's $558 million net loss in 2023.
But it gets better. DoorDash likes to use adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) as its preferred measure of profitability because it's a non-GAAP metric which excludes one-off and noncash expenses like stock-based compensation. In other words, it's a better measure of how much cash the business is generating.
During 2024, its adjusted EBITDA came in at a record $1.9 billion, marking an impressive increase of almost 60% compared to 2023.
Wall Street is bullish on DoorDash stock, but be wary of its valuation
The Wall Street Journal tracks 46 analysts who cover DoorDash stock, and 27 have assigned it the highest-possible buy rating. Four others are in the overweight (bullish) camp, while 14 recommend holding. Although there is one analyst in the underweight (bearish) category, none recommend outright selling.
The analysts have a consensus price target of $225.38, which implies a potential upside of 26% over the next 12 to 18 months from where the stock trades as of this writing. The Street-high target of $250 offers slightly more potential upside of 40%.
While all of that sounds positive, DoorDash stock isn't exactly cheap following a 77% rally from its 52-week low. It trades at a price-to-sales (P/S) ratio of 7.2, which is a 53% premium to its three-year average of 4.7 (this excludes the 2021 period when the stock was trading at an unsustainably high valuation). Moreover, DoorDash's valuation is almost double that of Uber, which trades at a P/S ratio of 3.7:
DASH PS Ratio data by YCharts.
As I touched on earlier, Uber Eats is a competitor to DoorDash in the food and grocery delivery space, but Uber also operates the world's largest ride-hailing platform, and a growing commercial freight network. As a result, it has a more diverse business than DoorDash and generated over four times more revenue in 2024 ($43.9 billion).
I'm not taking anything away from DoorDash's fantastic 2024, but given the current valuation of its stock, investors who buy it today might want to adopt a long-term view of five years (or more) to give themselves the best chance to earn a positive return. That will give the company sufficient time to expand into its new verticals, and grow into its valuation.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash, Uber Technologies, Ulta Beauty, and Walmart. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
