Is DoorDash (DASH) stock a good investment ahead of earnings?

Online food delivery platform DoorDash, Inc. (NYSE: DASH) made its Wall Street debut last year when coronavirus had tightened its grip on the market, which made people embrace digital platforms for shopping and dining. The company being a key beneficiary of the shift in consumer behavior, investors responded positively to the IPO, and the stock gained about 86% on the first day.

A Volatile Phase

The shares maintained the momentum, after a brief pullback, and entered 2021 on a high note. But it was short-lived and the stock slipped below its IPO price following the company’s not-so-impressive fourth-quarter performance. Experts see a rebound but caution about the valuation amid concerns that the stock is too expensive. In short, the risks are yet to be priced into DoorDash’s $45-billion market cap. It is advisable to postpone investment decisions for the time being and wait until more clarity emerges.

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Read managment/analysts’ comments on quarterly reports

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For the Silicon Valley startup, the present tailwind might not be sufficient to achieve profitability. The company belongs to an e-commerce segment that does not have many success stories to tell, and where competition is building up. Going forward, the stakeholders will be looking for updates on the management’s turnaround strategy, given the uncertainty over the long-term effects of the pandemic.

Challenges

Being a cost-intensive business, DoorDash’s margins will likely be squeezed by elevated marketing and R&D expenses. Also, there will be pricing pressure, since local administrators across the country have capped the fee restauranters can pay to delivery service providers. The market reopening, encouraged by the vaccination drive, will reduce American’s reliance on digital platforms for ordering food, which can affect revenue performance in the future. On the positive side, the company sees stable order volumes in certain markets where COVID restrictions have been eased.

We provided our guidance for Q1 and 2021 in our investor letter, but I’d like to provide a little more detail behind that. Underlying our 2021 guidance is an assumption of accelerated market reopening and a return to in-store dining. While we have seen many positive signals from consumers and markets that have temporarily reopened during the pandemic, we acknowledge that vaccination and full reopenings could drive sharper changes in consumer behavior than current data would predict. Consequently, our 2021 full-year guidance reflects this uncertainty.

Prabir Adarkar, chief financial officer of DoorDash

Loss Widens

Earlier this year, DoorDash published its first financial report as a public company, reporting a two-fold growth in revenues to $970 million, which was far above the market’s projection. Net loss widened to $312 million from $134 million – hurt by higher costs across the board – but improved to $2.67 from $3.05 on a per-share basis. The company will be reporting its first-quarter results on May 13, amid expectations for a loss of 26 cents per share and revenues of $993 million.

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Kay highlights from Uber Technology’s Q4 2020 earnings results

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Currently, DoorDash’s stock is trading below the IPO price. It closed the last session at $143.85 and lost considerably in early trading on Tuesday. The shares have lost about 28% since the company’s stock market debut.