DoorDash has already peaked

Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for clever moves or positive trends, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.

💰 DoorDash’s Pandemic Gold Rush 💰

The Buy/Sell/Hold Analysis

In mid-2019, a private funding round valued DoorDash, the restaurant delivery service, at $12.7 billion. In early March 2020, with rumors that the company might go public, the New York Times noted Wall Street skepticism about that lofty figure, quoting one analyst who predicted DoorDash would take a “significant valuation haircut.”

Instead, the company IPOed this week at a valuation of $39 billion — or $102 per share — and promptly saw its stock skyrocket, ending its first day as a public company worth $71.6 billion. (Domino’s, which revolutionized online food delivery and, unlike DoorDash, turns a consistent profit, is worth about $15 billion.)

What happened on the road from $12.7 billion to $71.6 billion was, of course, the onset of Covid-19 — and accompanying shutdowns and consumer skittishness about dining out — which turned delivery companies like DoorDash into “pandemic winners.” DoorDash’s revenue has increased sharply over 2019 and even showed its first profit in the second quarter of this year.

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But is the company really worth well over five times what it was just 18 months ago? After all, DoorDash promptly returned to posting a loss in the third quarter as shutdown restrictions eased. Being a pandemic winner obviously means that the revenue growth owes a lot to an anomalous circumstance — one whose end is in sight as vaccine timetables solidify by the day. A DoorDash exec told Axios Pro Rata that using its service is a sticky habit that consumers will continue so they can enjoy “extra time to do other things.” It seems more plausible that after months of takeout and deliveries, one “other thing” many of us would like to do is eat out at a restaurant for the first time in a year.

More strikingly, the underlying concerns that gave some analysts pause about DoorDash’s valuation before the pandemic haven’t actually changed. Critics charge that delivery services aren’t cheap for consumers, don’t pay drivers terribly well, cut into restaurants’ thin margins — and are still in the red. In short, they simply don’t seem to create much value in any direction. “It took a global pandemic to drive the firm’s one quarter” of profitability, a skeptical analyst told Markets Insider. And while the company has plans to expand its delivery service into other categories, such as groceries or retail goods, and is boosting a subscription membership, those experiments haven’t proven out yet.

What’s really changed since March isn’t the fundamental promise of DoorDash — it’s investor enthusiasm. In a development nobody was predicting when the pandemic hit, 2020 has turned out to be a banner year for IPOs. So it will be years before we really know what DoorDash might deliver to investors, but it looks like the company figured out when mainstream investors could deliver the most to DoorDash and its early backers: right now, before the reality of being a “pandemic winner” in a post-pandemic world sinks in.

Verdict: Sell

— Rob Walker

⚡ Lightning Round⚡

⚡2021 is poised to be the Year of the Pharmacy. With vaccine manufacturers announcing optimistic preliminary trial results and beginning to map distribution timetables, pharmacies are preparing to serve as immunization centers. Chains like CVS and Walgreens are hiring aggressively ahead of the vaccine rush, according to Bloomberg, with Walgreens offering pharmacists “sign-on bonuses ranging from $500 to $30,000.” Meanwhile, less than a month after launching its online pharmacy, Amazon is now reportedly weighing a $100 million investment in Indian chain Apollo Pharmacy — a doubling down in what it views as an already lucrative sector about to enter a monumental year. Buy.

⚡Uber abandons its self-driving car boondoggle. CEO Dara Khosrowshahi insists the company isn’t giving up on its autonomous driving project — it’s just handing it off to a startup called Aurora, into which Uber will also invest $400 million. Aurora will be working on self-driving trucks, however, instead of robot taxis. Driverless vehicles were one of the ride-hailing giant’s only viable paths to profitability, but having already spent more than $2.5 billion with little to show besides accusations of IP theft and having fallen far behind competitors like Waymo, Uber looks like it’s ready to cut its losses and move on. Sell.

⚡Ikea closes the book on its iconic catalog. The Swedish furniture giant announced Monday that it was ending the publication of its annual mail-order catalog after nearly 70 years. It’s an understandable move considering the meteoric rise of e-commerce, and given Ikea’s difficulties ramping up its digital operations during the pandemic, it could be worth diverting the vast resources required to make a dictionary-sized paper publication toward bettering online ordering and delivery. But as the last truly good mailer in circulation, the end of Ikea’s catalog also marks the end of old-school browsing. Sell.

⚡The FTC sues to block the acquisition of yet another razor startup. After Unilever’s $1 billion acquisition of Dollar Shave Club in 2016, getting bought by a CPG conglomerate looked like the aspiration for direct-to-consumer startups and their investors. But those doors may be closed, as the Federal Trade Commission appears determined to stop any serious consolidation of the razor market. After it sued to block Edgewell’s acquisition of Harry’s earlier this year, the FTC announced on Tuesday that it would also be suing to block Procter & Gamble’s acquisition of women’s razor startup Billie. While it may seem the FTC has been ignoring Big Tech monopolies in favor of stopping Big Razor, it’s shown that it can chew gum and walk at the same time: One day later, the FTC also filed a major antitrust suit against Facebook. Hold.

📈 The Number: 150

That’s how many Cadillac dealers have opted to no longer sell the brand rather than invest in electric car infrastructure.

This was the ultimatum from GM to the dealers: Install $200,000 worth of electric car charging infrastructure, heavier lift equipment to accommodate weightier electric vehicles, and specialist tools, or accept a buyout and give up the Cadillac brand. The buyouts were attractive — $300,000 to $1 million, the Wall Street Journal reported — and about 17% of the country’s Cadillac dealers accepted the exit offer.

This isn’t surprising: Since the start of the new EV age a decade ago, dealers have been asking, “What’s in it for me?” They generally haven’t been hopeful that they’ll be able to sell many EVs — or that they would earn much commission by doing so. With their lack of conviction, dealers adopting this credo have arguably contributed to making the decade’s anemic non-Tesla EV sales a fait accompli.

But the opt-out also gets to the heart of the EV revolution. We have a loud supply-side signal: Across the globe, automakers are piling in with plans to deploy dozens of EV models onto the market. What we don’t have yet is a demand signal; no one knows whether large numbers of motorists will buy the EVs, or whether they will instead stick with the combustion technology they know. The Cadillac dealers that opted out appear to be betting on the latter — that while there may be an EV revolution, the spoils seem likely to accrue mainly to Tesla. GM and the other major legacy auto companies are gambling that the former is true: that all stand to gain. It’s a cards-up poker game, the conclusion to which will come in the next five or so years.

— Steve LeVine

📖 Marker Reads of the Week: Why Wall Street won’t leave Dunkin’ alone, and how the SoftBank-backed startup Compass became the bane of real estate.

🔎 Marker’s New Fixation 🔎

There’s a lot to be missed about going into the office, but if we’re being honest, very little of it has to do with the work itself. Rather, it’s everything that surrounds work that makes the commute worthwhile: the face-to-face interaction, the birthday celebrations and happy hours, the excuse to put on nice clothes and leave our homes for nine hours a day, and — for me, at least — the ritual of visiting a coffee cart in the morning. New York City’s ubiquitous metal street carts, where $2.50 gets you a solid coffee, an excellent buttered roll, and the chance to say good morning to your favorite vendor, are a reliable, unsung culinary triumph, as well as a familiar symbol of the city’s early morning grind. Unfortunately, they are also in deep trouble: Bloomberg reports that NYC coffee carts have seen earnings plunge as much as 90% during the pandemic as the morning rat race has been replaced by Zoom. Morgan Stanley and the Robin Hood Foundation are distributing $2 million to 2,000 cart vendors to help mitigate the losses, but without significant government support, the only long-term solution is for workers to return to the office — and their coffee-buying routines.

— Jean-Luc Bouchard, Senior Editor, Marker

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