DoorDash's Competition Bred Favorable Cost And Margin Amid Revenue Uncertainty, Key Metrics Show

Mizuho analyst James Lee reiterated Neutral on DoorDash, Inc DASH with a $70 price target. The analyst expects AOV growth from menu inflation to offset macro impacts to order volume. 

Checks indicate that the economy harms user retention, especially on newer cohorts with lower Dashpass penetration. As a result, order growth for Core Dash has been down 7 points YTD. 

However, the analyst expects AOV growth to remain positive due to menu price appreciation at 7 points increase YoY, with consumers buying fewer items to offset inflation pressure. Decreased dasher costs and rational competition would drive the take rate. 

With the two most significant swing factors in unit economics moving in the right direction, Lee believes the take rate outlook remains favorable near-term.

The analyst expects COGS headwinds to be moderate due to stabilizing DashMart investments and one-time insurance costs going away. If so, Wolt would be the only headwind in the future. 

At the same time, the analyst sought incremental leverage in S&M, with lower advertising costs and increased efficiency. 

Although R&D and G&A likely would be deleveraging in the near term, Lee expects the recent update to reduce the workforce by 7% could provide some relief into FY23. The analyst expects Opex to gain leverage against top-line growth in 4Q22 and FY23. 

Despite economic uncertainty heading into FY23, Lee was comfortable with the improving cost structure and margin profile in 4Q22 and FY23. 

DoorDash may have additional EBITDA headroom from its investments of excess profits in U.S. restaurants to bridge the gap between FY22 and FY23 EBITDA. The re-rating reflected the stock's premium to global gig economy peers but felt concerns on near-term profitability might be overstated. 

Price Action: DASH shares traded lower by 0.94% at $57.70 on the last check Wednesday.

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