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DoorDash acquiring Wolt Enterprises 'creates virtuous cycle for subscribers,' analyst says

Fox Advisors Founder & CEO Steven Fox joins Yahoo Finance Live to weigh in on DoorDash earnings and consolidation in the food delivery industry.

Video transcript


KARINA CONTRERAS: Welcome back. Well, despite being caught a little flat-footed on quarterly earnings, DoorDash is making strides in M&A, with an $8 billion acquisition. Here to discuss is Steven Fox, Fox Advisors founder and CEO. Thank you, sir, so much for being here. And we'll talk about that acquisition in just a bit. Just want to discuss some of the numbers with you.

Revenue was a slight beat. It came in at 1.27 billion versus 1.16 billion. Third quarter revenue was up 45% year over year, but that slowed from 70% in the second quarter and 222% in the first quarter. People are ordering less, I guess, and going out maybe a little bit more. What do you make of these earnings, sir?

STEVEN FOX: Well, people are definitely going out more. I wouldn't necessarily say slowing is a bad thing. It's more of a normalization of their sales growth profile. And it should be pointed out that that growth, the 45%, came in a quarter where the US Census estimates that in-dining restaurant revenues were at a record level. So people were going out. And they're still ordering at about the same pace as they did last quarter. So I think, generally speaking, in terms of the long-term dynamics, it's a positive for DoorDash.

ZACK GUZMAN: And Steven, I guess, when we talk about that acquisition Karina mentioned, $8 billion is a lot of money to be spending here. They're buying up Finnish-based Wolt Enterprises. And it opens a large market, a swath of countries now. Wolt operated in 23, countries, including Northern Europe, Israel, and Japan here.

When you look at the deal though, I guess driving scale is what the game was all about in food delivery, as it really only makes sense and you can cut costs down when you expand where you operate. So what do you make of the deal? And what does it do for DoorDash?

STEVEN FOX: Yeah, so there's a few things to think about there. Scale does matter. But I think it's also important to step back and say that this business model is profitable. So if you just looked at the restaurant-only piece of the business, they'd be showing pretty nice margins right now. But they are reinvesting a lot into other areas.

So there is a massive land grab going on. So investors have to decide whether they're OK with that type of reinvestment rate or whether they would rather see DoorDash and other guys farm some of those profits.

Having said that on the transaction, one of the things that DoorDash has not done in a big way or shown any success with to speak of is expand internationally. So acquiring Wolt, as they're doing for $8 billion, makes sense. And I think that's one of the reasons the stock is up.

Having said that, I mean, let's just put the numbers in perspective for a second. They're paying $8 billion in stock. Their market cap yesterday was about $65 billion. It's about 72, 73 billion today. So the stock went up even though they're buying a relatively small business that gives them the footprint that's losing money.

So that the action today in the stock is a little confounding, given there wasn't a lot of specific details around valuation and operating losses and expectations for next year with the business yet.

KARINA CONTRERAS: And how does it compare, DoorDash, to, let say, Uber, which, if you look at the report, DoorDash shares up about 34% this year. That compares with a decline of more than 10% for Uber, even while its Eats business has forecasted growth. So what does DoorDash need to do besides broadening into the international market? What about ancillary businesses as well?

STEVEN FOX: So I'm glad you brought that up because that was one of the key points we made to our clients this morning, which is, one, that, if you look at the valuation they're paying for Wolt, it's about-- if you look at their monthly active users, DoorDash is basically paying $3,200 per user, which is about equal to their valuation.

However, Uber's valuation right now is about $900 per user, even though their business, just in Europe on delivery-- forget about mobility-- on delivery is about $26 billion in terms of gross order values. To put that in perspective, the business that DoorDash is acquiring is about 2 and 1/2 billion. So there's a disconnect here. And one of our points this morning is that Uber is undervalued because they're having similar success, not only on the restaurant side but also expanding into new verticals.

KARINA CONTRERAS: And so I want to ask you going forward then, how will domestic growth look compared to international growth? Because things are sort of slowing a little bit or normalizing, as you say. But I think I read somewhere the average cost that a person spends is $70 bucks a week on the DoorDash meal, where the average grocery bill, it accounts for 72% of that bill. So there isn't that much more demand or peak demand that we will see on the domestic side, is there?

STEVEN FOX: Well, I think when you talk about restaurant-only, there's a lot of different ways where people can order. They can order for pickup using DoorDash or Uber, where both companies would benefit. They could also order from restaurants now across the country using DoorDash and get your favorite corned beef sandwich in New York delivered to LA overnight.

But more importantly is these new verticals. And so if you go back and listen to what Uber was saying last week, the ability to go and then get everything in a very short period of time is something that's making its way into the US culture. So there's a big TAM still to go in terms of, one, restaurants that aren't on these platforms and, two, being able to get convenience items, flowers, electronics, and of course groceries on the same platform.

And so what you're going to see is, as these platforms build, you'll see more and more subscribers get tied to each of them. And what that does is create this virtuous cycle where your subscribers are using them more, and you're getting more liquidity on the network and making things cheaper to go and get.

ZACK GUZMAN: And a lot of people, obviously, as we saw in the pandemic, got onboarded during that whole stay-at-home period. Very interesting to see the growth there. Steven Fox, Fox Advisors founder and CEO, joining us there.

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