DoorDash (DASH) Could Sell Off After Grubhub (GRUB) Misfire

Grubhub Inc. (GRUB) is trading lower by nearly 3% in Thursday's pre-market after posting a loss of $0.41 per share, much worse than expectations for a $0.04 profit. Revenue rose 47.6% year over year to $503.74 million, just shy of $507.46 estimates. The "Active Diners" category posted a 39% year-over-year increase to 31.4 million customers, while 658,100 "Daily Average Grubs" marked a 31% increase from last year's 502,000.

The news came as a shocker after three profitable quarters in a row, highlighting growing competition and a quiet rebellion by contracted restaurants who have found ways to bypass Grubhub's third-party fees and keep a bigger piece of the ticket for themselves. The bearish quarter may complicate Just Eat Takeaway.com's pending acquisition, potentially affecting the number of American depository receipt (ADR) shares received by current Grubhub investors.

Rival DoorDash could suffer from Grubhub's misfire, offering the only pure delivery play following the acquisition. Wall Street coverage on DoorDash is picking up after December's initial public offering (IPO), and modest price targets haven't encouraged fresh buying interest. In fact, the stock has now drifted below the IPO opening print at $182, raising the odds for additional selling pressure when lock-up periods expire between March and June.

Newly minted Wall Street consensus stands at a "Moderate Buy" rating based upon 5 "Buy," 13 "Hold," and 0 "Sell" recommendations. Price targets currently range from a low of $135 to a Street-high $200, while the stock is set to open Thursday's session about $16 above the median $165 target. This placement suggests little upside potential until analysts raise targets, which isn't likely until the Feb. 25 earnings release, at the earliest.

Needham is more bullish on DoorDash than most firms, with analyst Brad Erickson initiating the stock with a Street-high $200 target, noting, "We believe DASH's dominance of restaurants gives it both a moat and a differentiated Trojan horse to expand into other categories, which is underappreciated. Our restaurant channel checks, which have been historically instructive for competitors, suggest DASH is gaining share in NYC. Finally, a cohort analysis of 2021 estimates suggests ours are achievable, if not conservative."

DoorDash 60-Minute Chart (2020 – 2021)

DoorDash came public at $182.00 on Dec. 9 and entered an immediate downtrend, posting an all-time low at $135.51 on the last trading day of 2020. A January recovery wave mounted the IPO opening print on Jan. 12 and surged above $220 just two days later. A one-day wonder rally during the last week of January got sold aggressively, generating a failed breakout that reinforces resistance above the $200 level.

The stock has been selling off since the turnaround, slicing through the IPO opening print on Tuesday. It is trading close to a four-week low on Thursday morning and could face additional pressure after the opening bell. A Fibonacci grid stretched across the January uptrend organizes seemingly chaotic price action, with the .618 retracement perfectly aligned at the first trade in December. For obvious reasons, this is the level to watch in coming weeks.

The Bottom Line

DoorDash stock could extend a week-long decline after rival Grubhub reported its first loss in the past four quarters. 

Disclosure: The author held no positions in the aforementioned securities at the time of publication.