Here’s what investors need to know about the recent acquisition of DoorDash

Shares DoorDash (NYSE: DASH) are up about 13% in the past year, but some investors are skeptical as the company continues to report large net losses. In this segment of Backstage Pass, recorded on November 19Fool contributors Travis Hoium and Toby Bordelon discuss a recent acquisition by DoorDash that could be a game-changer for the company’s long-term growth prospects.

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Travis Hoium: DoorDash acquired Wolt, which is actually a very similar company, which operates primarily in Europe at present. So, an $ 8.1 billion deal, an all-equity deal. Wolt brings in $ 2.5 billion in execution volume based on its third quarter, they are also growing extremely fast. But I think what you really need to look at here is that they operate in 23 countries and they have 15 categories. When I think of DoorDash in this construction delivery business, I was going through the history of their business.

You start with a product like restaurants, bringing it from the restaurant to your doorstep. Then you say, “Well, I bring food, I have the drivers. Now why don’t I add convenience stores? Why am I not adding alcohol? »I looked at my [laughs] DoorDash App, I have convenience stores, grocery stores, alcohol, specials, pet products, gifts, retail, and it’s on top of all food. From DoorDash’s perspective, if you think about this business strategically, you’re thinking, “I need to develop as many products as I can and as many locations as I can. “

This business is all about scale. Not only in what you deliver, but where you deliver it. This is where I think it makes a lot of sense. They mostly acquire with stocks, so you’re not using a lot of money in an international footprint that’s growing very quickly. The other thing I think we have to think about when we think about this long term space is that there are a ton of competitors.

It is essentially a land grabbing business. Another thing I have been looking for is that I have 14 foods, especially delivery apps, in my phone. [laughs] Maybe we don’t need 14 companies to do this, maybe three is enough. If you are DoorDash, you need to make sure that you are one of these three. You’re not just one of those three in a particular region, but you’re developing the software, so you might as well distribute it all over the world as you can.

That’s what I think is really interesting about this deal, it’s its strategic aspect, it’s really another big land grab for them. As they add more and more products and geographies, the business will become harder and harder to disrupt and they will become a staple product. I thought it was interesting, that’s a lot for them. But strategically in the long run, it could help put them in a truly advanced position in the industry.

Toby Bordelon: $ 8.1 billion, right? DoorDash currently has a market capitalization of approximately $ 75 billion. I don’t know how much money they have on hand. Did they say anything about whether it would be stocks or cash? I assumed cash. All stocks?

Hoïum: All stocks, yeah.

Bordeaux: OK, because Wolt is private, right?

Hoïum: I believe this is correct.

Bordeaux: To the right. It’s interesting, actually. Whether you just bring in new shareholders, that’s basically what they do. It occurs to me, I think about what DoorDash is doing. I look at them like Amazon, what Amazon is doing. Amazon sells stuff to you, and then they deliver it to you. But there is no inherent reason for delivering and selling to be part of the same business, it doesn’t have to be that way.

Think about UPS and FedEx, but you can certainly see an opportunity where DoorDash or someone like DoorDash becomes the logistics operations for so many retailers and so many businesses, for whatever. I think you are thinking beyond that: “Oh, I’m sending someone to get something from CVS and bring it to you. “I don’t think that’s the end of the game. The end of the game is being a logistics operator for people who want to outsource this for small businesses.

Hoïum: They operate behind the scenes of a lot of businesses. Like Chipotle, you order Chipotle on your phone and get it delivered, you do it through the Chipotle app. But DoorDash is the one delivering it or at least it’s for me.

We could see that it’s more and more of a white label service, if you will, where they provide that layer of technology and that layer of physical infrastructure because they have the drivers that they do to. large scale that other companies can then simply connect to. We are already seeing it, but now we are expanding it to more and more countries. I think that’s what they’re trying to pull off right now.

Bordeaux: I think so. It’s not like it’s new, a company like XPO Logistics did it for high end stuff. I ordered a platoon bike, it was delivered by XPO Logistics. But if I saw DoorDash doing it on a very different scale or at a very different price, I would say. Opening it up to many companies is potentially fascinating. I can see the potential here. If they can get to the point where it’s really profitable and they’re not overwhelmed by the cost side of things.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Rachel Warren owns shares of Amazon. Toby Bordelon owns shares in Amazon, Chipotle Mexican Grill and United Parcel Service and has the following options: short-term sale of $ 40 in February 2022 on Peloton Interactive. Travis Hoium owns shares of Chipotle Mexican Grill and Peloton Interactive. The Motley Fool owns stock and recommends Amazon, Chipotle Mexican Grill, FedEx, and Peloton Interactive. The Motley Fool recommends CVS Health and XPO Logistics and recommends the following options: January 2022 long calls at $ 1,920 on Amazon and January 2022 short calls at $ 1,940 on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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