RBC downgrades DoorDash and slashes price target citing slowing order growth

There are a slew of factors weighing on DoorDash that have prompted RBC Capital Markets to downgrade the stock after a rough year. The firm slashed its rating to sector perform from outperform and lowered its price target on the delivery service to $60 from $70. The new target price represents roughly 5% upside to where shares traded at Thursday’s close. “DASH’s execution & management are widely considered the class of the sector but approaching ’23, we are uncomfortable with a potentially unfavorable risk/reward given likely hypersensitivity to order deceleration,” wrote analyst Brad Erickson in a Thursday note. “We’re not playing the macro card here but the combo of evident slowing core order growth, limited EBITDA downside support (our raised estimates on cost cuts don’t change this) and our checks finding UBER competing better in Manhattan as a proxy prompt us to downgrade,” he added. The stock slipped about 2% in premarket trading and has fallen more than 60% year to date. Slowing orders While DoorDash has managed the tightrope of growing and making a profit well to date, its most important metric of U.S. restaurant marketplace orders slowed in the third quarter. Furthermore, RBC sees it as poised to decelerate further, which is not adequately priced into the stock. “With premium to the multiple given for strong management, strong execution and being the #1 player in the space – we believe a hypersensitivity to more visible deceleration in the coming year poses more downside risk vs. an according acceleration and/or profit preservation via further cost cuts beyond what was announced earlier this week,” said Erickson. In addition, losses from various growth initiatives at DoorDash would need to come down significantly to be offset by cost cuts, according to the note. “We estimate the core U.S. restaurant marketplace business is doing close to $1.6B of EBITDA this year, this also implies Drive + international + Dashmart are losing over $1.2B which is key to the bull case & the multiple,” Erickson wrote. Uber gains Competition is also heating up, with Uber taking over significant share of key markets. RBC’s latest check in the Manhattan market showed that Uber is improving in terms of order volumes and may even take over the top slot from Grubhub/Seamless while DoorDash is slipping. “We’re careful not to over-extrapolate here as DASH’s nationwide market share remains materially ahead of UBER’s but the relative performance suggests improving execution which feels incremental, in our view,” said Erickson.