Key Takeaways
- DoorDash shares jumped about 6% after a third-quarter earnings beat and a deal to buy Instacart for about $17 billion.
- DoorDash can afford the price, and the deal gets it the grocery scale it needs.
- Uber and Walmart now face a bigger rival in delivery and online grocery.
- The deal isn’t expected to close until late 2027 or the first half of 2028.
DoorDash (DASH) shares jumped about 6% this morning after it beat third-quarter estimates and agreed to buy Instacart (CART) for $65 a share, or about $17 billion.
The deal is bad news for Uber Technologies (UBER), which The Information reported had held its own talks with Instacart. It’s also a direct challenge to Walmart (WMT) in online grocery.
The beat made the price easier to swallow
DoorDash earned $1.06 a share, and revenue rose 34% to a record $4.62 billion. That topped the $4.56 billion analysts expected. Quarterly revenue had already climbed from $2.71 billion two years earlier to $4.45 billion by June:
The cash is the bigger question. At least 75% of the price is cash, roughly $13 billion. And that’s more than twice the cash and short-term investments DoorDash held in June…
DoorDash will fund the gap with new debt while targeting investment-grade ratings. Since it has just $3.31 billion of debt going in, I think it can manage that.
DoorDash expects more than $500 million a year in net synergies. But it plans to reinvest more than 100% of them in the first year after closing.
Grocery needs scale
DoorDash CEO Tony Xu said in the deal’s release:
“Grocery is one of the hardest things to get right online.”
Instacart’s third-quarter adjusted EBITDA climbed 23% to $342 million. The $65 price is a 26% premium to Instacart’s Oct. 22 close, before reports of sale talks surfaced. But it’s only 11% above Wednesday’s close. That gap prices in a long wait and antitrust risk, the kind that derailed DoorDash’s 2021 talks. If the deal falls apart in certain cases, Instacart owes DoorDash $650 million, while DoorDash owes Instacart $1.25 billion.
Uber’s delivery gross bookings rose 26% to $27.5 billion in the second quarter. Can its delivery business keep that pace against DoorDash and Instacart together?
Walmart’s U.S. e-commerce sales grew 24% in its quarter to July 31. Its lead won’t vanish overnight, but local grocers get a much better toolkit once this deal closes.
TIKR tracks 45 analysts on DoorDash. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on DoorDash, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See DoorDash’s Analyst Ratings
Still cheap after the jump
My take: DoorDash is buying the grocery scale it needs with a balance sheet that can carry it. And even after today’s jump, the stock trades at about 25x forward earnings. That’s near its five-year low, and well below its three-year average of 39x, so it still looks cheap to me.
The deal won’t close until late 2027 or the first half of 2028.
So what is DoorDash stock actually worth?
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Disclaimer:
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