DoorDash Shares Slide as Investors Doubt It Can Challenge Amazon

what happened

DoorDash is suddenly competing with Amazon on several fronts, The Wall Street Journal reports in a column by Jinjoo Lee. The company agreed to buy Instacart for $17 billion, a 26% premium to the grocery platform's value before the deal rumors. According to Emarketer, the combined business would hold a 19% share of U.S. online grocery sales, while Amazon and Walmart hold 40% and 27%.

On Thursday, news of an Amazon and Uber Eats partnership knocked DoorDash shares down 9.4%, and they barely moved on Friday. The columnist argues the selloff looks overdone, since Uber Eats would only replace Grubhub in Amazon's program, and Grubhub's share did not rise from it. The bigger question, in his view, is whether the combined company can compete effectively with Amazon and Walmart in grocery delivery.

why it matters

For markets, DoorDash's valuation depends on whether it can scale its warehouses and delivery network, not only on the deal itself. According to the WSJ, its forward earnings multiple has fallen to about 40 times from more than 70 times at the end of last year. The column notes that regulatory uncertainty around the deal remains a factor.

market impact

DoorDash and Instacart shares: deal and Amazon competition add uncertainty to the stocks

tags

instruments