Will DoorDash Ever Pay A Dividend? - Sure Dividend

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Will DoorDash Ever Pay A Dividend?

Updated on May 11th, 2022 by Aristofanis Papadatos

DoorDash (DASH) has attracted the focus of the investing community, fresh off its initial public offering at $102 per share on December 9th 2020. The stock rallied 150% in less than a year, up to its peak in late 2021. However, it has shed nearly 80% off its peak, mostly due to its rich peak valuation and the broad sell-off of the entire NASDAQ this year.

DoorDash is a large-cap stock with a market capitalization of $25 billion. We have compiled a list of over 400 large-cap stocks in the S&P 500 Index, with market caps of $10 billion or more.

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DoorDash is in the very early stages of a multi-year growth trajectory. Most income investors do not have this stock on their radar, as the company performed its IPO recently and it does not pay a dividend. The absence of a dividend is fairly common among growth stocks, particularly those in the technology sector.

Income-focused investors who are attracted by the impressive return potential of DoorDash probably wonder whether the company will pay a dividend anytime soon.

Business Overview

DoorDash was founded in 2013, when it launched a website displaying menus from local restaurants in Palo Alto, California. Since then, the company has grown to a huge marketplace, which connects more than 400,000 merchants, more than 25 million consumers and over one million users who use its logistics platform.

Its platform, which has received more than 2 billion orders since the foundation of the company, enables local brick-and-mortar businesses to thrive in the current demanding business landscape, in which consumers focus on ease and convenience.

Technological advances have dramatically changed the behavior of consumers, who have become remarkably demanding with regard to convenience. Consumers now demand products and services inexpensively and quickly, at the touch of a button.

This shift, which has greatly accelerated since the onset of the coronavirus crisis, has completely changed the business landscape for local businesses, which were used to offer personalized experience only at their stores. DoorDash has filled this gap with its platform, which helps merchants satisfy the needs of consumers and thus increase the number of their customers.

There are more than 30 million small businesses in the U.S., which play a major role in the economies of suburban areas. Those small businesses, along with the franchisees of large national or international chains, have created approximately two-thirds of the net new jobs in the U.S. over the last two decades. They thus represent a gigantic market for DoorDash.

Thanks to the value that DoorDash offers to its merchants, it has become the largest and fastest-growing business in the category of U.S. local food delivery logistics.

Source: Annual Report

As shown in the above chart, DoorDash has nearly tripled its market share in its business in less than three years, from 17% in early 2018 to 50% in late 2020. This is undoubtedly one of the reasons behind the impressive rally of the stock in the first year after its IPO.

Growth Prospects

The steep increase in the market share of DoorDash may lead some investors to think that the company has limited growth potential ahead. However, this is far from true.

The number of U.S. consumers who use the platform of DoorDash is only 6% of the U.S. population. In addition, the gross order value of DoorDash is only about 3% of the gross order value of $303 billion spent off-premise at restaurants in the country. It is evident that DoorDash has ample room for future growth, even if it focuses exclusively on the food delivery business. However, the company has stated that it will expand to many other areas apart from food delivery.

The growth potential of DoorDash is evident from the trend in its revenues in the last two years. The company has more than quintupled its revenues, from $885 million in 2019 to $4.9 billion in 2021. This is undoubtedly an impressive growth trajectory. The pandemic has provided a strong tailwind to the business of DoorDash, as it has accelerated the shift to online shopping and food delivery at home. Nevertheless, even now that the pandemic has subsided, there are no signs of fatigue on the horizon.

Even better, DoorDash acquired Finnish start-up Wolt for $8.0 billion a few months ago. As the value of the deal is 32% of the current market capitalization of DoorDash, it is obviously a major growth driver for the company.

Wolt is a perfect match for DoorDash, as both companies have been obsessive in enhancing their efficiency.

Source: Investor Presentation

As shown in the above chart, both companies have been reducing their delivery times and have been increasing their deliveries at a fast pace for years.

Moreover, Wolt will provide an immense growth vehicle for DoorDash, as the company has presence in 26 countries, primarily in Europe. To cut a long story short, DoorDash has immense growth potential in the U.S. and exciting growth prospects in international markets thanks to its recent acquisition of Wolt.

Competitive Advantages

The logistics platform of DoorDash gathers a broad range of information, which is analyzed by machine learning algorithms and thus improves the performance of the platform. This is a significant competitive advantage.

Moreover, there are some virtuous cycles generated from the growing number of merchants and customers in the platform and the interaction among them.

Source: Annual Report

The increasing number of customers enhances the market size and the efficiency of merchants while the increasing number of merchants offers more options to consumers, who thus become more engaged to the platform. In addition, the tremendous growth in the sales generated in the platform creates great economies of scale for merchants at the logistics front. This is another competitive advantage.

On the other hand, investors should always keep in mind that technology companies rarely enjoy a strong competitive advantage, as the industry is highly competitive. This is certainly the case for DoorDash. In addition, there is usually cut-throat competition in the tech sector and hence many companies run the risk of incurring business deterioration if their competitors achieve major technological breakthroughs.

Overall, DoorDash enjoys a relatively narrow business moat.

Will DoorDash Ever Pay A Dividend?

In order to pay a dividend, companies need to generate positive free cash flows. In other words, their business should generate cash flows that exceed the capital expenses by a wide margin. Some popular tech stocks cannot pay dividends to their shareholders due to their negative free cash flows. For instance, Uber (UBER)Lyft (LYFT) and Nikola (NKLA) have not managed to generate positive free cash flows yet.

DoorDash spends a great portion of its revenues on sales and marketing expenses in order to attract and engage new customers. As a result, the company incurred losses in 2019 and 2020 and posted a modest adjusted profit per share of $0.35 in 2021.

Moreover, DoorDash posted negative free cash flows in 2019-2020 but managed to post positive free cash flows for the first time last year. Nevertheless, the company still has a long way to go to achieve consistent and material free cash flows year after year. All the above confirm that there are no funds available for the initiation of a dividend.

Analysts expect DoorDash to grow its adjusted earnings per share 14% this year, from $0.35 to $0.40. Even better, they expect high earnings growth going forward and thus they expect DoorDash to earn $1.22 per share in 2023 and $2.81 per share in 2024.

However, investors should not expect a dividend from DoorDash even when it becomes highly profitable, at least as long as the company remains in high growth mode. The company is growing its business at such a high rate that it makes much more sense to invest in the business instead of initiating a dividend.

DoorDash recently reiterated that it will continue investing heavily in its business in order to grow the number of merchants and consumers who use its platform. Therefore, the company will continue spending a great portion of its revenues on sales and marketing for the foreseeable future.

As DoorDash has many years of double-digit revenue growth ahead, it is not likely to initiate a dividend anytime soon. Instead, its management is likely to remain focused on its growth initiatives. Therefore, shareholders should be completely satisfied as long as the company keeps growing at a fast pace, without initiating a dividend.

High-growth companies do not offer a dividend for another reason as well. Their stocks usually enjoy such a rich valuation that a dividend is meaningless for the shareholders. To provide a perspective, DoorDash is currently trading at 171 times its expected earnings this year. Therefore, even if the company distributes 50% of its earnings in the form of dividends, it will offer just a 0.3% dividend yield. Such a yield will be negligible for its shareholders but it will consume half of the earnings of the company. Therefore, there is no incentive for the company to initiate a dividend.

Final Thoughts

To sum it up, DoorDash is in the very early stages of its growth trajectory, with exciting growth prospects ahead thanks to the immense size of its addressable market. As a result, the company will remain focused on its growth strategy and will continue investing a great portion of its revenues in its business. It is thus not likely to initiate a dividend for the next several years.

See the articles below for analysis on whether other stocks that currently don’t pay dividends will one day pay a dividend:

  1. Will Intuitive Surgical Ever Pay A Dividend?
  2. Will Square Ever Pay A Dividend?
  3. Will Palantir Ever Pay A Dividend?
  4. Will Datadog Ever Pay A Dividend?
  5. Will Zoom Ever Pay A Dividend?

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