[This is not investment advice. Do your own due diligence.]

I want to write this piece to provide an update to my February 11 post, titled Instant Delivery: Challenges That Cannot Be Overcome. Since that post, several events have transpired, very much in the direction that I predicted.

First, at least two Instant Delivery companies have since folded or near-folded. On March 4, Buyk, an Instant Delivery company operating in New York and Chicago, furloughed ~98% of its employees (source link). Its CEO was quoted saying: “we find funds, we find a buyer or we have to liquidate” (source link).

Then, On March 10, Fridge No More shut down and laid off ~600 employees across New York and Boston. Interestingly enough, media reported that the company “had been financed almost entirely by money from DoorDash since late January” while waiting to be acquired by DoorDash (a deal which eventually fell through; source link). DoorDash deciding not to acquire the company probably says something about Instant Delivery’s business model. In its most recent earnings call, DoorDash CFO refused to disclose anything about “the business model around non restaurant verticals.” Perhaps, Instant Delivery’s business model hemorrhages so much cash that there is nothing worth discussing.

Later, Grocery Delivery giant Instacart made news. On March 24, Instacart voluntarily lowered its valuation by ~40%, from ~$39B to ~$24B. With revenue of ~$1.8B (2021), $24B implies a 2021 P/S multiple of 13x.

In recent days, DoorDash is trading at a 2021 P/S multiple of 5x-8x.

To put this into perspective:

• Market Share: DoorDash commands ~58% of the U.S. Food Delivery market; Instacart owns ~52% of the U.S. Grocery Delivery market. So, quantitatively speaking, Instacart’s grip on its core marketplace is less dominant than DoorDash.
• Market Entry: DoorDash, thanks to the density of its delivery network, can easily scale into delivering groceries. DoorDash has already been delivering groceries since mid-2020. Instacart, however, cannot easily expand into delivering restaurant food due to its own physical constraints. Instacart does not have a dense delivery network that can make a 35-min food delivery possible (DoorDash does). Instacart does not have half a million of restaurants on its app (DoorDash does), nor an awareness among its users that they can order a meal on Instacart (the name “Instacart” speaks to “grocery,” not to “food/meal.”)
• Growth: DoorDash grew its revenue by 69% in 2021. Instacart is a private company, so information is rather limited. But, according to media reports, Instacart grew its revenue by only 20% in 2021. By some estimates, Instacart’s order growth rate has slowed from triple-digits in 2020 to flat-ish and even negative in 2021. See the chart below (source link).

• Profitability: Simply put, DoorDash operates in a better sector than Instacart. Restaurants are much more profitable than grocery stores. Roughly speaking, restaurants’ variable costs (food + labor) are around 60% and their net profit margins frequently reach 10% and higher. That is a rich layer of profit that DoorDash can monetize. Grocery stores’ variable costs (COGS + labor) are around 80%-90% and their net profit margins are as low as 1% to 3%. Grocery stores’ razor-thin margins leave behind little profit for Instacart to monetize.
• Cash Generation Ability: DoorDash is positive in all three metrics — Adj. EBITDA, Operating Cash Flow, and Free Cash Flow. Uber has just turned positive on its Adj. EBITDA, not yet on cash flows. Given Instacart’s market position, growth potential and underlying profitability, I doubt whether Instacart’s business has ever generated positive cash flows.

If DoorDash’s valuation (i.e., P/S multiple of 5x-8x) is “correct,” Instacart should be worth only $9B–$15B. Considering Instacart’s sub-optimal business (which I just discussed), its valuation should be lowered from there. Probably much lower.

If Instacart’s valuation (i.e., P/S multiple of 13x) is “correct,” DoorDash’s stock price should be at ~$200 a share now. Considering DoorDash’s superior business, DoorDash’s share price would be much higher than $200.

Perhaps, a way out of this conundrum is to acknowledge the market reality: Letting a private company value itself, versus letting a group of public market investors value a public company, you will likely arrive at two set of figures that are so far apart that they seem as if they come from two different universes.

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