Shares of third-party delivery company DoorDash (DASH 0.04%) dropped 12% in October, according to data provided by S&P Global Market Intelligence. By comparison, the S&P 500 was up 8% for the month. Regulation rumors, financial reports from rivals, and commentary from the analyst community all weighed on investors’ minds and led to the underperformance during the month.
For DoorDash, it was a quiet month for company-specific news. But investors were watching the gig-work economy as a whole. The stock fell along with its peers on Oct. 11 when the Department of Labor released a proposal that could change the company’s business model if enacted. DoorDash relies on independent contractors to do its deliveries. But the Department of Labor could change the very definition of an independent contractor.
Mizuho analyst James Lee believes fears related to this proposal are overblown. In general, analysts are more worried about the economy and what that could mean for DoorDash’s business. For example, Truist analyst Youssef Squali lowered his price target for DoorDash stock by 45% to $101 per share, according to The Fly. Squali sees a rising possibility for a recession in 2023.
Morgan Stanley analyst Brian Nowak appears to agree with Squali that things seem to be slowing down. Nowak lowered his own price target for DoorDash stock by 35% to $65 per share, according to The Fly, in part because he lowered his bookings expectations for the food-delivery stock for 2023.
DoorDash will report financial results for the third quarter of 2022 on Nov. 3 after the market closes. Management guided for gross order value of $13 billion to $13.5 billion, which would be a substantial 25% to 30% year-over-year increase. Some of this growth will be inorganic due to its acquisition of European delivery company Wolt. However, investors question whether it can hit its guidance in light of new data.
According to third-party research company YipitData, DoorDash’s orders and average order value were down for Q3. This report came out in October and also partly explains why the stock was down for the month. However, the market seems to be forgetting that DoorDash’s management expects this to happen due to the normal seasonality of its business and even accounted for it when giving its guidance.
Therefore, it’s possible concerns about consumer spending could be overblown for DoorDash. Moreover, it’s possible concerns regarding labor laws are overdone as well, as suggested by Mizuho’s Lee. For evidence, Uber Technologies reported financial results on Nov 1. And on the conference call, Uber CEO Dara Khosrowshahi said, “As it relates to the Department of Labor rulemaking, first thing I would tell you is it effectively returns us to the framework during Obama’s presidency, which was a framework in which we grew significantly. … So when we look at the rulemaking, we believe that it will provide for stability going forward.”
Uber isn’t worried about an insurmountable challenge from the labor proposal. So perhaps the same will be true for DoorDash.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash, Inc. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.