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The Ratings Game: DoorDash stock surges on hopes that Wolt acquisition ‘propels the company into a global player’

DoorDash Inc. shares traded just shy of their record high Wednesday, the day after the delivery-app company announced third-quarter results plus its plan to buy European delivery startup Wolt in a stock deal worth $8 billion.

DoorDash
DASH,
+11.58%

stock surged more than 20% to $232 at its peak in Wednesday morning’s trading session but gave back some of those gains to close at $214.24, an increase of 11.6%. The company’s shares closed at their highest level, $222.91, in mid-September.

At least 11 analysts raised their price targets for the company’s stock, according to FactSet, after the announcement of the deal plus financial results from the third quarter that showed record revenue and orders.

“The acquisition of Wolt, while likely dilutive at first, propels the company into a global player at scale across 22 more countries, strengthening its competitive position and [total addressable market],” Truist Securities analyst Youssef Squali wrote in a note to investors. Truist raised its price target for the stock to $260 from $250 and reiterated its buy recommendation.

Full coverage: DoorDash is buying Finnish food-delivery company Wolt while sales and orders hit record high

DoorDash Chief Executive Tony Xu said on Tuesday’s earnings call that buying Wolt, which is based in Finland and facilitates deliveries from restaurants, grocery stores and more in 23 markets, would give the company access to 22 new markets.

Mizuho Securities analysts noted, though, that they think DoorDash would be paying a premium for Wolt.

“Wolt has an annual [gross market value] run-rate of $2.5 [billion], and the purchase price represents 3.2x GMV on 3Q21 run-rate, at a premium to DoorDash at 1.5x,” analyst James Lee wrote, adding that Mizuho estimates Uber Technologies Inc.’s
UBER,
-4.68%

delivery business in Europe has a run rate that’s 4.5 times that of Wolt.

“We view the competition is heating up in the region as DoorDash is expected to invest aggressively to grow European market share,” Lee wrote. Still, he raised his price target to $205 from $175 and reiterated his neutral rating.

In-depth: The pandemic has more than doubled food-delivery apps’ business. Now what?

As for the company’s third-quarter performance, it “continues to execute very well against an uncertain pandemic re-opening backdrop,” wrote Tom White, analyst for D.A. Davidson.

He cited DoorDash gross order volume that grew 44% year over year, which was 6% above expectations, and revenue that rose 45% to $1.275 billion, which beat consensus by 8%. White also noted that adjusted Ebitda of $86 million was 33% above consensus, and raised his price target to $210 from $158 while keeping his rating at neutral.

With Wednesday’s price-target increases, the average analyst price target for DoorDash rose to $240.69 from $212.44 previously. Out of 22 DoorDash analysts tracked by FactSet, 10 call the stock a buy, 11 rate it the equivalent of a hold, and one suggests selling the shares.

DoorDash stock has gained 50.2% so far this year, as the S&P 500 index
SPX,
-0.82%

has increased 24.7%.

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