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DoorDash/Wolt: paying a high price for new markets and Nordic knowhow

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Wolt styles itself as an underdog in a difficult home market. But the Helsinki-based delivery company is priced like a pedigree pup. Its larger US peer DoorDash will fork out €7bn in an all-stock deal as it seeks to pep up its post-pandemic growth.

The deal will provide San Francisco-based DoorDash with access to 22 new countries and potentially up to 700m new customers. Its share price jumped in response to the promise of a new source of growth. In the US, it has limited scope for expansion due to its 55 per cent delivery market share.

Moreover, the Finnish company is expanding fast. Customer orders grew at an annualised rate of 130 per cent in the third quarter, nearly three times faster than those of bigger DoorDash.

DoorDash values Wolt’s expertise in delivering goods, as well as takeaways. Finland, with its more equal income distribution, no-tipping tradition and long dark winters is not an obvious place for the gig economy to flourish. But Wolt has made it work and prides itself on efficiencies. Those could provide useful learnings for DoorDash, which has had to bump up its hourly pay rates by more than 30 per cent since the third quarter of 2019.

Lex chart showing DoorDash enterprise value against order value

DoorDash will need all the lessons it can get, as it is paying a high price. The deal values Wolt at three times its annualised gross order value of €2.5bn. Using the same metric, Wolt would trade much higher than DoorDash itself and Delivery Hero.

Lex chart showing DoorDash share price

That is several times the multiple commanded by Just Eat Takeaway.com. Shares in the Amsterdam-based food delivery business have fallen by two-fifths since it announced its $7.3bn acquisition of Grubhub in June 2020. Activist investor Cat Rock wants JET to sell it, arguing that it is a distraction. Grubhub is unlikely to become the market leader in the US without a strong US partner.

Similar arguments could apply to DoorDash. The European market is hyper-competitive; virtually no overlap exists with Wolt and the deal will not boost profitability, in the short term at least. This boost to DoorDash’s valuation signals that investors have banked on success in new markets that is far from guaranteed.

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