The Ratings Game: Food delivery is a ‘luxury,’ and DoorDash could be hit hard by restart of student-loan payments, analysts say


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With the pandemic-era pause on student-loan payments coming to an end, Wall Street analysts have been trying to pick apart the effects it might have on consumer spending. One area that could take a bigger hit than others, MoffettNathanson analysts said on Friday, was online food delivery, potentially translating to bad news for food-delivery app DoorDash.

The analysts downgraded shares of DoorDash Inc.
to their version of hold from buy and lowered their price target to $93 from $110. Shares of DoorDash were down 3.2% in afternoon trading.

“Does the resumption of loan repayments introduce bookings risk to food delivery?” the analysts said. “We are afraid the answer is yes.”

The analysts made that assessment after pandemic lockdowns reshaped the restaurant industry and government relief left many — though certainly not all — diners with more money to spend. The upheaval in the economy made food delivery an “affordable luxury,” they said.

The analysts praised DoorDash’s executive team, saying that the restaurant industry has a history of growing through economic slowdowns and noting that shares of the online delivery service have rallied through this year. But they said food delivery, which tends to be much more expensive for customers than picking up orders themselves, is “one of the most discretionary behaviors of an average consumer,” making it more vulnerable than other areas of e-commerce.

Citing federal data, the analysts said that people age 24 to 49 hold 69% of the nation’s student-loan debt. Lots of people within that age range, the analysts said, use delivery services like Uber Eats and DoorDash.

“As a result, we believe the future growth of food delivery bookings could come under pressure as consumers look to reduce spending in the most discretionary areas,” the analysts said. “We do not believe the market is currently reflecting these risks. We expect this to affect Uber Eats as well, but the business mix and international contribution to consolidated Uber minimize the impact.”

Student-loan interest resumed on Sept. 1, and payments come due in October. Those payments will restart as optimism grows over the economy’s ability to dodge a recession, but as higher prices continue to strain consumers.

Still, DoorDash last month reported quarterly sales that beat expectations, helped by a big jump in sales and the company’s expansion into businesses outside of restaurants, like grocery and retail. The company said at that time that it would keep investing in new businesses.

Shares of DoorDash are still up 66% so far this year. By comparison, the S&P 500
has risen 16.4% over that period.

In June, Jefferies analysts said that Inc.
Walmart Inc.
and Target Corp.
— all big players in e-commerce — were the retailers likeliest to feel the biggest impact from the resumption of student-loan payments.

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Alexandra Williams
Alexandra Williams
Alexandra Williams is a writer and editor. Angeles. She writes about politics, art, and culture for LinkDaddy News.

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