The looming return of student loan payments could take a bite out of demand for food-delivery company DoorDash, according to an analyst report Friday that downgraded the stock. DASH stock fell on the news.
MoffettNathanson analyst Michael Morton dropped DoorDash to market perform from outperform. His report cited the return of student loan payments as a likely revenue headwind.
"We consider food delivery, at a (roughly) 60% price premium to picking up an order in store, to be one of the most discretionary behaviors of an average consumer," Morton wrote in the client note. "The average student loan bearing consumer is about to experience a 14% to 19% hit to their discretionary spending power, resulting in near- to medium-term risks to DoorDash's bookings."
Morton cut his price target for DASH stock to 93 from 110.
DASH stock fell 2.5% to 80.93 on the stock market today.
Student Loan Payments Resume After Pandemic
As of this month, interest is accruing on student loans for the first time in more than three years. Monthly payments are required starting next month. The U.S. government had halted those payments in March 2020 as part of pandemic relief measures.
"What happens when 43 million Americans see an average of $225/month come out of their pockets in October?" Morton wrote. "If we've learned one lesson in economics class: there's no free lunch."
About 65% of DoorDash's monthly active users are age 25 to 44, according to Morton's research. Meanwhile, about 70% of people in that age range have student loan debt, according to the report.
Further, DASH stock was up nearly 70% on the year heading into trading Friday. The risks from student loans were not reflected in the stock, Morton said.
Uber faces similar challenges in its Uber Eats business, the report added, but the company has a wider business mix that could minimize the impact. Uber stock closed Friday down 1.6%.
DASH Stock: Coming Off Earnings Beat
DoorDash is coming off a better-than-expected second-quarter report. In the June quarter, its sales grew 33% to $2.1 billion. Meanwhile, its loss of 44 cents per share was better than the 72-cent loss in the prior year's quarter.
DASH stock has an IBD Relative Strength Rating of 93 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an 80 or better RS Rating.
Further, DASH stock is a current member of the IBD 50.
There are ways DoorDash can dodge a big hit from student loans, the MoffettNathanson report acknowledged. Restaurant spending has proved resilient in economic downturns, and DoorDash may yet prove its service is a utility for customers, not a luxury item.
"The growth in loyalty with about 15 million DashPass members and order frequency at all-time highs three years after the start of the pandemic is hard to argue against," Morton said. "The consumer has spoken and loves this service."
In separate DASH stock news, DoorDash announced Thursday that it is moving it shares to the Nasdaq from the New York Stock Exchange. The company expects the same DASH shares to be trading on the Nasdaq starting Sept. 27. DoorDash went public through an initial public offering on the NYSE in December 2020.
