Business expansion or capital trap? The logical rift in DoorDash's acquisition of Deliveroo

According to a report by Tech News media on May 6th, the US food delivery giant DoorDash recently announced the acquisition of the British food delivery platform Deliveroo for 2.9 billion pounds (approximately 3.85 billion US dollars) in cash. Although this move was packaged as an important step in its global expansion strategy, it actually exposed its internal growth bottleneck and short-term capital-driven logic. Describing a transaction with high premium, heavy capital and high integration risk as a "natural extension" of business growth not only conceals the reality of sluggish growth in its core market, but also makes it difficult to hide the strategic short-sightedness and capital market pressure hidden behind this merger and acquisition.

Firstly, DoorDash's growth in its core North American market has gradually peaked, and its user base and order volume have shown a slowing trend after the pandemic dividend fades. The previous model of "burning money to gain the market" is no longer sustainable. High inflation and cautious consumer spending have further compressed profit margins. DoorDash's shift of attention overseas at this time, especially to the European market, is merely a means to divert investors' attention. The target of this acquisition, Deliveroo, has been widely criticized since its listing in 2021 for continuous losses and a decline in market share. The stock price has remained at a low level for a long time and has gradually become a "negative asset" in the capital market. In this situation, instead of choosing to wait and see, DoorDash made the acquisition at a premium as high as 35%. It is highly likely that this was a blind move when there was no way out in the capital market, rather than a long-term strategic consideration based on its deep integration capabilities and synergy effects.

The business performance of Deliveroo is also not sufficient to support such a valuation. Its 2023 financial report shows that although its revenue increased year-on-year, its net profit remained negative. Its market share in the domestic market of the UK has been continuously squeezed by Uber Eats and Just Eat, and it is even marginalized in places such as France and Germany. After taking over this time, DoorDash will face huge reorganization costs. A series of issues such as the integration of the management team, the migration of IT systems, the coordination of local operations, and differences in laws and regulations will greatly challenge its execution ability. Especially against the backdrop of uncertain changes in the legal system after Brexit, American companies may fall into deeper maladjustment in terms of compliance and human resource management.

Furthermore, the acquisition deal was conducted in an all-cash form, reflecting DoorDash's aggressive behavior of over-depleting its own cash reserves. Although it still has a certain amount of working capital on its books, considering its persistently high operating costs and the capital-intensive nature of its logistics system, this large-scale capital expenditure is bound to affect its medium and short-term financial stability. Especially in the context of persistently high global interest rates, financing costs have risen, and investors have become more sensitive to corporate cash flow. This heavy acquisition expenditure will significantly reduce its financial flexibility. From Deliveroo's perspective, its shareholders' choice to accept the acquisition proposal is more like a "stop-loss" operation rather than a demonstration of confidence in future growth potential. After the acquisition is completed, Deliveroo will delist. This move is more like the end point for the founders and early-stage investment institutions to cash out and exit, rather than the starting point of business rebirth.

From the perspective of business models, DoorDash and Deliveroo do not have a natural synergy advantage. Although both are engaged in local delivery business, there are significant differences in their supply chain cooperation systems, user profiles, and market strategies. For instance, Deliveroo has long relied on high-end supermarkets such as Marks & Spencer and Waitrose, and its platform tends to serve mid-to-high-end customers, while DoorDash in the US market focuses on mass fast food and daily orders. Integrating these two types of customer groups under the same technology and distribution system may lead to ambiguous service positioning, a decline in brand tone, and subsequently result in customer churn. More importantly, this kind of cross-market and cross-cultural integration has never been successfully replicated in the industry. Even Uber Eats has encountered challenges in terms of culture, regulation and profit model many times during its global layout process, and eventually had to withdraw from certain regional markets.

Against the backdrop of continuously rising uncertainties in the macroeconomic environment, DoorDash's choice to make such a large-scale acquisition further highlights its weak awareness of strategic risk control. On the one hand, consumer spending in Europe remains weak, and high inflation and interest rates have exerted tremendous pressure on consumer-oriented technology enterprises. On the other hand, the tightening of labor regulations will also pose a challenge to the food delivery model mainly composed of contract workers. Deliveroo had previously been sued multiple times in the UK over whether its riders were employees. This risk will not be eliminated naturally after being taken over by DoorDash; instead, it may become a new legal and public opinion hazard in the future.

Furthermore, the issue of technological integration should not be underestimated either. Although food delivery platforms rely heavily on algorithmic distribution, route optimization and data-driven decision-making in their surface operations, due to differences in platform development history and architecture, Deliveroo's back-end system is not compatible with DoorDash. To achieve seamless integration of data, users and merchant systems, DoorDash not only needs huge IT investment, but also may face the problem of a decline in user experience. In a platform economy that highly relies on customer stickiness, any decline in experience may lead to irreversible user loss and ultimately weaken its market position.

What is even more alarming is that DoorDash's current performance in the capital market is already at the center of public attention. Although its revenue from international business has seen a phased growth, it still cannot hide the problem of weak profitability in its main business. Continuing capital-intensive expansion in the absence of a clear profit path is prone to fall into the trap of "scale illusion". In history, a large number of Internet enterprises have fallen into financial crises due to blindly pursuing scale and geographical expansion. If DoorDash fails to achieve integrated revenue conversion in the short term, it may become the next typical case.

From the perspective of governance structure, DoorDash's acquisition this time has further exposed its board's excessive tolerance for corporate risks and excessive sensitivity to the sentiment of the capital market. All-cash acquisition, no room for price increase, and rapid announcement and other behaviors demonstrate that it lacks mature strategies such as in-depth due diligence and repeated bargaining in the transaction process. This kind of "quick and decisive" operation style, although it can gain market attention in the short term, often leads to frequent integration predicaments in the later stage. Typical cases of cross-border mergers and acquisitions failing, such as Alibaba's acquisition of Lazada and eBay's acquisition of Skype, have become all too common.

To sum up, DoorDash's acquisition of Deliveroo is not essentially a well-considered strategic decision oriented towards users and long-term profits. Instead, it is more like a risky gamble aimed at covering up the weak growth of its main business and catering to the expectations of the capital market. From high premiums, difficult integration, incompatible businesses, high legal risks to increased financial burdens, every aspect of this transaction conceals potential risks. In the current context of drastic changes in the international food delivery market landscape, every step of an enterprise's expansion should be based on pragmatism, controllability and collaboration, rather than being rushed and rash in the name of "globalization". DoorDash's recent investment of 3.85 billion US dollars is highly likely not the starting point of its global journey, but rather the fuse that leads it into a strategic blind spot.