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Investors might have rushed their order.

DoorDash’s shares are up 12% since the company announced it was buying Helsinki-based delivery platform Wolt on Nov. 9. We still know little about the deal other than the $8.1 billion purchase price and the expectation it will close in the first half of 2022. Considering how competitive the European food-delivery battlefield is right now, DoorDash will probably keep its strategy mum.

Rumors have been circulating all year about DoorDash’s intentions to enter the European market. The Wolt deal—nearly 20 times as large as DoorDash’s second-largest acquisition, Caviar—shows just how much of a priority that market is for the company. Further stoking excitement, DoorDash later said it also will enter the German market under its own brand.

Wolt has been called the “European DoorDash" because it has grown by operating in areas overlooked by larger delivery players. DoorDash employed a similar strategy in the U.S. by dominating the somewhat overlooked suburbs. But believing its triumph can be easily replicated across different countries, all of which have their own cultures, regulations and labor policies, seems a stretch.

It is unclear how lucrative Wolt’s markets can be, though. Many, like Estonia, Serbia, Finland and Denmark have populations well under 10 million. DoorDash says Wolt had a more than $2.5 billion gross order value run-rate for this year as of the third quarter for all 23 of its countries combined. For reference, Just Eat Takeaway.com’s run rate in Germany alone this year was over $4.4 billion as of June 30.

Despite its global presence, Uber Technologies’ Uber Eats only overlaps with four of Wolt’s markets. One could choose to see that as a strategic positive for Wolt or a sign that those markets were deemed too small. DoorDash itself seems committed to the road less traveled: In Germany, it has chosen to launch its own platform in Stuttgart, a city with less than a fifth the population of capital Berlin.

There are also the relative economics of the European market to consider. While Wolt delivers more than just food, European consumers are much less willing to pay for meal delivery than Americans, according to Just Eat Takeaway.com. In the U.S., delivery companies are able to bolster profit margins by charging bloated service and delivery fees to compensate for things like restaurant commission caps and driver pay regulation. While contracted workers are allowed in the U.S. and Canada, their use is either being challenged or prohibited in Europe. In Stuttgart, Gordon Haskett’s analysis shows DoorDash is currently offering zero service fees and free delivery on first-time orders.

For Wolt, DoorDash is paying a hefty premium—nearly 2.3 times Wolt’s value following its last private round of funding in January, according to PitchBook. London-based Deliveroo has a $5.4 billion market value, despite a current run rate of nearly $9 billion in gross transaction value. Wolt’s premium, therefore, signals DoorDash’s big ambitions for a business that isn’t yet a real contender on a global scale and might never be. Some preliminary figures from the company suggested it did about $345 million in revenue in 2020 for a net loss of $45 million.

DoorDash will likely leverage Wolt’s more than 4,000 employees and their local logistical and cultural expertise in hopes of building a European powerhouse to match its U.S. success. Whether DoorDash can translate Wolt’s strategy in low population areas to cities with higher density is anyone’s guess, though. It is also unclear whether DoorDash intends to give priority to its own brand or focus on growing Wolt’s. The brands already overlap in Germany and Japan.

Investors are right to be hungry for new growth at DoorDash. They might want to wait to see what is on the menu before they dig in.

 

This story has been published from a wire agency feed without modifications to the text

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