Insights

Good News for DoorDash: Revenue Surges Higher Despite Reopening

Against popular belief, DoorDash’s (NYSE: DASH) revenue and customer engagement continue surging higher. The theory was the boost in its business during the initial stages of the pandemic — when restaurants were closed and people avoided leaving their homes — would subside once economies reopened. 
Fortunately for DoorDash, that has not been the case. Diners have gotten used to the convenience it offers and keep using the service. One explanation for continued consumer enthusiasm could be the low price of the service — a price that is too low for the company to recoup its costs. Let’s dive deeper into DoorDash’s first-quarter earnings below. 
Image source: Getty Images.

DoorDash proves consumers like convenience 
In its first quarter, DoorDash reported revenue of $1.46 billion, up 35% from $1.08 billion in the same quarter the previous year. Consumers have shown a lasting preference for the convenience of food delivery as they take advantage of the ability to patronize their favorite restaurants from the comfort of their own homes.

Data by YCharts.
Indeed, total orders on the platform increased to 404 million in the first quarter, up 23% year over year from 329 million. Even as restaurants reopened for in-person dining, CFO Prabir Adarkar noted during the earnings call:

[W]hen you step back and you look at the results in the quarter and the fact that monthly active users are at all-time highs, the fact that DashPass members are at all-time highs, and order frequency is at all-time highs, it speaks to the resilience of the platform.

While the growth in its latest report did mark a slowdown from the 198% increase it enjoyed in the first quarter of 2021, the fact revenue continued to climb after last year’s surge, despite fewer COVID restrictions last quarter, is still impressive. It remains to be seen if consumers will sustain these habits long term, but DoorDash is enjoying the benefits while they persist.
That said, the company is generating considerable losses on the bottom line. Its net loss increased from $110 million to $167 million year over year. Perhaps that explains why consumers keep ordering through DoorDash — the price for the service is lower than the cost to provide it. If the company were to raise prices enough to cover its costs, that would likely reduce order frequency.
Diners might be willing to pay $5 to have their burgers delivered, but would they be willing to pay $8? At some point, customers will decide the convenience doesn’t justify the cost.

Data by YCharts.
Of course, DoorDash can boost profitability by reducing expenses instead of raising prices, but that appears to be a more challenging task. One of the company’s highest costs is the fees it pays Dashers to pick up and deliver food to customers. Businesses worldwide are reporting labor shortages and increasing wages as a result to attract employees. The prospects of lowering Dasher earnings and keeping them on board are not encouraging.
DoorDash stock is down 75% from its high 
The losses on the bottom line can partly explain why DoorDash stock is down 75% from its all-time high despite the continued revenue growth. But it’s easier to grow revenue if you charge customers less than the price of the product. As demonstrated by DoorDash’s mounting losses, food delivery is not a business that lends itself well to economies of scale.
The market opportunity is massive for DoorDash if it can put itself on a more sustainable footing. Investors should stay away until there is evidence it can do so.
Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash, Inc. The Motley Fool has a disclosure policy. –

Against popular belief, DoorDash‘s (NYSE: DASH) revenue and customer engagement continue surging higher. The theory was the boost in its business during the initial stages of the pandemic — when restaurants were closed and people avoided leaving their homes — would subside once economies reopened. 

Fortunately for DoorDash, that has not been the case. Diners have gotten used to the convenience it offers and keep using the service. One explanation for continued consumer enthusiasm could be the low price of the service — a price that is too low for the company to recoup its costs. Let’s dive deeper into DoorDash’s first-quarter earnings below. 

Image source: Getty Images.

DoorDash proves consumers like convenience 

In its first quarter, DoorDash reported revenue of $1.46 billion, up 35% from $1.08 billion in the same quarter the previous year. Consumers have shown a lasting preference for the convenience of food delivery as they take advantage of the ability to patronize their favorite restaurants from the comfort of their own homes.

Data by YCharts.

Indeed, total orders on the platform increased to 404 million in the first quarter, up 23% year over year from 329 million. Even as restaurants reopened for in-person dining, CFO Prabir Adarkar noted during the earnings call:

[W]hen you step back and you look at the results in the quarter and the fact that monthly active users are at all-time highs, the fact that DashPass members are at all-time highs, and order frequency is at all-time highs, it speaks to the resilience of the platform.

While the growth in its latest report did mark a slowdown from the 198% increase it enjoyed in the first quarter of 2021, the fact revenue continued to climb after last year’s surge, despite fewer COVID restrictions last quarter, is still impressive. It remains to be seen if consumers will sustain these habits long term, but DoorDash is enjoying the benefits while they persist.

That said, the company is generating considerable losses on the bottom line. Its net loss increased from $110 million to $167 million year over year. Perhaps that explains why consumers keep ordering through DoorDash — the price for the service is lower than the cost to provide it. If the company were to raise prices enough to cover its costs, that would likely reduce order frequency.

Diners might be willing to pay $5 to have their burgers delivered, but would they be willing to pay $8? At some point, customers will decide the convenience doesn’t justify the cost.

Data by YCharts.

Of course, DoorDash can boost profitability by reducing expenses instead of raising prices, but that appears to be a more challenging task. One of the company’s highest costs is the fees it pays Dashers to pick up and deliver food to customers. Businesses worldwide are reporting labor shortages and increasing wages as a result to attract employees. The prospects of lowering Dasher earnings and keeping them on board are not encouraging.

DoorDash stock is down 75% from its high 

The losses on the bottom line can partly explain why DoorDash stock is down 75% from its all-time high despite the continued revenue growth. But it’s easier to grow revenue if you charge customers less than the price of the product. As demonstrated by DoorDash’s mounting losses, food delivery is not a business that lends itself well to economies of scale.

The market opportunity is massive for DoorDash if it can put itself on a more sustainable footing. Investors should stay away until there is evidence it can do so.

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash, Inc. The Motley Fool has a disclosure policy.

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