While DoorDash (NYSE: DASH) reported new quarterly records for total orders, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), and market share, some analysts were not convinced of the value the company provides moving forward.
It’s likely not only a DoorDash problem but rather a food delivery problem in a market that has accelerated because of COVID-19 pandemic-related restaurant restrictions.
“This past quarter showed phenomenal top-line growth and the company guided for 2021 to see further growth in spite of tough comparables. In spite of the insane growth it showed in 2020, DASH was not profitable on either a GAAP or non-GAAP basis,” wrote Seeking Alpha analyst Julian Lin.
For its part, DoorDash acknowledged the challenges that lie ahead as vaccines roll out and restaurants reopen for in-person dining.
“We hope markets will begin to open up soon. As that happens, we expect declines in consumer engagement and average order values, though the precise amount remains unclear,” it said. “In any scenario, we will remain focused on reducing friction on our Marketplace and executing against the factors that will drive long-term consumer adoption: selection, experience and value.”
Lin questioned the company’s inability to turn a profit at a time when making money should have been easier.
“Even if we add back stock-based compensation, DASH was barely able to generate $10 million in adjusted net income for the fourth quarter and lost $139 million in adjusted net income for the year,” he wrote. “Consider that Zoom (NASDAQ: ZM), another pandemic beneficiary, generated 25.5% GAAP net margins in the third quarter. Shopify (NYSE: SHOP) generated 12.7% GAAP net margins in its latest quarter. Why is DASH unable to generate profits during what might prove to be a peak year?”
In 2019, Statista pegged the online food delivery market at $94.4 billion. The firm projects 2021 sales to reach $151.5 billion. According to research firm Second Measure, meal delivery sales rose 164% year-over-year in January, led by DoorDash’s 56% share of sales. Uber Eats was second at 20%.
In its earnings call, DoorDash CFO Prabir Adarkar said the company believes “consumer behavior tends to be sticky.”
“Once the consumer discovered DoorDash and they’ve ordered from their favorite restaurants and enjoyed the benefits of on-demand convenience, new habits get formed, and we believe this situation will persist over the long run,” he noted. “And so even when you look at markets like Texas and Georgia and Florida that reopened, that were sort of partially open, even through the pandemic in the U.S. against that backdrop, we continue to see our weekly order volumes in these markets continue to grow. So that’s a promising sign.”
Uber (NYSE: UBER) is more insulated from a likely downturn in food delivery because of its more diverse business lines.
“We’ve seen our business accelerate in January to over 150% year-on-year growth as the delivery continues to provide a natural hedge and lockdown. It’s become clear that the pandemic has increased consumers’ appetite for on-demand delivery of not just food, but all goods, and we take a major step to address this enormous opportunity,” Uber CEO Dara Khosrowshahi said during that company’s earnings call earlier this month.
Uber’s plans include leveraging its platform to expand. It recently purchased on-demand alcohol supplier Drizly and in 2020 acquired both Postmates and Cornership, which opened up grocery for Uber.
“While the external environment remains uncertain, I am more optimistic than ever about Uber’s future,” Khosrowshahi said. “We’ve established the world’s largest mobility platform with a leading position in every major region that we operate in. In five years, we built the world’s largest food delivery platform outside of China, which is growing substantially faster than the category and which we’re using to expand into high-potential adjacencies.”
DoorDash is now attempting to diversify its holdings as well. It has invested in local restaurants by reducing commissions for local merchants and has been providing grants. Earlier this week, the company launched the Main Street Strong Accelerator to support women-, immigrant- and BIPOC-owned businesses. The $2 million fund will provide $20,000 grants to 100 restaurants in five cities – New York City, Los Angeles, Chicago, Atlanta and Philadelphia.
The company is also looking to build out its DoorDash Drive program, which allows merchants to offer on-demand and same-day delivery through their own digital channels, and DoorDash Storefront, which helps merchants quickly build digital storefronts to participate in the e-commerce marketplace.
“Over time, we will have to build even more products and services to enable merchants to run their digital business as effectively as we operate our marketplace. Underpinning our marketplace and platform is our maniacal focus on operating efficiency where we believe best-in-class execution will result in an improving cost structure that unlocks further investment capital as we grow our skin,” CEO Tony Xu said.
Xu said the company still sees “massive runway” in the restaurant business, but DoorDash sees opportunity in the convenience and grocery categories.
“The job of our platform is to empower a brick-and-mortar merchant to build their own digital channel, a task necessary to have adapted to evolving consumer preferences before the pandemic and a task certainly necessary to have survived COVID-19. This business is even more critical as we come out of the pandemic as consumers have only become more habituated to a convenience economy, aided by a possible longer-term trend toward working from home,” Xu said.
DoorDash has been working with retailers such as Macy’s and Bloomingdales as well as dealers with convenience brands such as 7-Eleven, CVS, and Walgreens. Xu noted that DoorDash’s leadership in the food delivery space has allowed it to expand quickly into other areas – areas that it has actually been operating in since Drive launched in Q1 2017.
“I think what you’re seeing is every business recognizes that omnichannel is a great thing. Every business is trying to figure out how to redo their supply chains to really meet a post-pandemic omnichannel presence, which they expect to grow. And we’ll be there with them, both with our marketplace as well as our platform,” he said.