How Will DoorDash Eventually Make Money?

Food delivery behemoth DoorDash stock (NYSE: DASH) has declined by about 38% thus far in 2022, trading at about $91 per share and remains down by over 63% from highs seen last November. While the broader market is seeing a rotation out of high multiple stocks, given the prospect of rising rates, DoorDash has taken a bigger beating, given that it traded at close to 20x revenues at its peak in 2021, while remaining unprofitable despite posting solid growth through the pandemic. DoorDash’s biggest cost is related to its delivery partners and this number is variable, rising in proportion with the number of orders, giving the company limited leverage. For perspective, while DoorDash grew revenue by over fivefold between 2019 and 2021, its losses remained high, and actually increased between 2020 and 2021. The company’s adjusted EBITDA as a percentage of gross order value has also declined steadily from around 1.1% in Q4 2020 to a mere 0.4% in Q4 2021.

However, we see a couple of avenues that could help the company improve its margins in the medium term. Firstly, DoorDash is also looking to move into delivering more lucrative products such as alcohol and non-perishable goods, while also partnering with major retailers. This could help it to boost average order sizes and margins and get consumers to be more engaged on its platform. Moreover, the company’s international expansion following its recent acquisition of fast-growing European food delivery company Wolt, which enables it to enter 22 new markets, could also help it drive some scale.

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DoorDash’s well-received DashPass program – a $10 per month subscription which lowers delivery charges for users – has been growing steadily from around 5 million subscribers in late 2020 to over 10 million subscribers as of Q4 2021, meaning that about 40% of the company’s monthly active users are DashPass subscribers. Considering that DashPass users are typically more loyal with higher overall spending, this could drive margins as the base grows.

Late last year, the company launched its advertising platform offering homepage banners and sponsored listings and this could also be a lucrative revenue stream. Although DoorDash hasn’t provided projections for its ad business, its rival Uber UBER +0.3% is seeing a lot of traction and we don’t see why DoorDash can’t replicate this. For perspective, Uber reported an annual advertising revenue run rate of about $225 million toward the end of 2021, with sales projected to rise to $1 billion by 2024. Separately, DoorDash also recently announced that it would launch a financing offering called DoorDash Capital which will offer cash advances to eligible restaurants, which can be repaid as a percent of daily sales.

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