Post IPO, DoorDash Revenue Soars 226 Pct, But So Do Losses

In its first earnings release since going public, DoorDash reported $970 million for its fourth quarter on Thursday (Feb. 25), a 226 percent increase from the company’s $298 million in 2019. However, despite this dramatic revenue growth, the company’s losses also increased more than twofold from $134 million in Q4 2019 to $312 million in 2020, and the company saw losses of $2.67 per share.

This combination of revenue boost and loss accumulation may be more feature than bug. As Chief Financial Officer Prabir Adarkar said on a call with analysts, “we are the category leader in the U.S., but despite our scale, we see significant room for growth. Consequently, we’re managing the business to maximize scale and long-term profit dollars rather than take rate or margin percentages. in practice, this means we intend to invest aggressively into the business in order to further our growth initiatives and expand our competitive advantages.”

In effect, this means that the company is betting on its long-term success, to the detriment of its short-term profitability. Bearing down into these losses seems an odd move for a company that just went public. However, the company remains hopeful that this gamble will pay off and that DoorDash’s model will be in demand even as the safety-driven needs for delivery subside.

CEO Tony Xu predicts that DoorDash’s convenience store and grocery delivery options will integrate into retailers’ omnichannel strategy, helping them sell to consumers who have become used to integrating digital tools and remote ordering into their routine. As he said on the call, “every business is trying to figure out how to redo their supply chains to really meet a post-pandemic, omnichannel channel presence, which they expect to grow. And we’ll be there with them, both with our marketplace, as well as our platform.”

There is merit to the theory. In an interview with PYMNTS, Debbie Guerra, executive vice president of merchant payments and payments intelligence solutions at ACI Worldwide, offered her perspective on the omnichannel future of the grocery industry: “Let’s get real — grocery shopping has gone digital, and it has really accelerated … as a result of the pandemic … I think we’re going to see consumer journeys across omnichannel shopping experiences continue in the future.”

Still, third-party aggregators have an incredibly difficult model to pull off, with narrow, unforgiving margins. With many areas implementing fee caps to protect independent restaurants, aggregators see an even smaller share of profits from each sale. The company estimates it lost $36 million to these measures, which were enforced in 73 jurisdictions, over the fourth quarter. Consequently, in areas with these caps, DoorDash has started making up for the cost by charging consumers more.

“In order to offset some of this pressure,” the company states in a letter to investors, “we have begun implementing incremental consumer fees in many markets with price controls … We expect the gross impact from price controls to almost double in Q1 2021 from Q4 2020.”

These fees may prove more than consumers are willing to pay — it takes only the most cursory Twitter search to see dozens of customers complaining about additional charges on their orders, with the outsized prices becoming a running joke for users. However, Adarkar says that DoorDash hopes that, as consumers return for on-premises dining and restaurants rely less on delivery to support them, the inflated menu prices will come down to reflect in-store prices.

“We’re hopeful that … merchants will recognize that keeping prices consistent with their in-store is actually the right path forward because it boosts the amount of demand that’s possible through the delivery channel,” Xu said.

Of course, DoorDash cannot require that restaurants do this, and restaurants have their own narrow margins to take into account. The upside for the aggregator is that markets with more lax COVID regulations indicate that there may be continued demand for delivery, even once consumers are back to dining on premises. He noted, “once the consumers discover DoorDash … new habits get formed, and we believe this situation will persist over the long run. Even when you look at markets like Texas and Georgia and Florida that reopen … against that backdrop, we continue to see our weekly order volumes in the U.S. markets continue to grow. So that’s a … promising sign.”

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