DoorDash Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 15, 2024

There are 15 speakers on the call.

Operator

Thank you for standing by and welcome to the DoorDash Q4 2023 Earnings Call. I would now like to welcome Andy Hargraves, VP of Investor Relations to begin the call. Andy, over to you.

Speaker 1

Thanks, Wendy. Good afternoon, everybody, and thanks for joining us on our Q4 2023 earnings call. I'm very pleased today to be joined by Co Founder, Chair and CEO, Tony Xu and CFO, Ravi Nikanta. We'll be making forward looking statements during today's call, including our expectations for our business, financial position, operating performance, Our guidance, strategies, capital allocation approach and the broader economic environment. Forward looking statements are subject to risks and uncertainties that could cause results to differ materially from those described.

Speaker 1

Many of these uncertainties are described in our SEC filings, including Form 10ks and 10 Qs. You should not rely on our forward looking statements as predictions of future events. We disclaim any obligation to update any forward looking statements except as required by law. During this call, we will discuss certain non GAAP financial measures. Information regarding our non GAAP financial measures, including a reconciliation to the most directly comparable GAAP financial measures may be found in our earnings release, which is available on our IR website.

Speaker 1

These non GAAP measures should be considered in addition to our GAAP results and are not intended to be a substitute for our GAAP results. Finally, this call is being audio webcasted on our IR website. An audio replay of the call will be available on our website shortly after the call ends. Mandeep, we'll pass it back to you and we can take our first question.

Operator

The floor is now open for your questions.

Speaker 2

Thank you

Operator

for your questions. To ask a question at this time, simply press

Speaker 3

Our first question comes from

Operator

the line of Michael Morton with MoffettNathanson. Please go ahead.

Speaker 4

Good evening. Thanks for the question. First one for Tony and then second one for Ravi. Tony, I would love to hear your thoughts on what you think the future structure of the grocery market looks like. As order density increases on a Store level, some industry participants think you might see more growth in the merchant picked model, and also it's like consumers demand more speed.

Speaker 4

That kind of plays to your advantage with the dashers. We'd love to see how you see that evolving. And then for Ravi, We get a lot of investor questions on the ability to leverage sales and marketing on a per order basis. It seems like it might have slowed down just a tad in the Q4 and then Looking at the forward guide, could you talk a little bit about the opportunity to continue leverage sales and marketing? Thank you.

Speaker 5

Hey, Michael, it's Tony. Regarding your question on grocery, I think it really depends What it is that you're trying to build in terms for the customer? I mean, if you think about it, a customer is going to evaluate across several dimensions. They're going to evaluate What grocers they can order from, how good the order quality is in terms of if they order X items, do they get exactly those X items, The affordability of the service and obviously what happens with customer support, especially if things don't go perfectly. And so we're always judged on those dimensions and we're always building initiatives towards that.

Speaker 5

And a lot of this is still really nascent. If you think about DoorDash's entry into the grocery space, which happened about 3 years ago, we really started by nailing this top up use case We're solving the middle of the week run and delivering the items that are consumed the most often, your berries, your dairy products, your cereals, your coffees, etcetera. All of that was done in concert with fantastic grocers. We're now shifting a lot of the work towards solving bigger baskets. And so that is just solving for a different use case for the consumer.

Speaker 5

And I think we're also going to have to do other things too because when I just look at the structure of grocery, most of the behavior for consumers still happens offline where consumers are purchasing groceries inside physical stores. And so that tells me that we still have, as an industry, a long ways to go, but getting a product good enough such that it can replace the offline experience. All of this is going to be done in concert with grocers. And again, it's this kind of continuum of where we want to make sure that we can solve for more than just one dimension. Speed is one of those things, But there's going to be other factors that we have to get right as well.

Speaker 3

Hey, Mike, on the second point on sales and marketing, right, I'll break it into 2 parts. First, we'll talk about the Q3 to Q4 and then talk about the forward looking what we expect in 2024. Q3 to Q4, we did generate leverage on consumer acquisition. Change that you're seeing is largely related to DASHER acquisition. That was purely to support the higher growth that we saw in Q4 As well as you know, there's some seasonal effect from a DASER acquisition cost in Q4 in order for us to be able to continue to supply to the volumes that we had in Q4.

Speaker 3

As I look at it, right, when I think about overall leverage from a sales and marketing perspective, 2 frameworks here. 1 is we are trying to maximize sort of like Payback periods and our goal is to continue to be within the payback periods. You're not looking at the absolute level of dollar investment. We're still within the payback periods on the consumer side. We're still Wiring a healthy level of consumers, over half of the new consumers in the U.

Speaker 3

S. Today start their journey with DoorDash. So that's going to be a continued way for us to continue to drive growth. On the second one, when I think about overall leverage, it purely starts from product. What you've done, we've done in the last year or so is we've continued to drive improvements in the product, that's on the Dasher side or the consumer side that ultimately improves retention.

Speaker 3

As the retention goes up, you'll start to see benefits from an overall sales and marketing perspective also. So when I look at 2024, we do expect to generate leverage from an overall sales and marketing.

Speaker 4

Thank you.

Operator

Our next question comes from the line of Nikhil Dev Noni with Bernstein. Please go ahead.

Speaker 6

Hi there. Thanks for taking the question. I had a couple please on the 2024 outlook. So first off on the GOV guidance, it looks like you're calling for a few points of deceleration Q4 into Q1 and then for the year more broadly. So could you please talk about what you might be seeing in the business that's driving that outlook?

Speaker 6

Is that a reflection of the core U. S. Marketplace in restaurants or A trend that you're consistently seeing across segments. And then for my second question on the EBITDA outlook for the year, I think the letter mentions a ramp in margins in the back half of twenty twenty four. So is there something you can call out Ravi on maybe specific investments that you might be leaning harder into in the first half.

Speaker 6

Just wondering what drives the comfort and visibility into more meaningful margin improvement in the back half of the year? Thank you.

Speaker 3

Yes, Raghil, I'll take both of those, right. On the first one on the growth point, I mean, just to back up a minute, right. Our goal is to grow As fast as we can, within the discipline parameters that we've set for ourselves. I mean, look, we've been public for 3 years now. We've driven consistently strong growth every single quarter.

Speaker 3

What you're seeing in the business is even at our scale, if you look at our Overall MAUs, they're growing at a double digit rate. We've hit 37,000,000, which is an all time record for us. Even order frequency continues to grow. When I look at the opportunity either on the users or the order frequency side, the users that are active on the platform are still a small portion of Everybody has used the app at least once in the last year. That just goes to show you the breadth of the opportunity ahead of us.

Speaker 3

Similarly, on the order frequency side, I mean, the blended order frequency is still very low compared to the number of usable movements we have, especially if you think about all the categories that we are adding in the business. What you're seeing in the business is that you're continuing to drive selection as we're making the product more affordable as the quality continues to increase. You're seeing that strength come through, whether it's retention or order frequency, both are continuing to grow. Our goal is as long as we continue to make the product better, I'm very confident that we're going to be able to drive strong growth across restaurants, new verticals as well as international. And to the second point around EBITDA, again, look, Nikhil, I mean, we've been very pleased with the performance of the business.

Speaker 3

We've scaled profitability quite nicely if you look at it over the last couple of years. What you saw in 2023 is a few things, We have generated volume improvements through the course of the year. We have driven unit economic improvements across all major lines of business. When you put those two together, you saw the second half EBITDA being higher than the first half EBITDA, which is very similar to what we saw in the prior year in 2022 as well. When I look at 24, I would expect the trend to be very similar, where the second half EBITDA is going to be higher than the first half EBITDA.

Speaker 3

But more importantly, our philosophy is we're going to operate the business with the same level of rigor and discipline with the goal being trying to drive durable growth and at the same time improve the profitability of the business. And to the specific factors around first half versus the second half, We are investing in the first half. I mean, the investments are we are seeing strength in restaurants, we are seeing strength in new verticals, we are seeing strength in our international business. You can see that in the results, both from a growth as well as a profitability perspective. I do expect those investments to generate leverage in the second half.

Speaker 3

And secondly, if you have volume continuing to scale plus the unit economics continuing to improve, you're going to see more of the EBITDA in the second half versus the first half. And even from a margin perspective, I would expect the second half margin to be higher than first half as well as the full year. But just to pull back a minute, right, I'm very pleased with the full year guide for EBITDA because, a, we are driving margin improvement and b, we are driving overall profitability improvement quite considerably.

Speaker 6

Thanks, Ravi.

Operator

Our next question comes from the line of Deepak Mathivanan with Wolfe Research. Please go ahead.

Speaker 7

Great. Thanks for taking the questions. Tony, wanted to see if you can elaborate on the key areas investments Inside international and new verticals, maybe in terms of countries and products, as you kind of scale these efforts, how should we think about the contribution margin curve of these initiatives versus what you saw in maybe the core restaurant business or even the convenience business over the last 3 to 4 years. And then maybe one for Ravi. On 4Q EBITDA, I know you don't always aim to beat the high end of the guidance consistently.

Speaker 7

Did you observe any sort of change in the margin trajectory of the business or anything you would call out as maybe 1 or 2 initiatives that drove investments higher during the quarter, perhaps in the last couple of months? Thank you so much.

Speaker 5

Hey, Deepak, it's Tony. I'll take the first one, which is about Investing into international and also into new verticals. So in international, we really are investing across The Board with a fairly similar framework, which is really finding product market fit and then finding an efficient way to grow. And in certain markets, It's more about the former and the majority of markets, it's more about the latter. But there are markets that are younger in the portfolio.

Speaker 5

Mean, I would say across the board, the penetration levels in terms of our coverage of consumers as well as The merchants that we have remaining to serve is still quite low, certainly lower than where we are in the U. S, but even lower, I would say, to where they can be given the runway that we see. So it's really about making sure that we're efficient and in investing across whether we are in search of product market fit and improving that or whether we are scaling that quite nicely, in which case you see both an improvement in growth retention as well as unit economics. On the new vertical side, I mean, I think this has been just yet another quarter of continued strength. I mean, the growth on a bigger base has accelerated now 3 quarters in a row.

Speaker 5

That's really coming from across the board, investments into grocery, the convenience category, Dashmarts, retail, so really we're seeing improvements in growth, retention, unit economics across All major lines within our investment areas,

Speaker 8

there's lots of work.

Speaker 5

So I don't that would probably take a much more than the hour to discuss with respect to products that we're working on. But all of them are trying to better the selection that we offer, the quality of the service, the affordability of the service and the customer support levels.

Speaker 3

Hey, Deepak, it's Ravi. I'll extend Tony's thought on the first question and then I'll take the second question, right. Like we And to your point around margins across the investment areas, what we're seeing in the business is really strong performance, not just across growth, but I look at the unit economics, there's been a material step function change improvement, both on the new vertical side as well as the international side. To your specific question around the contribution margin, right, if I look at the basket of our overall international business, there are several countries where the core restaurants business is actually contribution margin positive and still a lot of runway for both growth as well as improvement in the margin structure. At your second point, Deepak, around Again, I mean the performance was great, right, like nothing specific that we would call out.

Speaker 3

What you're seeing is volume continuing to grow. In fact, New verticals, the volume actually accelerated in Q4 compared to Q3. Grocery was a bright spot where grocery volume also accelerated in Q4 compared to Q3. International volume continues to be very strong and we're also seeing unit economic improvement. That's basically what drove the performance both on the top line as well as the bottom line in Q4.

Speaker 7

Thank you so much.

Operator

Our next question comes from the line of Bernie MacTiernan with Needham and Company. Please go ahead.

Speaker 2

Great. Thanks for taking questions. Maybe just to start the New York City minimum wage, saw you guys put through some price increases. Just wondering how you expect to impact 1Q in the year. And then if our math is right, I think you guys added 5,000,000 DashPass subs in 2022, 3,000,000 in 2023.

Speaker 2

So over the next year or 2 or maybe couple of years, how big do you think DashPass can get and any commentary on early benefits of Well, plus if it's been a contributor to the base.

Speaker 5

Sure. Bernie, it's Tony. I'll start and feel free to chime in, Ravi. First question is on regulation. I mean, by and large, the way we see the landscape is Fairly similar to how we've seen it every year in the 10 years that we've been building DoorDash, which is most governments that we work with want to actually work with us and want to work with business.

Speaker 5

And they understand that in order for something like DoorDash to work, it has to work for all audiences. We're always trying to keep the most affordable prices for consumers. We want to maximize the sales for local businesses and we want to offer the most number of work opportunities for Dashers. The vast, vast, vast majority of places that we operate in work this I think there are a handful of markets, one of which you call out New York City that kind of takes policies to the extreme And I think has had some adverse impacts against its wishes, which is whenever you see Regulation enter the way it does in a place like New York City, what you see is cost rise for the overall system. So there are There's less accessibility to consumers to your point about rising costs.

Speaker 5

There are lower sales for local businesses and there are fewer work opportunities for dashers. And we largely expect that The vast, vast majority of cities will be fairly central in terms of how they think about working together with companies like ourselves. But there are a handful of markets in which have taken extreme policies. We don't expect that to change much. And in terms of the financial impact, all of that is reflected in our guidance.

Speaker 5

I think your second question was around DashPass. I mean, DashPass had a great year. I mean, it was a record year in terms of its membership as well as the order frequency that we saw with DashPass subscribers. This includes the Volt Plus as well. In fact, internationally, we actually saw the members for DashPass and Bolt Plus double in the quarter.

Speaker 5

And so we're certainly seeing quite a lot of strength there. I mean, the way I think about it is, I mean, there's 100 possible use cases per month for every consumer in terms of the categories and their consumption, whether that's eating or buying in retail, even for our best customers and certainly for the average subscriber, We're just a fraction of those use cases. So when I think about the runway, I think it's quite far. And if we can certainly serve every use case for local commerce, I think the subscriber base would be fairly healthy.

Speaker 3

Hey, Bernie, it's Ravi. I'll just add to Tony's point around New York City. As you can see from the Q1 EBITDA guide, we are absorbing some of the regulatory costs in Q1. I do expect that to ramp down As a, we ramp up efficiency as well as we take other actions in the marketplace. And to your second point around impact on volume, again, It's a small portion of the overall volume in the business.

Speaker 3

So I would expect the impact on volume to be very minimal. Our next question comes from

Operator

the line of Andrew Boone with JMP Securities. Please go ahead.

Speaker 2

Thanks so much for taking my questions. I wanted to go back to the investments in international new verticals and better understand tactically what you guys are doing. Is the investments around improving selection? Is it on the consumer or Dasher side? Just help us understand more directly what exactly it is that you're doing.

Speaker 2

And then in the press release, it called out increased first party distribution costs for COGS. Can you just talk about where you are with DashMart and their

Speaker 5

I mean, I think you pretty much answered the question yourself, which is, I mean, we're investing in all the dimensions in which a consumer judges us, right. So we're adding selection to the platform. We launched a lot of awesome retailers over 2023. Even this year, we launched with Ahold most recently here in the U. S.

Speaker 5

We're certainly helping to improve the affordability of the service. There's lots of work to do there. We are working on improving the quality of the service. I mean, I think the hardest challenge that every grocer faces, whether it's Physically or digitally in terms of sales is knowing how much inventory they have on the shelves. And That is one of the biggest reasons in terms of why sometimes consumers prefer to go and shop inside stores.

Speaker 5

And customer support is always something that we're to get better. And when I look internationally, I mean, it's similar, but it's across more categories. It's not just New verticals or retail, it's also across the restaurant sector. We're just a lot earlier there in terms of the penetration levels. We have a lot more places we have to launch.

Speaker 5

We have a lot more restaurants and retailers we have to sign up. We have a lot more work to do in terms of launching subscription programs in the countries, I mean, they've seen great adoption so far, but we're very early in terms of the launch. And then we always have to make sure that we can make the

Speaker 9

product Yes,

Speaker 3

Andrew, I'll take the second question around DashMart.

Speaker 2

I mean,

Speaker 3

look, we're really happy with where the footprint is. We've expanded the footprint a couple of years ago just to make sure we have the volume density across all the markets that we operate in. Today, our focus continues to be driving same store sales growth by better merchandising, continue to improve the overall In product market fit, we have both retention as well as order frequency. When you look at the performance of the business, I mean, we're really pleased. It's doing well compared to plan.

Speaker 3

Our goal is to continue to improve, A, both the volume in that business as well as continuing to drive unit economic improvement where we've seen material improvement compared to last year. As I look at 2024, our priority is going to be continue to keep the existing footprint while increasing volume as well as driving unit economics in that business. Thank you.

Operator

Our next question comes from the line of Brian Nowak with Morgan Stanley. Please go ahead.

Speaker 10

Great. Thanks for taking my questions. Sorry, excuse me. I have 2. The first one, Tony, on sort of prioritization of investments.

Speaker 10

I know you're very data driven. And so when you sort of look at the grocery and new verticals, You talk in the letter about adding more merchants, more seamless ordering experiences, execution, pricing. When you sort of study the data What is holding back adoption or driving churn or any of the negative things you don't want to see? Where are sort of the pinch points you really want to Solve first to try to continue to drive some strong grocery adoption in 2024. Then the second one, Ravi, go back to one of your earlier answers, we talked about you called a step change function on new vertical unit economics.

Speaker 10

Just any color on sort of Which of the areas of the business in the blocking and tackling service drove that step change improvement in unit economics in the year? Thanks.

Speaker 5

Hey, Brian, with respect to all of the barriers adoption, I think there are a few, but I would start by saying that things in general are going pretty well. I mean, we have over 20% of customers ordering in the non restaurants category for the first time. I mean, we're now north of 100,000 plus stores that are outside of restaurants that are on our platform, which We estimate to be the largest in North America. More and more grocers, retailers are coming inbound. And similarly, more and more consumers are shopping for the first time in the grocery category on DoorDash, even ahead of restaurants.

Speaker 5

So I think there's a lot of goodness to see. And if you think about what that's centered on, that's really been centered on The fact that we launched with this top of use case, which we effectively had to invent, if you think about it, people knew DoorDash really as place to get lunch and dinner very quickly. And so we launched this product where you can get your middle of the week run done as fast as possible. When you run out of eggs or cereal or your berries, that usually isn't like the most fulfilling trip to go inside a physical store yourself. But it's also something you want to be done quickly.

Speaker 5

And so that's something that we've solved pretty well. At the same time, I think there are a lot of barriers. I mean, if you Just pan out and look at the industry. I mean, digital sales or e commerce penetration of grocery is still amongst the lowest, if not the lowest all categories of e commerce. And I think there's many reasons.

Speaker 5

First is, How do you make sure that you can get exactly what a customer wants delivered to their home? I mean, if you look at One of the challenges that grocers have, whether it's through their physical stores or their online channels, it's not knowing how much inventory that they actually carry. There's other barriers around affordability. I think customers largely expect to pay similar to what they pay inside the store when they get something delivered. And when you look at selection, that's something that we're just working towards.

Speaker 5

I mean, It's happening actually pretty rapidly and consistently where 3 years ago when we just launched our service, we were working with Maybe a couple of dozen of retailers now that's in the hundreds with hundreds of thousands of stores. So that remains a barrier. And I think the final thing is that it's just going to take a bit of time. I mean, I think most people in The country or in the world know DoorDash and Volt as a place to get lunch or dinner delivered. I think it takes some time to get Everyone to know that you can get your city delivered.

Speaker 5

We've certainly made a priority bet on grocery. I think it's paid off really well. I mean, we it every day in the numbers in terms of growth, retention, as well as improvements in unit economics. But look, it's a long ways to go. I mean, we're 3 years into it, where we went from 0 to multibillion, which we're excited about, but I think it's just the beginning.

Speaker 3

Hey, Brian. On the second one, right, in terms of the step function change and improvement in unit economics. I'll start off by saying, right, like in these businesses that we operate, One of the more important things is scale, because ultimately scale, as we saw in the restaurant business, that drives volume growth, which ultimately drives efficiency in the business. If you combine that with the overall platform density that we have, whether it's quality where we're able to accrue benefits across the platform on improvements in credits and refunds On the Dasher side efficiency, all of that is driving the improvements you're seeing in the unit economic improvement across both restaurants and honestly across all parts of the New verticals portfolio. And there's many parts of the P and L that we are driving efficiency across the board.

Speaker 3

And the second dimension I would give you is when you think about the and break it apart, right? 3rd party convenience, we've talked about the fact that that was unit economic breakeven a few several quarters ago. That business has continued to grow as well as improve in overall unit economics. Growthly, we are seeing something very similar where the overall unit economics have continued to improve. Look, I mean, I realize there's a question if these businesses are going to be profitable for us.

Speaker 3

But when I look at the data, I have no doubt in my mind that all parts of our New verticals business is going to be profitable over time. But again, it's important to remember, we're still very early in the journey. We're seeing great signals across growth in volume. You saw that in Q4 where the business accelerated as well as growth in unit economics. Our goal is to continue to invest because that will ultimately drive the free cash flow generation in the business.

Speaker 4

Great. Thank you both.

Operator

Our next question comes from the line of James Lee with Mizuho Securities. Please go ahead.

Speaker 8

Great. Thanks for taking my questions. My question is mostly on grocery business. And maybe Tony, can you lay out the plan or how you try to explain how you plan to expand the supply of grocers going forward? And what does that process maybe entail?

Speaker 8

Do you need to hire more salespeople, maybe system integration to retailers? And also give us a sense at what point can you get to the same size as your largest competitor? Thanks.

Speaker 5

Hey, James. Yes, I mean, I would say that getting supply of grocers onto the platform has not been an issue for us. Mean, it's actually gone really well and really quickly. I mean, if you asked me 3 years ago, do would we have thought that we would be North of 100,000 stores in North America, from close to 0, I'm not sure. And if you ask me Whether or not that we would have over 20% of customers ordering outside of restaurants, I'm not sure.

Speaker 5

And I think if you asked me, would these things continue to grow as quickly as they have? I'm also not sure. And I think one of the reasons why it's been fairly straightforward in terms of onboarding these grocers is that they see in DoorDash the largest local commerce base of users that are shopping with the greatest frequency, which means it's very highly incremental. I mean, they've seen that With each grocer that we work with, we conduct incrementality tests that continue to show that DoorDash is just adding more and more sales for them. Also frankly solving new use cases that they hadn't previously solved.

Speaker 5

And I think they also see in DoorDash a partner that they can build with decades or centuries into the future.

Speaker 8

Right. Tony, if I can add one here. I think last time you Talk about in terms of grocery in the app, you tried to improve the user experience, make it more seamless, that'll help you to improve The fill rate and substitution rate, any update on that specifically? Thanks.

Speaker 5

Yes, it's gone really well. I mean, I think the results kind of speak for themselves. I mean, we now acquire more customers than any other platform, who shop in the convenience or grocery or alcohol segments than anyone else. I think we cited in Q3 that our grocery business is growing triple digits, which I think when you compare to peers, suggest that we're outpacing by many multiples. So I think the numbers kind of speak for themselves.

Speaker 4

Awesome. Thank you.

Operator

Our next question comes from the line of Mark Mahaney with Evercore ISI. Please go ahead.

Speaker 2

Hey, I just wanted

Speaker 11

to ask about DashPass and WorldPlus Members, when you think about the growth of that program going forward, this is a great customer retention, customer engagement What are the things you can do to further accelerate the adoption of DashPass? Is it do you find it Is it more features and functionality? Is it more competitive pricing or a lower pricing? What is it that allows that subscriber base to double in the space of a couple of years. What do you think are the most interesting missing features today?

Speaker 11

Thank you.

Speaker 5

Hey, Mark. It's Tony. Well, I mean, I think there's a few things here with respect to membership adoption. I think the first is Just making sure that members are aware of the savings that they're actually receiving. I think if you think about DoorDash, we have Within our own ecosystem, 100 of millions of customers who've ordered with us.

Speaker 5

But as you saw, we wrote in our shareholder letter that we have 37,000,000 monthly active customers. And so there's a pretty large base who I think we have to Meet them where they are in terms of their usage behavior and then make them aware of the possible savings that there could be. So I think thing number 1, job number 1 is really making sure that, we can make, all customers within the DoorDash and bulk ecosystem to understand the savings that they would be receiving. I think job number 2 is always increasing the value that members And so that's something that we're always working towards, and we'll add more and more benefits over time.

Speaker 3

Okay. Thank you, Tony.

Operator

Our next question comes from the line of Doug Anmuth with JPMorgan. Please go ahead.

Speaker 12

Thanks so much for taking the questions. Tony, you highlighted 7,000,000 dashers In 'twenty three, it was good to see some of the details from the 4Q Dasher survey. Can you just talk to us about current Dasher supply levels and how you're feeling about Dasher satisfaction and then also individual Dasher earnings trajectory. And then, the second question on, anything you call out in terms of generative AI benefits thus far in the business around efficiency or anything on

Speaker 4

the new product side? Thanks.

Speaker 5

Sure. Yes, your first question Doug, I believe was on DASURE I mean, it's been the healthiest we've seen. And I think this is something that we called out in the letter where it really is precisely The number one feature that we offer in the DoorDash platform is flexibility that there are such high levels of engagement, right? I mean, we have, as you said, dollars 7,000,000 plus dashers who earned over $15,000,000,000 in the year. These dashers on average only dash about 4 hours a week, 90% of them dash fewer than 10 hours a week.

Speaker 5

So they read in the vast majority north of 80 plus percent of them have other full time work. I mean, it really is in complementarity to what they already do. So I think that's one of the reasons that you're seeing that. So satisfaction is high, engagement is at all time highs and it's been easier and easier for us to make sure that we can supply the roads. That doesn't mean that we don't have work to do by the mean, we have a lot of work to do in making sure that the friction to use the app is a lot easier, making sure that, we can create more earnings opportunities for Dashers.

Speaker 5

We launched some new payment models for Dashers for the first time in 2023 in a while. So there's a lot of work to both optimize as well as innovate and create new services for Dashers. On the second question, I think was on generative AI and the benefits that we've seen. We've been working with a lot of these Large language models for probably a couple of years at this point. They certainly do serve some benefits In areas where you see lots of structured information that digests nicely into these LLMs in which then you can solve, I mean, if you see a lot of work that's been repetitive, that is done manually, For instance, a lot of that can be we've seen efficiency gains with generative AI.

Speaker 5

We're always trying to do our best to play with the newest technologies. But at the same time, I think a lot of times, the question I always ask myself is technology is a tool. We have to make sure we understand job to be done, and apply the correct tools. So I think, with respect to generative AI, we have seen in many areas, but I think it's something that's going to be explored for many years to come.

Speaker 3

Our next question comes from

Operator

the line of Brad Erickson

Speaker 13

I guess first for Tony, When you think about adding that value to DashPass that you kind of just talked about a minute ago, do you ever think about maybe partnering with anyone in kind of like an adjacent or even say different market for example or would that added value kind of be more likely homegrown would you say? And then second just for Ravi, I guess a few quarters ago now, you laid out a really nice chart highlighting kind of how your losses sometimes were going up on new verticals and geos even though your unit economics were also So as we look at the guidance, are there a lot of end markets or geos where that's still kind of the case? Or I guess, we reaching a point at some point where those two lines kind of start to go the same direction or is that maybe already happening? Just any color there would be great. Thanks.

Speaker 5

Hey, Brad. Yes, Otter, your question on DashPass and benefits of whether those benefits can come partnership or builds within. There's, I mean, a portfolio of bets here, but it really starts within, I think, understanding our own We are fortunate that we have the largest local commerce space of customers in which we can offer these benefits. And I think when you think about The depth of use cases, as well as the breadth of use cases, I mean, there really isn't any category larger than eating and retail. And so I think job number 1 is we have to first make sure we do a great job with what we have.

Speaker 5

And I think If it makes sense to have certain partnerships, we will certainly consider those. But I think job number 1 is just realizing how big of an opportunity we have within our own ecosystem and building the best products for our customers.

Speaker 3

Brian, I'll take the second one on the overall investment level, right. Like look, I mean, We're not trying to optimize the business for an overall quantum of investment dollars. When we're thinking about operating the business, right, Our goal is to maximize long term free cash flow per share. What we're seeing in the business across both new verticals as well as international His volume is growing very nicely. In fact, I mentioned to my earlier question to both Brian and Deepak, right, like volume is continuing to accelerate in the second half our new verticals business, international business is continuing to grow.

Speaker 3

Combined with that, we are seeing improvements in unit economics as we drive efficiency across the P and L. You put both of those together, that's strong signal for us both from a product market fit as well as a profitability perspective. Our goal is as long as we're continuing to see that strength, As long as we're able to drive growth efficiently, we're going to continue to invest behind that because that's a driver for long term free cash flow generation in our business. And both of those I'm very confident are going to contribute to the overall profitability of the entire business for us.

Speaker 13

Got it. Thank you.

Speaker 3

Our next question comes from the

Operator

line of Ken Garelsky with Wells Fargo. Please go ahead.

Speaker 14

Thank you very much. 2, if I may. First, on the regulatory side, I believe most of the world markets Our currently independent contractor model with the exception of Germany, it seems like the EU platform work directive is going to be published any day. And do you expect to have to reclassify what workers in Europe? And then the second one is based on is on the capital return side.

Speaker 14

Based on the 2024 EBITDA guidance and the renewed share purchase authorization, I was hoping maybe you could update us on your medium term thoughts about capital returns. You talked about maximizing free cash flow per share. I know you've talked a lot about what you're doing on the numerator. Can you talk a little

Speaker 13

bit more about the denominator there? Thank you.

Speaker 5

Yes. Hey, Ken. I can start. This is Tony and Ravi, feel free to follow. I think on your first question, which is about regulation in the EU and the Platform Workers Directive, yes, I mean, it's certainly an ongoing piece of work that regulators are coming up with.

Speaker 5

And I think the good news here is that they're doing it in partnership with industry And we expect a very productive outcome for everyone. I think that by and large, when I made my comment earlier to the I think there's an earlier question about regulation. I mean, there really are just a handful of cities across the world. So not just EU or US or other places in which I think governments don't want to work productively with companies. I think The majority a vast, vast, vast majority scenario we've seen is that governments want to work with companies.

Speaker 5

I mean, why wouldn't you? I mean, why wouldn't you want to increase the GDP of the local economy and create more work opportunities, more sales for local businesses and more accessibility for I think that every government recognizes that that's a positive sum situation for their constituents. And We see that in the EU, we also see that in most parts of the world. I think your second question was around capital allocation. Maybe I can start and then, and then, Robbie, feel free to take a rest.

Speaker 5

In general, I mean, we're always trying to look to build products for customers. And we think that that's the best way to maximize long term Free cash flow per share. Obviously, to your point, there's 2 component parts to that. There's the first component in which we're doing our best to grow as fast possible within a disciplined set of parameters that we set for ourselves. A lot of that isn't just a budget, but also just how we run the business and run different Projects against their state of progress, whether there's in search of product market fit, there's a different set of operating metrics that we look at.

Speaker 5

If they're in a phase of Scaling and looking for efficient ways to grow, there's another set of operating metrics. If they are cash flow generative, there's another set of operating metrics to look at. So I think that's on the former. On the latter or the denominator, we're always looking to make sure that we do this with discipline. I mean, stock based compensation certainly is a very real expense.

Speaker 5

We want to make sure that we're as disciplined as possible with headcount. I'm pleased with the fact that We've been relatively flat on share count over the last 6 quarters, even though revenue has grown considerably over the same time period. And Look, I think it's also been very healthy for company culture. I mean DoorDash is a company that's quite scrappy in terms of how well we or how we'd like to operate and we'd

Speaker 2

like to continue operating with the same speed

Speaker 5

and quality. Ken, you're

Speaker 3

Ken, just a couple of points, Chad, right. Like we've given guidance around Both SBC as well as the share count. I mean, you can see we're focused on driving leverage from a stock based compensation. I mean, it's a true real cost to the business. Driven leverage last year and expect to continue to drive leverage in that.

Speaker 3

And from an overall share count perspective, right, you can see the RSUs shown that we've given. We expect the overall to come down because it's actually, you know, SBC is a lagging indicator in some ways.

Speaker 13

Thank you.

Operator

Our final question today comes from the line of Michael

Speaker 9

I have 2. First, I want to ask about the partner commission rate, which you mentioned is down year over year. I was just curious, as you build out all of these new features for partners, you have under 1% churn restaurants, as you mentioned, is that rate going down just a function of signing up a lot of new merchants and kind of what is your expectation long term for Your partner commission rate. And then secondly, I was just wondering if you could talk a bit about the advertising business. And When you mentioned in your full year guidance that net revenue margin going up in the second half of the year potentially, Does the advertising business contribute significantly to that?

Speaker 9

So thank you.

Speaker 5

Sure. Hey, Mike, I'll start and feel free to add in here, Ravi. So on the first question, which I believe is around Partner commissions, we're always trying to maximize the value that we bring every single partner, right? And we're fortunate that We've generated lots of sales on behalf of these merchants and we've spent over $40,000,000,000 of R and D, sales and marketing team spend over the past few years in helping achieve that level of sales, which I think would be very difficultimpossible for these merchants to replicate their own. And I think that's why you see that those churn numbers are low and actually frankly they continue to get lower.

Speaker 5

So for us it's making sure that We're always delivering more value to these customers such that, we'll continue to grow together. I think there's a long runway ahead Before every physical merchant can truly argue, and compete on their own as companies in the digital economy, I think we've done A nice job in our 1st decade of helping the restaurant category get there, but I think we have a lot more work to do certainly within restaurants and I think we're just getting started outside of restaurants. I think your second question was around ads. Yes, I mean, the ads business has gone really well. I mean, I think that It's not something probably we've talked about that much, but it's certainly grown, I think, commensurate to the size of business that we're at.

Speaker 5

And For us, again, I think the key operating tenant here is that healthy ads business, we believe, in which It delivers best in class industry returns for advertisers as well as, continues to allow us to have the best consumer experience is one in which we have to have a healthy and growing marketplace. That's what causes or allows the cause for a healthy ads business, not the other way around. And so for us, it's always making sure that we can achieve on those two dimensions where we have the best in class for advertisers, which we believe we have, as well as the smallest or ideally 0 degradation in the consumer experience, which I'm really proud that the team has accomplished. It's done really well.

Speaker 3

Hey, Mike. I'll take your question around Net earning margin, right? And broaden that just to give you a little bit more context around how I expect the margins to scale through the rest of the year. Across both revenue as well as gross margin, I would expect that to increase as we go through the rest of the year. Definitely to your point as is contributing to that.

Speaker 3

In addition to that, I expect us to drive leverage from an overall DASR cost perspective. We're consistently working on quality. We're consistently trying to improve the overall efficiency we have on discounts and promos. Again, you should expect us to see drive improvements across the P and L, which will ultimately drive both revenue as well as gross margin, which will also flow through from a contribution and EBITDA margin perspective in the second half of the year compared

Speaker 9

to the first half of the year. Got it. Thanks so much. Goodbye.

Powered by Quartr
Earnings Conference Call
DoorDash Q4 2023
00:00 / 00:00