DoorDash Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2024

There are 12 speakers on the call.

Operator

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the DoorDash Q1 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the call over to Andy Hargraves. Please go ahead.

Speaker 1

Thanks, Eric. Good afternoon, everyone, and thanks for joining us for our Q1, 2024 earnings call. I'm very pleased to be joined today by Co Founder, Chair and CEO, Tony Hsu and CFO, Ravi Anupanda. 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 actual results to differ materially from those described.

Speaker 1

Many of these uncertainties are described in our SEC filings, including our Forms 10 ks and 10 Q. 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 of the non GAAP measures to the most directly comparable GAAP financial measures, may be found in our earnings release, which is available on our Investor Relations 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

Speaker 2

our GAAP results.

Speaker 1

As a reminder, we're no longer providing full year financial outlooks and we disclaim any obligation to update our previous full year financial outlook. Finally, this call is being audio webcasted on our Investor Relations website and an audio replay will be available on our website shortly after the call ends. Eric, I'll pass it back to you and we can take our first question.

Operator

Your first question comes from the line of Nikhil Divanani with Bernstein. Please go ahead.

Speaker 3

Hi there. Thanks for taking the question. Tony, I wanted to ask about your logistics model versus some of the incumbents in the new verticals. As you build out bigger baskets within grocery, other categories of local commerce, it feels like you're competing more directly with the likes of Walmart and Amazon, which has some integrated models and significant fixed cost leverage at scale. So it seems that there's a chance that 3P model might always be at somewhat of a disadvantage on a cost to serve basis here and consumers are less paying higher prices for it.

Speaker 3

So we'd love to just get your perspective on first you agree with that or not and what leverage you kind of have at your disposal to make the model more cost effective over time? Or should we think about your opportunity set as just being a smaller segment of the market that's willing to pay up perhaps for quicker deliveries or broader selection within the context of a category like grocery for example?

Speaker 4

Yes. Hey, Nikhil. That's a good question. So, I guess this is kind of how we've always thought about it. I mean, I think 1st and foremost, we think about it from the perspective of the customer and how they're going to judge us, right?

Speaker 4

And if you think about that, while there are several factors, they're going to judge us based on what selection of retail offerings we give, certainly the cost of getting fast delivery as well as the quality of that delivery, both in terms of the timeliness, the accuracy, and especially with regards to something like grocery, whether or not we got exactly all of the items that they had specifically ordered in the condition that they would expect. And so if you think about DoorDash's journey or evolution in that process, it started by really introducing a new use case both to consumers as well as to grocers alike, which was this top up use case, right, where we solved for the middle of the week run where the items in your pantry that you consume the most often or the items that perhaps may have perished the earliest such as fruits or berries or milks or yogurts or coffees, things like this. We really started with that category And that not only solved the consumer problem that wasn't being addressed in the market at the time, it was also, an incremental occasion for retailers. And that's why we're seeing quite a lot of pull.

Speaker 4

We announced a lot of additions to the platform in Q1, whether it was with Ahold, as well as more recently in Q2 with Wakefern and we added several dozen retailers in the quarter. And so I think certainly we're seeing increasing pull from consumers and from retailers. And so on the selection front, I think we're making the mark. On the logistics question specifically, I think a few things. 1, we always thought that we had an advantage given our dasher density and the network that we've built up where the thesis would go, if you can build the largest network in the highest frequency category in the category that has the most nodes for last mile delivery, I.

Speaker 4

E. There are more restaurants than there are any other category of local retail, then you would have a cost advantage. And that's certainly something that we've seen. I mean, in fact, I think the positive surprise in our grocery business has been that even with smaller baskets and without a meaningful contribution from CPG ad dollars, we're actually seeing positive unit economics in our new verticals business. And so I think that's certainly proven out.

Speaker 4

Now in terms of and then certainly there's an advantage of the speed and the flexibility in which we can make this offering to consumers. But to your point, there is a trade off sometimes with cost. Now we believe that we'll make quite a lot of progress in terms of equalizing what we can do versus what else is out there. But there's also this other dimension, right, which is the selection. So on the one hand, 3rd party is more expensive on a point to point basis versus 1st party.

Speaker 4

But then on the other hand, it's faster than it offers more selection. You can certainly get offerings for more stores, for example, than just one single store. And so I think it's going to come down to what consumers prefer. We obviously are going to work on a model in which we can increase the amount of selection that we offer, reduce the cost in which that selection is made available and improve the quality of the process. And I think on these dimensions, we've certainly done that.

Speaker 4

And I think that that's why you see the results that we've outlined where I think it's 3rd straight quarter now where grocery has seen north of triple digits growth year on year. And so certainly, I think we're seeing that retention and usage seeing all things are pointing in the right direction. So we're pretty excited about where things are headed.

Speaker 3

Thanks, Tony.

Operator

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

Speaker 5

Thanks. If I could throw in 2 questions, please. First on ad revenue. So it looks like you're a little over nicely over $100,000,000 run rate, just looking at some of your disclosures in here. Any color on how that's progressing?

Speaker 5

Are there any areas of strength for you, things you want to verticals you want to fill out? Just talk about the traction you're seeing so far. And then just a question on the are we close to peak losses when it comes to other verticals and international markets? Thank you very much.

Speaker 4

Sure. I can start on the ad question. Ravi, maybe you can take a question on investment capacity. So Mark on ads, I don't know how maybe you're making the estimates, but our ads business is substantially larger than I think what you were quoting in the question. But I think the broader points on ads is that, it's going really well.

Speaker 4

I think that it started by certainly serving the restaurants category and we've seen, I mean, extreme adoption from all cohorts, whether it's small businesses to large enterprises. We're now working on building that product both in terms of just more self serve capabilities as well as serving more reporting capabilities so that everyone can see exactly what's going on with their dollar spend. I think what's been encouraging is that we are offering leading and best in class return on ad spend, while also seeing good engagement on the consumer front. We're also turning our attention to the CPG ad side. Obviously, that's something that came after.

Speaker 4

Our ads effort is about 2.5 years old, something like that. The 1st year and a half was really setting ourselves up for the pull from the market, which probably not surprisingly came from the restaurant side, but especially as our grocery and retail sectors have been growing on the marketplace, we're seeing increasing pull from CPG advertisers. And so we do work with all of the large CPG advertisers. We're now just building out the products to serve them to meet their demand.

Speaker 6

Yes. Mark, I'll take the second one. But just to try to what Tony talked about in the first one, right? We've not disclosed the ad revenue, but it is growing. It's growing fast.

Speaker 6

It's contributing to both revenue as well as EBITDA that you're seeing in the business. Our goal has always been how do we think about merchant ROAS as well as consumer conversion and we believe we are best in class for of those. Those are the constraints we're using to measure the quality of our ad business. Mark, as it comes to your second question around quantum of your investment, whether it's new verticals or international business, when we operate and manage the business, we are not thinking about quantum of dollars. Our focus has always been, are we growing order frequency?

Speaker 6

Are we growing retention? Are we growing unit economics across any investment that we make, whether it's a restaurant business or grocery or international business. Just to give you a sense of performance for our new vertical business, I mean grocery Tony touched on this earlier, that business is growing at 100% year on year with the fastest growing, we're gaining share. Our focus has been to continue to drive more selection, improve the quality as well as make the product more affordable. When I look at the unit economics last call, I made the comment that the unit economics have increased step function change compared to last year.

Speaker 6

We've continued to improve the unit economics from that point. When I look at the 3rd party component of our new verticals portfolio, that business has been unit economic positive for several quarters. If you have a business that's growing very fast and the unit economics are continuing to improve, we like what we are seeing and we are continuing to invest behind that strip. Very similar dynamics on international business where if I look at the growth rate for our business compared to peers, we are growing substantially faster. In some cases, we are growing 5 to 6 times faster, which is causing us to gain share in majority of the markets that we operate.

Speaker 6

Very similarly on the unit economics, very good improvement year on year where the unit economics for the international business as a whole has been positive for a few quarters now. At the same time, the restaurant portion of our international business, there are several countries which are contribution margin profitable. So you put that together, right, like both the investment areas are growing nicely. They're improving in terms of unit economics. We like what we're seeing in both of those businesses that's causing us to continue to invest.

Speaker 6

And I do expect the growth as well as unit economic improvement to continue through the rest of the year.

Speaker 5

Thank you, Ravi. Thank you, Tony.

Operator

Your next question comes from the line of Michael Morton with MoffettNathanson. Please go ahead.

Speaker 2

Hey, thanks for the question. First one maybe for Tony, just a follow-up on Akhil's and then the second question for Ravi. Tony, you've spoken a lot about the importance of selection and improving selection in the grocery business and you've added several new grocers recently. We'd love to know if there's any restricting factors in bringing all the nation's grocers onto the platforms. And then what's the timeframe for having your selection at parity with the largest competitors?

Speaker 2

And then for Ravi, we get a lot of investor inquiries looking into better understanding where the incremental investment dollars are going, especially like DashPass for restaurant has hit the scale it has. Is there any way that you could kind of bucket for us to help us think about the different segments of investments within restaurant, new verticals and international and if you still feel the same level of confidence about the inflection in the second half of twenty twenty four? Thanks.

Speaker 4

Sure. I mean, I can take the first one. I mean, I think, Michael, I guess, as an add on or maybe in part a repeated message from the first question, we're seeing increasing, I guess, inbound interest on the retail segment. That's true in grocery. That's also true in other retail segments.

Speaker 4

We added, for example, Lowe's, which is our 1st retailer in the home improvement category. We're now quite active in terms of what we offer to consumers in the health and beauty category, the apparel category, the electronics category. So I think this goes much beyond grocery, I guess, would be the way I think about this. I mean, I think to stop just at grocery would be certainly not what our customers would expect or what they would demand. And it's also not what retailers want either.

Speaker 4

And so I think increasingly retailers and consumers alike are seeing DoorDash as a one stop shop for buying everything inside the city. So we're actually seeing the opposite of resistance in terms of joining the platform. I think the question is just like how do we prioritize the roadmap? How do we make sure that the sequencing is right so that we can get all of these things to work? Because a lot of times how we work with these retailers, it's not just adding them to the marketplace, which obviously serves one job of bringing them incremental demand, but we also work with them by helping them with their own platforms, right, like their own e commerce capabilities and selling 1st party to their own consumers in an increasingly digital way.

Speaker 4

And there's a lot of products there too in which we integrate. And so there's a lot of work in both first party and third party. It's more a matter of sequencing than it is anything.

Speaker 6

Yes, Mike, I'll take the second one, right? Maybe I'll broaden out the question a little bit. Look, I mean, I feel really good about the progress we've made in the business, not just in Q1, but the last several quarters. The business is growing quite nicely across all major lines of business, whether it's restaurant, grocery, new verticals or international. And like I said before on the Mark's question, we're seeing improvement in unit economics across the board.

Speaker 6

I do expect the second half EBITDA to be higher than the first What's driving that is the same thing that we saw in 2023 as well as 2022. I expect the volume to be higher in the second half across all lines of business. Unit economics are continuing to progress quite nicely. I do expect further improvement in unit economics. The investments we are making in H1 that will drive both scale as well as leverage in the second half.

Speaker 6

The scale plus the leverage that's going to lead to increasing EBITDA in the second half compared to the first half. So overall, when I look at Q1 as well as the Q2 guide, I'm very pleased with the performance and I expect the full year to be very strong as well.

Speaker 2

Thank you so much.

Operator

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

Speaker 4

Great. Thanks for taking my questions. I was wondering my question is really relating to regulations. Obviously, you guys saw a little bit impact in Seattle and also in New York. And how should we think about maybe other cities potentially moving to a similar wage policy?

Speaker 4

And also, how should we think about the EBITDA impact? You've mentioned 1% impact on orders and just wondering what is the impact on EBITDA? Thanks. Sure. Maybe I can take the first part, and then Ravi, you can take the part of around the financial impact.

Speaker 4

I mean, I think it's pretty clear in both Seattle and New York City as maybe you have read, James, in our press release that I mean these regulations clearly are having the opposite impact of what they intend to do, right? I think they certainly report to help drive earnings, but instead what's happening is it's making the service a lot less accessible and a lot less affordable, right? It's increasing costs, which makes it such that consumers have to pay more, merchants are making less as a result and drivers are getting fewer work opportunities. I mean, that's what you see in both Seattle and New York. I mean, to the effect where even I think dashers, merchants and consumers in Seattle are lobbying their lawmakers and regulators and elected officials to overturn the regulation.

Speaker 4

So I think that's the unfortunate part of what's actually happening, which is it's literally having the opposite impact. Although this probably could have been predicted, as I think we've been telling lawmakers and regulators alike. But I think to the broad question that you're asking, this is kind of what we've been saying since, I guess going public and honestly what we predicted even 10 years ago when we started the company that most governments and lawmakers want to be productive participants in working with businesses to provide a service that deserves to exist in cities. I mean, why wouldn't you? I mean, think about the 1,000,000,000 of dollars or tens of 1,000,000,000 of dollars that you're adding to the local economic GDP, or the fact that you're offering a service that consumers love and a place where anyone can really earn extra income on their own time.

Speaker 4

I mean, who wouldn't want that? And so I think most governments think like that and that's true across the world, not just here in the U. S. But there are a handful of cities where you listed a couple of them where they're antagonists to this perspective. And in some ways they would prefer the opposite of creating positive GDP inside their cities.

Speaker 4

But I think that's still limited to the handful of cities on one hand that we've kind of forecasted both 10 years ago when we started the company as well as what we've been saying ever since going public.

Speaker 6

Yes. James, on the second point, right, we're not disclosing the exact EBITDA impact from both New York and Seattle in Q1. That said, we did absorb a meaningful amount of cost in the quarter. Look, I mean, our approach to regulatory markets has not changed. 1st and foremost, our priority is to ensure that we're making the business more efficient, which we did in Q1.

Speaker 6

We did pass on some fees to consumers. I do expect that every market that we operate in over time will have sustainable unit economics. I do expect us to reduce the cost that we are taking in Q1 to go down over the course of the rest of the year. It's not going to be a step function change in, it will be gradual over time. But we expect both markets to be sustainable from a unit economic perspective going forward.

Speaker 2

Great. Thanks.

Operator

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

Speaker 7

ahead. Great. Thanks guys. Maybe let me go back to that last comment you just made about every market they're in, you're looking to have a sustainable unit economics. Can you help us understand a little bit more on driving durable profitability in food delivery, sometimes competitive dynamics are advantage.

Speaker 7

Just walk us through like how should we think about sort of the different countries and how you're managing the international portfolio just to make sure that all the markets that you're in can actually get to profitability over time?

Speaker 4

Yes. Hey, Brian, I can start and feel free, Ravi, to chime in. We're very pleased with our international portfolio. I mean, now it's about 29 countries outside of the U. S.

Speaker 4

So to your point, it's certainly an expanding portfolio, which makes it more complex to manage. But at the same time, the business is a minimum efficient scale business, where in each zip code or collection of zip codes or locale, if you can achieve minimum efficient scale, every dollar or every order that comes after that point kind of becomes dollars that you can use to eat up all the investments that you've made in the market. So we feel pretty good about where things are heading. I mean, we are continuing to expand. I mean, I think that's really the story of international right now in the sense that we're not even in the geographies that we are in, in 100% or even close to 100 percent of the populations.

Speaker 4

And so we have a long ways to go in terms of getting to the cities that we want to reach. We certainly have a long ways to go in adding merchant selection in restaurants, outside of restaurants. We have a lot of work to do to bring the product portfolio that we've kind of built over the years equally or evenly across every country. But we like what we see, right? I mean, like if you think back to the investment thesis we had when we teamed up with Volt, for example, which certainly added very quickly, our international portfolio, it was really just two things, right?

Speaker 4

One was, if we were to team up with the product that and the company that had built the leading product when it came to retention order frequency. And number 2, that we can find the best operating team to be singularly focused on running the international business that that would be the most capital efficient way to grow outside of the U. S. And certainly both of those dimensions have been true. I mean, I think on the business side, I think Ravi may have mentioned this, but we're growing many times faster than our peers and that's been sustained over the last 2 to 3 years and that continues to be the case.

Speaker 4

And then on the second point around the management team, Mickey and the team have done a phenomenal job of running obviously the Volt portfolio, but then also adding on countries in the DoorDash portfolio outside of the U. S. And so they've done a really good job across all of those dimensions, which frees up management bandwidth to focus on obviously the core U. S. Restaurants business, but then also adding other legs growth, whether it's the platform business, the new verticals business, the ads business and obviously other initiatives we're investing in for the future.

Speaker 3

So I think all of

Speaker 4

that is teaming up really nicely. You've also had this nice cross team learning dynamic where we're certainly introducing things to the Voalte team and those markets for the first time, which is adding both top and bottom line impact and conversely the other direction. So I think when I look at how things are going internationally, they're going pretty well.

Speaker 6

Yes. Look, I mean Brian, I'll just add a couple of points to what Tony talked about, right? Like what we're managing the business towards each and every individual market, it's retention, order frequency and unit economics. When I look at the dashboard where we look at this by city, we have done a major improvement across all three metrics. We've seen a material progress on all three metrics over the course of the last couple of years.

Speaker 6

And the proof is in the pudding, right? Like I talked about the fact that there are several countries within the world portfolio as well as our national portfolio, but the core restaurant business is actually contribution margin profitable. And the unit economics across the international portfolio is actually profitable for the last several quarters in a row. As we continue to add more selection, as we continue to make the product more affordable, we are starting to see that response, right, like MAUs are growing at a double digit rate, order frequency continues to be at an all time high. This is what gives us confidence that the business is doing really well as well as we are gaining share compared to peers.

Speaker 7

Great. Thank you both.

Operator

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.

Speaker 8

Thank you so much. Maybe one big picture one if I can. When you think about the SKU of an incremental investment dollar in the business, how do you measure where the better dollar might be spent between either end demand generation and driving further GOV growth and penetration in new verticals compared to a dollar of investment in platform innovation, product innovation and how that maybe sets the platform up over the medium to long term. Would love to get some broader thoughts on evolution of that SKU and relative ROI. Thanks so much.

Speaker 4

Sure. Hey, Eric, I mean, I can maybe start. I guess in some ways it hasn't changed in the sense that it almost always starts with what new products are we going to build to solve problems for customers better, right? The difference is that the surface area in which we apply that thinking has grown pretty tremendously. Obviously, 4 years ago or 5 years or 4.5 years ago, it was really applied towards one kind of line of thinking, the U.

Speaker 4

S. Restaurants business, which was of size, but it was still just more of a singular business unit. But then when I think about kind of the legs of the stool today, you obviously have the U. S. Restaurants business, which has been several fold bigger, but then you kind of have like 3 more that we've added that are now at scale.

Speaker 4

You have the platform business, the new verticals business, the international business and then you kind of have a small thing that's just getting started. It's like 2 and a half years old, which is the ads business. So but it's still the same idea where we found that the most capital efficient way to think about the next dollar invested tends to be what product can we build to solve some problem better. Either it's the same problem, but we're solving it better and finding basically the next level of product market fit for the next cohort of customers who obviously have higher expectations than the previous cohort or it's solving a problem for the first time when we entered, for example, the grocery segment 3.5 years ago, where that was solving customers for the or meeting customers for the first time in that category. And so that's in general kind of how we think about it.

Speaker 4

And then there's like other types of capital allocation decisions, right? When you start thinking about whether it's M and A or possible buybacks and things like this, but those tend to be slightly different computations and calculations. But with respect to like generally how we've done things, it tends to be do you spend the incremental dollar by best solving the next job to be done for the customer?

Speaker 6

Maybe I'll just add to what Tony talked about. For us, our business ultimately depends on making the product better for consumers, merchants and Dashers. When we think about where to invest dollars, the first dollar is always going to go to making the product better. So that's adding selection, whether it's improving the quality or continuing to make the product more affordable. We are very scientific, we're very disciplined when it comes to measuring ROI.

Speaker 6

We obviously look at all aspects of that. We measure that both on a short term as well as a long term basis. But sometimes we just set ambitious goals and give the team the flexibility to continue to innovate. With the goal being, if you build the best product, consumers are going to come back, they're going to order more with us, which builds scale and ultimately that drives long term free cash flow generation in the business.

Operator

Your next question comes from the line of Andrew Boone with JMP Securities. Please go ahead.

Speaker 1

Thanks so much for taking my question. Tony, can you talk about the drivers of the platform services acceleration that you've seen over the last year?

Speaker 4

Sure. I mean, I think there's been many things there. But I would say it's really probably like 2 thematic things where one, we're continuing to offer fulfillment services through DoorDash Drive, which is the first product we launched as part of the platform services portfolio just into more places, right, whether that's more countries, more verticals. I think it's really encouraging to see that every retailer out there, whether they sell food or sell other items recognizes the importance of delivery and how also how that's net beneficial to their companies because the omnichannel customer is more valuable than any other customer who shops exclusively in one channel. And second, it's really just new products, right?

Speaker 4

We're always building new things. If you think about what platform services or the vision of the business is, it's to effectively enable any retailer to do what DoorDash does on its marketplace, for their own customers, right? And so that goes much beyond fulfillment. You're going to have to do everything from online ordering all the way to customer support, right? And there's a lot of activities in between that you kind of have to get right.

Speaker 4

So the second is just always building new products. So I think this is a nice example of, I think, the answer to the first question around or a previous question around capital allocation, which is how do we and then move on to the next job, right? But that's really what we and then move on to the next job, right? But that's really what we've seen in platform services and it's just really great to see I think for every retailer, a physical retailer, that's just increasingly becoming more and more aggressive in investing in digital.

Speaker 6

Thank you.

Operator

Your next question comes from the line of Ron Josey with Citi. Please go ahead.

Speaker 8

Great. Thanks for taking the question. I wanted to maybe, Tony, take it back to take rates and sort of where we stand. I think in the press release, you talked about reduced average delivery time, defect rates, net consumer fees per order lower. So I was curious if you could talk just about the contributions of these changes or these improvements to overall take rates and on a scale of, call it where we are and the continuum of how things are going, sort of how much more is there that can just improve?

Speaker 8

And I'm sure the answer is infinite, but when we think about defect rates coming down, I think that was a pretty material rate on impact on take rates. So any insights there would be helpful just on delivery time, defect rates, just overall efficiencies. And as a follow-up to Andrew's question on platform services, just curious, we've been highlighting it for the past couple of quarters, would love to hear just, are we seeing more adoption amongst restaurants today versus

Speaker 2

a few years ago? Thank you.

Speaker 4

Sure. I can take both of them. I think the first question was around just how do we see like I guess benefits to the consumer product improving over time. And I mean look, I mean this is one of those things where it's really a game of inches and then you're just following the laws of compound interest, which tend to get underestimated, right? And so you're totally right.

Speaker 4

I mean, like consumers demand improvements across the board. They always want lower prices, faster deliveries, higher accuracy, more selection, better customer support. That is always going to be true. And I think the thing that just at least for me, like that that's been just

Speaker 2

a lesson

Speaker 4

learned over almost now 11 years, but over 10 years of doing this is that we always underestimate, I think, how far these things can go. And fighting human nature, right? I mean, because I think human nature wants to know that there's some marginal return that becomes a concave function. And I think what ends up happening is you get surprised either by the next technology platform or you just get surprised by how compounding works. And so that's always been my experience so far.

Speaker 4

And so we're always going to keep pushing the envelope. And so far we keep seeing more ways to make improvements to the product, in part because that's what customers expect. And that's actually why I've always believed that customer expectations have always been been candidly the highest or the most difficult form of competition. I think your second question was around platforms and our restaurants may be adopting more now than before. I think it's a few things.

Speaker 4

So I think when it comes to adopting products to help retailers, physical retailers become more digital, It's one of these things where it's a journey and sometimes the journey takes nonlinear steps, if that makes any sense. Because if you think about it from the perspective of the merchant, I mean, they have so many years of running a physical business and it's such a big part of their businesses still today that they kind of just have to get right, right? And if that goes wrong or any shock to that system, then it's a really big impact to the overall company and the people who work there. And so sometimes these things just kind of have like a natural rhythm that may take a little bit longer than you would expect. But I think what's encouraging is just that the appetite is moving in one direction.

Speaker 4

And so, a lot of times the timing of these kinds of changes, whether it's rolling out new products or doing more with us on fulfillment or whether it's in restaurants or other categories, that's like maybe less predictable. But what is known is that the direction of travel is always in the direction of greater digital, greater convenience.

Speaker 2

Got it. Thank you, Tony. Appreciate it.

Operator

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

Speaker 9

Great. Thank you for taking the question. Just want to ask on the core U. S. Restaurant business decelerates slightly in the quarter on a pro form a or ex leap year basis.

Speaker 9

What was the major driver that I know a lot of large numbers could be playing a factor here? And if you'd be willing to share if it was still a double digit grower ex leap year in the Q1?

Speaker 6

Yes, Bernie, I mean, I'll take this one, right? Like, I mean, I look at the performance of the business in Q1, I mean, I was really pleased with the overall progress and performance of the business. I mean, the U. S. Restaurant business is large at this point.

Speaker 6

It's growing. It's gained share in the quarter, not just in Q1, but I look at over the course of the last year. When I look at users and auto frequency, both have continued to grow quite nicely. Users, last quarter we talked about the fact that we have more than 37,000,000 consumers on the platform. That number has continued to grow since that point.

Speaker 6

The growing users are double digit rates. Order frequency continues to be at an all time high. When I look at the underlying cohort performance, I mean it's very strong. CashPass subscribers continue to be at record highs as well. But look, I mean, we invested to continue to expand the size and scope of the platform and the opportunity in front of us.

Speaker 6

When I look at new verticals, that business is growing. Grocery we talked about that business is doubling for 3, 3 quarters in a row. International business is growing quite nicely. Our strategy of having multiple categories in multiple countries is going to allow us to really drive strong growth for many years to come.

Operator

Your next question comes from the line of Lee Horowitz with Deutsche Bank. Please go ahead.

Speaker 10

Great. Thanks for taking the question. I just wanted to ask on the macro environment a little bit. You've heard from a number of restaurants change this quarter indicating incrementally weak consumer demand environment with inflation perhaps being in place higher for longer, finally catching up to the consumer. Can you comment at all maybe what you're seeing in the overall macro environment in terms of overall demand into the restaurant business and how that may be impacting sort of your outlook for the 2Q and the rest

Speaker 1

of the year? Thanks so much.

Speaker 4

Yes, I can take that. I mean, in general, we're not seeing, I think, the signs of strain on the consumer. But I think it perhaps has something to do with the segment that we operate in, which is digital and delivery. I do understand that there are some headwinds that certain merchants face when it comes to in store traffic. But when it comes to all things digital, we're actually not seeing, I think, those same signs of strength.

Speaker 4

I mean, even, for example, in the U. S. Restaurants business, I mean, the growth is pretty consistent over the last 6 quarters. So it's that's whatever 18 months or something that that roughly has been true for. And so we tend to see that to be true there.

Speaker 4

We even see it true in other categories, even categories like grocery where you're still seeing very sticky or very high inflation in terms of input prices, which has led to high prices on grocery items. But I think on the digital side, we tend to see pretty strong demand and that's why you see relatively stable growth.

Speaker 6

Yes, Beren, just to add to that, right, like demand continues to be very strong. You can see that in the cohorts as well. When I look at the 2023 cohorts, they're as strong as any of the other cohorts we've seen. I talked earlier on the previous question, order frequency has continued to set an all time record in Q1. And when we look at the newer cohorts, they're actually joining the platform at higher order frequency compared to many of the older cohorts.

Speaker 6

DashPass also had a very good quarter. Last year we ended DashPass with over 18,000,000 subscribers. That number has continued to grow. So when I look at the growth across all three lines of business, we are really pleased. All three lines of business growing double digits, very strong as well as gaining share across the board.

Speaker 6

Very helpful. Thank you.

Operator

Your next question comes from the line of Ken Garelsky with Wells Fargo. Please go ahead.

Speaker 11

Hey, this is Alec Brendolillo on for Ken. I appreciate the question. You noted earlier in the call that the investment that you're going to make in New York City and Seattle around the minimum wage was going to decrease through the year. I'm sure there's a fee consumer fee component of that, but it also sounds like there's probably operational changes that you're making in those markets to improve profitability. So could you maybe speak to those, to the level of specificity you can?

Speaker 11

And then maybe secondly, I think that thinking about DASIER supply since COVID, it seems like it's been a little cyclical in 2021 when people are getting supply check stimulus checks, dasher supply was tight and it seems like it's been very favorable over the last 12 to 18 months. Could you maybe just speak to your outlook for debt for supply? Should it remain healthy over the next year or 2? Any potential changes to the supply environment would be helpful too? Thanks.

Speaker 4

Sure. I mean, I can start maybe on the question. I think in general, when comes to regulatory, it's honestly just making the best with what you have, right? And so it's I mean, we know what customers expect. They want the widest selection.

Speaker 4

They want the lowest prices, the best quality and the best levels of support. So

Speaker 2

that's what

Speaker 4

you should expect us to do in any market. And then also at the same time, I think work with regulators to show them, I think, the impact of some of the work that they've contributed, whether it's and especially when it's gone opposite of what they hope to achieve, we certainly want to show them those results too.

Speaker 6

Yes. Just to add to what Tony talked about, right on Seattle, New York, you're right. I mean, we did absorb costs in Q1. I do expect the amount of cost that we'll absorb to reduce as we go through the rest of the year. That's largely being driven by further improvements in efficiency, whether it's logistics, quality, credits and refunds.

Speaker 6

We're going to take a look at the entire P and L and C where we are going to continue to drive efficiency, which will ultimately drive improvement in unit economics. And at the same time, our goal is to ensure that all the markets that we operate in have sustainable unit economics. When I get there, it's going to be gradual, but that's the goal for us in general. And I think the second point around DASH our supply, supply state continues to be very healthy. When I look at DASH our cost, we've driven leverage and efficiency despite absorbing some of the regulatory costs on a year over year basis.

Speaker 6

As I look ahead for us, efficiency largely comes from improvements that we are going to make on the product side. If you look at over the course of the last year, we've made a number of improvements whether it's redesigning the Dasher app or updating the way Dasher's earn on the platform. All of that is driving increase in Dasher retention, which is making Dasher acquisition more efficient. And at the same time, we are seeing more hours from existing Dashers, which is making Dasher pay also more efficient. We have a long list of improvements that we continue to plan to make, which will make DASHA costs overall more efficient across the board.

Speaker 7

Thank you so much.

Operator

Your next question comes from the line of Douglas Anmuth with JPMorgan. Please go ahead.

Speaker 4

Thanks for taking the questions. Ravi, you talked about higher EBITDA in the back half relative to 1 to the first half. I was just hoping you could help us understand what drives the confidence in better unit economics and then the returns on those first half investments? And also can you just shed a little more light on the step up in R and D spending in 1Q and how we should think about that through 2024? Thanks.

Speaker 6

Yes. Doug, I'll take the second half question first and then talk about the R and D spend and the outlook for the rest of the year. I mean the formula is relatively simple what we've used historically. We've seen that in 2023 as well as 20 22. What you're seeing in the business today is the core restaurants business continues to grow quite nicely, double digits as well as continue to improve in terms of overall profitability.

Speaker 3

At the

Speaker 6

same time, you're seeing the growth in new verticals, whether it's grocery or other parts of the portfolio, as well as the international business where we're continuing to improve the unit economics. Gross, I mean, a third party component of the new verticals portfolio is unit economic profitable for a few quarters now. Same is true with international where entire international portfolio is unit economic profitable for a few quarters now. We do expect to drive further efficiency, whether it's a DASHR cost, a, the regulatory costs where we absorb the cost that's going to continue to reduce over the course of the year. Quality has been a key area of focus for us.

Speaker 6

Credits and refunds are going to get more efficient. Our ads business is growing. If you combine that with the investments we're making in H1, which will drive not only scale but also leverage, I do expect volume to increase as we go through the rest of the year as well as unit economics to improve as we go through the rest of the year. The combination of both of those is going to have second half EBITDA be higher than the first half. The reason I'm confident is we've done this before.

Speaker 6

2023 is exactly the same pattern as well as in 2022. And when I'm looking at the business, whether it's Q1 or Q2 guide or the rest of the year, I feel very good about both the top line as well as the bottom line. And on the second point on R and D, I mean, look, Doug, our goal is not just to drive strong growth in 2024, right, but for many years to come. We're fortunate that we are operating in large segments where we still find great opportunities to invest. The key investment we're making is continuing to improve the product.

Speaker 6

As we improve the product, you're seeing that impact both retention going up as well as order frequency going up. For us, we are adding headcount this year. We're going to be thoughtful. We're adding engineers to help us improve the product. When I look at the rest of the year, I would expect OpEx levels to be similar to what you're seeing in Q1.

Speaker 6

But longer term, our goal is to continue to drive leverage on OpEx as we continue to grow the business.

Speaker 7

Okay. Thank you.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect your lines.

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Earnings Conference Call
DoorDash Q1 2024
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