DoorDash explains why it’s growing sales despite spending changes

DoorDash on Thursday reported larger than expected revenue growth and marketplace gross order value in its second quarter, indicating that, even in a rocky economy, customers are still turning to food delivery. 

The company posted revenue of $1.6 billion in the three-month period, up 30% from the same period a year ago. At the same time, the company said the total orders that it delivered in Q2 grew 23% year-over-year to 426 million, marking a record high. In the first quarter of 2022, the company reported 404 million total orders, which also came in at 23% growth from Q1 2021.

Marketplace gross order value (GOV, or the total value of its app orders and subscription fees) also hit a new high, rising 25% to $13.1 billion. That growth was in line with what the company posted for its first quarter, which ended March 31.

“We spend the majority of our time and energy building products and working to improve our execution,” DoorDash CEO Tony Xu and CFO Prabir Adarkar said in the company’s shareholder letter.

The executives added that despite broader shifts in consumer discretionary spending, DoorDash’s U.S. consumer engagement remains in line with previous years.

The company also saw U.S. merchants increase prices on the platform in Q2 that coincided with the overall rise in food prices. That led consumers to order slightly fewer items per order on average, which it said drove subtotals on its U.S. marketplace up by a low single-digit percentage on a year-over-year basis.

The growth could come as a massive relief to investors, many of whom were concerned that consumer belt-tightening in the face of a recession would spell bad news for nonessential services like take-out meals. 

In their letter to shareholders, DoorDash executives pointed to three factors explaining why the company hasn’t seen a larger impact from shifts in discretionary spending. 

DoorDash said that members for DashPass, the company’s subscription service in the U.S., Canada, and Australia, have continued to sign up. Its second quarter was the second largest period of DashPass net additions in the last eight quarters, it said. The company also said that adding new merchants to its marketplace, innovation in the app, and increased DashPass adoption helped lower the overall total cost to consumers. All of those factors helping the consumer end up driving engagement, the company said. 

“This has helped offset the impact of higher subtotals and resulted in only a slight Y/Y increase in the total consumer cost of an average order,” Xu and Adarkar said in the letter. “This has improved our affordability compared to alternatives, and highlights the benefit of DashPass to consumers as an affordability tool, to merchants as a way to drive volume in a variety of environments, and to our business.

The company’s market penetration is also relatively low. Based on third-party data, DoorDash said it estimates less than 8% of total restaurant spend and less than 1% of total grocery and convenience spend. That provides a runway for continued growth in consumers and spending, it said. 

Food is also a more inelastic category historically, the company said. In the past 60 years, spending on restaurants and groceries have declined on a year-over-year basis only twice, according to data it cited from the U.S. Bureau of Economic Analysis.

With that context, DoorDash raised some of its key outlook points. 

DoorDash raised its guidance for its full-year marketplace GOV, which it said accounts for a softening economic environment in the second half of the year. It now expects full-year 2022 marketplace GOV to be in the range of $51 billion to $53 billion, up from its prior estimates of $49 billion to $51 billion. That guides 21% to 26% year-over-year growth. 

The company also is anticipating its third quarter GOV to be within the range of $13 billion to $13.5 billion, which would indicate low growth from the prior quarter. 

Still, Xu and Adarkar said that the company will “continue assessing the impacts of changing consumer behavior on our business.”

“If consumer engagement changes more meaningfully going forward, it could prompt tactical changes to the amount of capital we deploy or how we deploy it. In any environment, we intend to maintain our long-term focus on building products that delight our customers and improve the potential of local commerce,” they added.

Ongoing macroeconomic concerns could also bring people to the company’s gig work, the company said. 

DoorDash also closed its acquisition of Wolt, its European subsidy, within the quarter.

“Wolt’s retention and order frequency metrics suggest a foundation based on operational excellence and customer obsession that mirrors our own. In June, Wolt operated with 12-month retention of nearly 30% which we believe is outstanding in our industry,” Xu and Adarkar wrote. “Wolt also has a track record of driving consistent growth in cohort-level order frequency. When combined with retention, we believe this suggests an ability to execute effectively, delight consumers in a variety of markets, and support superior growth rates and margin expansion over time.”

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