[I own DoorDash stocks.  This is not investment advice.  Please do your own due diligence.]

DoorDash announced its 2022 Q3 earnings last week and the disclosed results confirmed my prior predictions: DoorDash is doing well.  

“Food Is The Most Resilient Category”

Many investors see DoorDash as the ultimate “consumer discretionary” stock that would see its demand collapse in a recessionary and/or inflationary environment.  On Aug 9, 2022, I wrote a piece titled “DoorDash Is A Resilient Business.”  I was making the counterargument that DoorDash is the exact opposite.  

For casual observers, their instincts tell them that during bad times, people would want to save money, so demand for food delivery would drop.  This argument sounds logical, but the fact is that it goes against the facts!  

In the face of an uncertain economy, DoorDash is still growing at a healthy pace.  DoorDash stand-alone (i.e., excluding Wolt) GOV grew at a rate of 21% YoY.  DoorDash’s international business Wolt, its GOV growth has actually accelerated to reach a rate of 60% YoY (constant currency).  

Let’s zoom out and take a look at other countries.  In Turkey and Argentina, the two struggling economies with sky-high inflation, their local food delivery businesses are still fine (see Delivery Hero and its prior earnings call).  In China, where the local economy is relatively weak compared to its own history, Meituan is still growing.  In Brazil, we see a similar story:  iFood is growing its GOV north of 20% YoY, while in USD terms, Brazil’s GDP has been in decline for 10 years!  Clearly, food delivery is sticky.  Food delivery is not going to disappear because of either inflation or recession.  It is quite the opposite. 

Last week, at DoorDash’s earnings call, DoorDash founder and CEO Tony Xu said, “Food is the most resilient category, I think, historically, and that has shown to be true.”

People like eating.  People also like the convenience of not having to cook for themselves. 

That is why food is the most resilient category. 

Labor Regulation on Gig Workers

On the night when the Labor Department proposed its new gig worker classification rule (Oct 11, 2022), I wrote a piece arguing that the newly proposed rule, in a sense, can be seen as good news for DoorDash. 

In DoorDash’s 2022 Q3 earnings call last week, Tony Xu said, “With respect to the DOL announcement that was made recently, it doesn’t change our business model or reclassify drivers. And in many ways, it just is an affirmation of President Obama’s administration’s determination that there are independent contractor workers out there. And that, more broadly, they’re largely quite supportive of this line of work.”

A few days earlier, at Uber’s 2022 Q3 earnings call, Uber CEO Dara Khosrowshahi said, “So as it relates to the Department of Labor rulemaking, first thing I would tell you is it effectively returns us to the framework during Obama’s presidency, which was a framework in which we grew significantly. And it doesn’t reclassify any workers, doesn’t include an ABC test. So when we look at the rulemaking, we believe that it will provide for stability going forward.”

Smaller Sales and Marketing Expense

As I wrote several times on my blog, I believe DoorDash’ business exhibits real network effects.  And one quick way to prove there are network effects is to study the trend of DoorDash’s Sales and Marketing expense (S&M).  

All figures are GAAP figures: 

• In dollar terms, DoorDash’s S&M reached a high of $446M in 2021 Q3 and has now dropped to $418M in 2022 Q3.  Remember, in 2021 Q3, DoorDash had not yet acquired Wolt.  A year later,  in 2022 Q3, DoorDash’s results included Wolt and Wolt expanded DoorDash’s operations from 4 countries to 27 countries.  DoorDash now has a much bigger geographical footprint, but DoorDash’s S&M has actually come down. 
• As a percentage of GOV, DoorDash’s S&M has been coming down for the past three years: 7.4% in 2019, 3.9% in 2020, 3.9% in 2021, and 3.1% now in 2022 Q3.

Many companies claim they have network effects, but their S&M spend keeps growing (or in some cases, grows faster than their business toplines).  DoorDash’s S&M spend is shrinking in both dollar and percentage terms while its business expands.

Some Predictions

I have been studying DoorDash, in particular the business’s underlying mechanics and how they work. At the risk of being proven wrong, let me still make an attempt to “predict” the future, or at least the direction of the future:

• Over the next few quarters, DoorDash is likely to produce Adj. EBITDA figures that are meaningfully higher than current market consensus.  On Adj. EBITDA, the current consensus is $105M for 2022 Q4 and $520M for full year 2023.
• The current consensus is that DoorDash will not turn GAAP profitable until 2026.  I feel moderately strongly that there is a good chance that DoorDash can turn GAAP profitable meaningfully earlier than 2026.  

Risks

• Macro: Economy and consumer spending deteriorate faster and by a larger scale than anticipated; for example, the world suffers a recession that is at the same scale or even more severe than 1929.
• Keyman risks:  Losing key leadership members at the top of DoorDash. 

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