DoorDash, Inc. (DASH) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. Welcome to our next fireside chat keynote with DoorDash. We're thrilled to have Andy Hargreaves, the VP of Finance & Investor Relations with us. Thanks for joining.

Yes. Thanks for having me.

Before we get started, I have to read the disclosures. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley website at www.morganstanley.com/researchdisclosures. Some of the statements made today by DoorDash may be forward-looking. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. Any forward-looking statements made today by DoorDash are based on assumptions as of today, and DoorDash undertakes no obligation to update them. Please refer to DoorDash's Form 10-K or Q for a discussion of the risk factors that may impact actual results.

Okay. Let's -- let me start big picture about the health of the DoorDash consumer and sort of what you're seeing in spending behavior, new users on the platform. We're always sort of to the point of debating how are people spending their wallets and I think food delivery continues to be this hot button topic of will it really keep growing. So what are you guys seeing when it comes to incremental spend on the platform?

Yes. We've been getting that question pretty consistently for the last 4 years. So I think depends a little bit on what the underlying question is here, but the DoorDash consumer at this point is the consumer in the U.S. We are big enough from a scale perspective and demographically have a broad enough base. Well, essentially just asking how is the consumer doing. And that has 2 components, it's got a macro component and it has, obviously, an idiosyncratic component based on the performance of the business and the development of the product. Macro, it's very hard to tell, quite honestly. And I think you'd probably look at the same kind of indicators that you would or any of the investors out here would to get a better sense of the macro environment because quite frankly, we just have not seen a strong correlation between macro events we've seen and behavior on the platform with the lone exception, lone noticeable exception of sort of inflation spiking a couple of years ago. What we're seeing now is consumer spending seems pretty darn healthy. From an idiosyncratic standpoint and performance on the platform, we have seen really kind of healthy consumer behavior the last couple of years, in the last couple of quarters if you want to be on a shorter time frame. The older cohorts are performing really well and continuing to order more. The size of the new cohorts has been, I think, surprising really stable [ or at least ] it's surprising to us. And the order of frequency of the new cohorts and the retention rates of the new cohorts has been as good as we've seen in the last couple of years and certainly way better than they were several years ago. So spending on the platform continues to be quite solid. And I think that's just a reflection of the product getting better all the time basically.

Got it. Okay. That's helpful. So spending environment seems pretty healthy. I think we -- there's often -- there's a lot of discussion about your U.S. business. Sometimes, I feel like there's not enough discussion about what you've done internationally, and Wolt and improving Wolt. So maybe talk to us about if we could just kind of focus specifically on the international business, areas where Wolt has exceeded expectations. What you guys would do? What you thought you would do? And as you look into '25, what are the biggest sort of key points of incremental execution on the international side?

Yes. I think maybe part of the reason there isn't as much discussion about it is because we don't discuss that much about it, which for what it's worth is as effectively -- for competitive concern on our part. The Wolt business has performed really well and we had very high expectations of the company and of the team. Part of the reason that we're interested in working with them instead of any other businesses out there at the time was because of the performance of the product and the performance of the team. And not just how well they've been able to do in aggregate but they'd been able to replicate the same kind of results in lots of different places, and how they think about the business compared to how we do because it's very, very similar, like shockingly in some ways. And I think that's translated really well. Wolt itself has performed quite well. We've given them -- basically everywhere what I would call semi reliable data [ for ] And so -- yes, the business has done we've asked of it. I think they have the same challenges that we have domestically on a go-forward basis. We've essentially kind of shown that there's a path in 1 category. We now have to broaden that out to multiple categories and bring more services to merchants. And that's sort of -- I think -- while there's still growth in restaurant, that's the next leg, what has to take us from -- not just the next few years but the 3 to 5 to 5 to 10 kind of year timeframe.

Okay. Before I get to those new services and those investments, let me sort of ask you to peel back the onion a little bit on the drivers of the most recent growth that you saw. You had high teens overall order volume growth most recently. How do you guys analyze it cut it internally? If we sort of wanted to say users versus frequency or DashPass versus non-DashPass? What's the best way that you evaluate sort of the health of the business and the health of that growth?

The real answer is at the cohort level. The aggregate numbers, we'll certainly look at for user growth and for frequency. But the problem at the aggregate level is one that's become interdependent variables. And what I mean by that is the faster our user growth is, the slower our frequency growth is because new users come on at lower order frequencies. If you're doing a good job with them, they will order more over time. So that's really what you want to see, is at the cohort level, are we getting people to order more? Are they retaining at the levels that we want them to retain? Are they engaging with new categories and what is prompting them to engage in new categories? And how long are we able to drive that for? So when I'm sitting down and trying to figure out like what is really happening within the business, yes, we're doing it, looking at monthly cohort data by category, by segment and that informs, obviously, some of the comments that we were making earlier about the performance of the business. It's really looked at that level.

Got it. Okay. Let me ask you about one of those cohorts specifically that -- the very top-of-funnel cohort you mentioned has continued to grow absolute numbers. Better than expected or very healthy, however you want to describe it. Yes, I think you have about 40 million monthly active users at this point. I think you guys have said there's hundreds of millions of customers who have ordered from Dash over the years. Your competitors talk about it similarly where it's getting mouse to wows to dows and what everyone wants to do. So as you think about what has been driving more of the initial adoption of people at the top of the funnel to get them to use it monthly, to get them to use them weekly, what is it? Like what has sort of like driven that continued strong top of funnel growth?

Yes. So the monthly average user or, whatever, active user is certainly arbitrary, the time frame is, and a user [ to define ] a lot of different ways. The simplest -- and I think to your question is like have they used the platform? And what gets a person who has never used our platform to use it? Selection, awareness. Those are the 2 biggest. Selection, I think there's a perception that we have in the U.S., every restaurant that's out there that is not accurate. We still have a lot of restaurants -- there might be accurate in like certain major cities. But when you get outside of big cities, it's amazing how much selection we still don't have. Awareness, our brand is relatively well known at this point, but it's still not known by everybody. And there are certain demographics, not so much income, but like older people, for instance, who just have never used us. And like that seems amazing for people that use us every day that somebody has never even tried us even through the pandemic. But it's amazing that how many people are out there that still don't. So that's just the highest level source of new users. But there are very large and growing numbers of people who either have used us and stopped using us, usually because we made them mad in some way, shape or form. We screwed up their order and people are quite sensitive to that, if you can imagine.

Cold fries.

Yes, cold tries or the food doesn't show up, angry kids. That's not good. They thought it was too expensive. Or it turns out we didn't have the depth of selection that they wanted, right? So they've used us and then they disappeared. Then there's a whole other group of people similarly, it's pretty large and growing, who use us. I'll say semi regularly, but not regular enough. This is sort of your frequency question. For each one of those, right, the brand-new person, the churn consumer, we'll call them, and the irregular user. There's a different problem to solve from our perspective. Now all of it comes back to product, because if we do a good job with the product, we'll win in all those audiences. But there's also different marketing programs, different promotional programs, right, different pads. You want to bring them along. And we're constantly learning and trying to get sophisticated on those things. I don't know if we're all that exceptional in it at this point, but we're a lot better than we were a couple of years ago, and I think we'll probably continue to get better.

Okay. Let's try to break apart the businesses as best we can. So by our monkey math, we think the U.S. restaurant business, your largest business, we think it's sort of growing low end to mid-teens, call it, 13%, 14%. And really, the outsized driver of growth has been the U.S. convenience and grocery business growing 40% to 50%. First, your reaction to those estimates where we think we're crazy or not. No reaction?

No reaction, yes, yes.

But so -- if we sort of cut the business between 3 areas: core U.S. restaurants, convenience, grocery in the U.S. and then international. As you think through capital allocation, where you still have the lowest hanging fruit to grow going forward? Which of those 3, if you had to pick one, you sort of see the most low-hanging fruit?

Yes. Somebody asked me a lowest-hanging fruit analogy question earlier today, and I was like there's no lowest-hanging fruit in this business. It's all hard to get. So I'm going to change the question. And then if I don't answer what you're actually getting at, just tell me. There really isn't any lowest-hanging fruit, it is a combination of a digital business and an Adam's business, a real world, right? And when you start getting into the real world, especially literally doing millions of orders across thousands of places daily, messy stuff starts happening. And you can't just ship software patches for those things. So you have to go like little by little by little, which, in many ways, really is the business. Like that is the kind of day-to-day operational requirement on us as operators and it translates into financial performance as well. Now from a business building standpoint, I guess, the easiest thing to do is put more money back in the restaurant business. It's already really well developed. We have a very good handle on all the variables. We know where we can put money. We know how much money we can do. And so -- and it can absorb a lot, right? It's big. And so that's the easiest to do, but there is going to be some duration to that business. And we're a team and a company that is quite ambitious. We want to build large business over time, and that requires compounding over many, many, many years, right? And if your goal is to compound over a very long period of time, you constantly want to be reinvesting, and you want to be reinvesting across a variety of different time horizons. So that's where it comes into international, new verticals, our commerce platform, things that we haven't even talked about yet that we're putting money into. And in there, not that there is low-hanging fruit, but there is a path. And we know how most of those businesses work. There are some that are brand new that we're still learning. But like we know the things that we need to move in grocery. We know the things that we need to move in a new country and generally speaking, how to drive those variables. Now you have to go in at each country and each category is different in certain ways, but we know the big pieces and we know how to execute against them. And so executing again can be sloppy because that means going in and dealing with new merchants and all that kind of stuff and new customers and whatever, but you know what you're doing. So in there, it might be that you have a several year kind of time horizon that you're investing against, but you really do have a pretty good sense of what the markers are along the way that you're trying to get to. And really, what we're trying to do in those things is create incremental efficiency all along the way, that then we can consistently reinvest back into the business to try to grow scale. Ideally, what that does is it gives you the most gross profit dollars at the end of the day, it gives you your return and you become a bigger business. The second thing we're trying to do -- and then again, this has nothing to do with low-hanging fruit necessarily, so you can ask a totally different question at the end of this answer that might not be answering your question, but is find new things to invest in. And again, the reason for that is, okay, well, U.S. restaurants got a certain duration to it, verticals is going to have a certain duration to it, international is going to have to have a certain duration to it. But there's going to have to be things after that, right? Again otherwise, our time frame is going to be limited and we're all trying to think about what more we can do because there is TAM there and there's opportunities. So that's the process.

Good answer. That's low, mid and high hanging fruit. Okay. You mentioned -- let's me ask about grocery then, because you mentioned you know the things to move in grocery. So maybe let me ask you about those things. Because there's a lot of players with different business models all trying to go after these critical grocery CPG consumer dollars. So as you sort of look at your business, what are the biggest areas you need to move and invest in to sort of keep delivering outsized growth there?

Yes. So the simplest way to think of what we're trying to do in grocery is provide you a service that's better than you can do on your own. And we're quite far from that right now. And we would say that the industry probably is for a mass market consumer. But we think about it -- I say that because as we think about it very much from the consumer's perspective and the problems to solve are our consumer friction points, right? Right now, we don't have every bit of selection that's out there. That's a problem, right? The quality is nowhere near perfect. That stems from inventory awareness that doesn't exist. So that's a problem. And then it's more expensive. And so you get a subset of selection, delivered to you with less quality than you can do on your own for a higher price. The advantage is you don't have to go do it, but that kind of cost benefit only works for a certain subset of people. So what we need to do is work on every one of those things, right? And it can't be just one, it really does have to be all of them. The selection has to get better, the in-app search, the basket holding, et cetera, experience has to get better, the quality has to get significantly better. And then we need to create efficiencies along the way that unlock dollars that allow us to lower the price basically. And that's a process we started a couple of years ago. I think we've made quite a bit of progress, and the business is performing really well right now. But again, we're nowhere near good enough so that effectively all of our consumers, all of them are grocery shoppers come to us first. And that's -- that would be the goal.

Anything from the -- I remember the app redesign over a year ago now that emphasized grocery. Any learnings from that or areas that where you -- I think that success. Anything that didn't sort of go as well as hope that you sort of trying to change from that app redesign?

I wouldn't say there's anything that didn't go as well as hoped because actually, we got, I think, more traction than what we were anticipating associated with that. And not just that, but we were sick worried a little bit, right, that when you take that much screen real estate and put it to something that isn't what you currently do, which is restaurant, you're anticipating a decline in the restaurant business versus what it would have done otherwise. And really, we didn't see that. And so there was an upside, I suppose, associated with that, that we're quite happy with. The grocery part of the business got a lift for sure. That was anticipated. You're giving it more screen real estate. We have continued to invest pretty aggressively in the product development there. And so behind just giving it more real estate, again, the search functionality has gotten better. The basket building has gotten better, the sortation orders, all these different subcomponents to go into the consumer experience have improved. And the nice thing with all of those is the cumulative effect has been retention improving within that category, basket size is getting a little bit bigger, right? As you take a friction away from people, it's a little easier to order more. And so we're seeing good, I guess, consumer signal that the product investments we've made have had an impact.

As you think about the grocery business, grocery convenience business going forward, is supply or Dasher supply or courier supply you have to invest in? Like talk to us about sort of -- the supply now seems fine. But if you want the grocery business to continue to grow at outsized rates, do you need to invest more in supply in the couriers?

Just specific for grocery, you mean? Or...

Yes.

No, we don't think so. What -- we have millions of Dashers. And I shouldn't say we have millions of people coming to us to DASH. Within that group, there's a pretty good number of people that are quite good and quite happy to go shop for groceries. There are some that aren't. I would be in the not camp. I would be slow. I would probably be inaccurate and I wouldn't like doing it. But that's me, and it turns out when you have that many people, we have quite a few that are not me, thankfully. And so the job to be done for us is not necessarily to go acquire brand-new people. It's just to figure out who's good at it, and who's not. And we have a variety of ways we do that. And I think we've been quite effective at figuring out who the good people are and who wants those orders because some people like them, and making sure that we're routing the right orders to the right people.

Got it. I have to ask you this because I get asked it a lot, and I know you probably do as well around mitigating potential risks of documented versus undocumented Dashers. The immigration discussion in the United States is obviously front and center. So I will let you go ahead and talk about steps you're taking to mitigate the undocumented Dasher risk.

Yes. So we haven't done anything just in response to election. I think illegal activity on the platform is fraud. It's something that we don't want, and it's something that we have taken a number of steps really over the last couple of years to try to prevent. So a few of the things that we do, we now do multiple background checks. We used to just do one right when you sign up, and basically that was good. We'll do that multiple times. We'll ask for selfies. We'll now monitor location in certain ways, specifically with this in mind, to try to predict people are using -- or multiple people are using the same social security number, which is basically an indication of fraud. And so we've done a lot -- we kicked a lot more people off today than we did a year ago, which is more than we kicked off a year before that. There's almost certainly some level of fraud still on the system, and we'll continue to try to get rid of it. We don't know exactly how much because if we knew those people, we would have taken them off. When it comes to impact, honest answer is we have no idea. We don't know what the policies look like. I think there's a lot of different policies that are being considered right now that could have impacts on our business, tariffs and taxation of tips. Any one of those things in isolation is actually pretty complicated. When you throw them all together, I just -- I go, I don't know.

Wait for next year.

Definitely.

But the only thing that is sort of going on is the competitive environment against Uber, now sort of partnering with Instacart, and this sort of this sort of discussion about the suburbs versus the rural areas of the United States. So I guess, as you've had more time to see how Uber and Instacart are working together in the suburbs, anything changing from the competitive dynamics, ROIC, customer retention? Anything you call out sort of changing from that perspective?

Not really. I mean we can see it at the margin, and I think they have acquired Instacart in particular but kind of unlocked a portion of the user base that exists out there that wasn't really using any of our services, but this sounds like kind of hokey corporate speak. The competition with us really is with the consumer. And it is a retention business more than an acquisition business. So if we did a good job by the consumers that we acquire, generally speaking, it doesn't matter too much if other people are promo-ing or whatever. We have to do a better job with the product so that people will retain and order more. And that is what drives growth in our business. It's also what drives margin in our business. And if I would do a good job retaining people, I have to promote less, I have to market less and I can mature my margin profile in a lot more efficient way. And so we really -- I mean we watch those things. We watch what competitors do very, very closely, but it hasn't changed how we've approached product development. It hasn't changed how we've approached promos or marketing or thoughts about partnerships, anything like that.

Got it. Okay. Lastly as we [ compound ] up on the red clock, I want to ask one on capital allocation, because I think there's been sort of an evolving discussion about free cash flow per share. GAAP EPS seems on the table for next year. I'll touch wood for you. But maybe just sort of -- I know investing in the core is important, but if you then sort of say, after investing in the core, how do we think about the next keys to capital allocation? What are sort of the ordering after that?

Well, we have a pretty simple, I'll say, philosophy on capital allocation, which is we want to make money with our money. And if we can do that investing organically, we'll do that investing organically. If we can do that investing inorganically, we'll do that. If we can do that with buybacks, we'll do that. And our approach to each one of those is very much designed with generating a return in mind. And we want to put together as much capital to work as we can with good returns. We're willing to be patient, too, right? Sometimes, you don't have great opportunities. We're not -- maybe we're lazy from this perspective from a balance sheet perspective. But if we don't have good opportunities, we're happy to wait and see if better ones come along.

All right. Well, Andy, thank you very much. We're excited to see what happens next year. Thank you, everyone.

Thank you. Thank you.