DoorDash Earnings: Network Effect Is Driving Market Share Gains

We were impressed with narrow-moat DoorDash’s DASH strong network effect, demonstrated by the growth in orders and gross order value per order during the second quarter. The strong improvement indicates DoorDash has retained or slightly increased its delivery market share in the U.S., likely more at the cost of participants other than Uber. While unlike Uber, the firm remains unprofitable, we commend its continuing investments in enhancing the app and adding services to attract more consumers, from which the return such as top-line growth and free cash flow will be realized over the long run. Given the firm’s larger order sizes and higher order frequency, we raised our projections but kept our $155 fair value estimate. While the stock has nearly doubled year to date, it trades at only 0.55 times our fair value estimate and remains attractive.

Total revenue of $2.1 billion is up 33% from last year, driven by a 25% increase in orders, a 1% uptick in order size, ad revenue growth, and a 70-basis-point increase in take rate to 13% of the $16.5 billion gross order value (up 26%). On an adjusted basis that includes Wolt (acquired in 2022) results, gross order volume and net revenue increased by 20% and 22%, respectively.

GAAP operating loss of $211 million improved from a loss of $273 million in 2022 due to the net revenue growth (including subscription revenue from DashPass). The revenue improvement along with increased efficiency on the logistics front drove a 150-basis-point improvement in gross margin. The lower sales and marketing, and general and administrative expenses as a percentage of revenue also contributed to the lower operating loss. Management will increase sales and marketing spending in the second half due to seasonality and a more aggressive marketing plan for its revamped app and nonrestaurant delivery services. Adjusted EBITDA rose to $279 million from $103 million last year, with margins as a percentage of gross order volume more than doubling to 1.7%.