DoorDash's (DASH) Growth Slows Down Amid Economic Turmoil
DoorDash DASH is reeling with slowing business growth. Consumers are spending less on online delivery apps amid the economic turmoil, and the online food delivery business is facing a downward spiral since its boom during the pandemic period.
During the pandemic, DoorDash and Uber Technologies’ UBER Uber Eats, controlling 90% of the U.S. food-delivery market, continued to record sales expansion.
However, the situation has changed. Rather than online delivery, customers are switching back to in-store pickups to avoid delivery fees and ordering fewer dishes. Customers are also moving from ordering at fancier restaurants to ordering cheaper fast foods.
Per the Wall Street Journal, the number of orders placed on major food-delivery apps DoorDash, Uber Eats and Grubhub grew an average of 5% year over year in October and November, the slowest two-month growth since the pandemic period.
DoorDash, Inc. Price and Consensus
DoorDash, Inc. price-consensus-chart | DoorDash, Inc. Quote
DoorDash Slowing Total Orders Growth Hurts Top Line
DoorDash’s revenues have been growing rapidly in the past four years. However, the pace of growth has slowed drastically, and the company’s net losses are increasing.
In fiscal 2021, the company's revenues grew 69% compared with 226% in 2020, reflecting the massive slowdown. In the third quarter of 2022, it reported revenues of $4.76 billion, which increased 32.8% on a year-over-year basis.
DoorDash incurred a net loss of $461 million and $468 million in 2020 and 2021, respectively. As of Sep 30, 2022, the company had an accumulated deficit of $2.82 billion.
The acquisition of Wolt contributed to surging operating expenses, which pushed the company toward further loss in the last reported quarter. In the third quarter, adjusted research & development and general and administrative expenses increased drastically by 97% and 59%, respectively, year over year, due to growth in headcount and the addition of Wolt.
Rising input costs due to the raging inflation have also been acting as a major headwind for a while. Rising expenses reduced the company’s ability to maintain profitability in the previous quarters, and the trend is expected to continue.
To reduce operating costs, DoorDash recently joined tech giants like Meta Platforms META, Amazon AMZN, and Snap and reduced its corporate headcount by approximately 1250 people, reversing the pandemic-fueled hiring spree.
Meta Platforms went on a hiring spree during the pandemic period, boosted by revenue growth from its ad business to help achieve its metaverse prospects. However, as the company is facing falling revenues due to lower ad spending and a challenging microenvironment, it announced the layoff of more than 11,000 workers or 13% of staff.
Amazon also plans to lay off approximately 10,000 employees after hiring more than 800,000 during the pandemic.
SNAP is parting ways with 20% of its employees to reduce operating expenses.
Though the layoff of DoorDash employees comes as grim news reflecting the poor health of the economy, it would reduce operating expenses and help limit the net losses of the company, which is still enjoying double-digit top-line growth.
DoorDash’s on-demand delivery service is also facing extensive competition from Uber Technologies and Amazon in an extremely fragmented market.
Shares of DASH, which currently carries a Zacks Rank #4 (Sell), have slumped 61.1% year to date compared with the Zacks Internet - Services industry’s decline of 38%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It has been investing strategically in acquisitions of companies like Wolt and Bbot and forming meaningful partnerships to spread operations in the United States and globally. This would help the company to win market share against stiff competition in the extremely fragmented on-demand delivery service industry.=
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