Q1 2022 DoorDash Inc Earnings Call
One of our IR website.
These non-GAAP measures should be considered in addition to our GAAP results and are not intended to be a substitute for our GAAP results. Finally this call in its entirety is being audio webcast on our IR website, an audio replay of the call will be available on our site. Shortly after the call ends.
As in previous quarters, we'll go straight into the Q&A portion so with that operator, please take the first question.
At this time, if you would like to ask a question perhaps for please press star one.
On your telephone keypad.
Okay.
Your first question comes from the line of.
Ross Sandler from Barclays. Your line is open.
Hey, Tony Premier I, just had one high level and then one kind of more near term. So in the letter I really liked how you laid out.
Philosophy around investing proceeds from the U S restaurant profit pools into these new areas with.
With precision.
I think some folks on the line here are a little worried that after volt closes.
And that philosophy called job Youre, just going to have a lot more areas by which you can.
And reinvest those profit pools.
Across all of Europe . So can you just maybe just talk about how that philosophy might change.
Post vault and then the second question is.
Based on the revenue margin and an overall commentary on take rate looks like.
Having no problems navigating supply and fuel inflation doesn't seem to be an issue, but in any noticeable changes from all the inflation out there on.
Dash or cost per order either kind of in the first quarter or anything we should expect looking ahead. Thanks a lot.
Hey, Ross, it's Tony I'll take the first one and I'll, let <unk> take the second one so on the first one as well.
Okay. Two parts first is just.
Our investment strategy with golf and then secondly, just our investment philosophy in general.
And our aspiration is to build the largest global local commerce business and we want to do that by building two assets, we want to build the largest local commerce marketplace, where we're bring everything inside the neighborhood to you and we also want to build the largest local commerce platform, where we're giving them tools to the physical businesses. So that they each can become their own digital powerhouses and thats really.
Why.
We're excited about teaming up with vault because they share that same vision to build that truly global local commerce business as well.
And you know.
From our perspective, it's really going to take a similar investment philosophy.
In terms of how we built everything else only in the investment.
The shareholder letter we talk we gave an example of how we built.
Effectively a new business from scratch in the last couple of years that they can be in the convenience category and kind of outline how we always start by first making sure that we build the best product possible.
Specially measure in terms of retention and order frequency.
Have a maniacal focus on the unit math to get the unit economics to work and then we start considering efficient ways to actually scale that business. So while we are aggressive in how we run these experiments to be able to achieve those input outcomes.
We're very disciplined about how we think about how to scale. These businesses and it's going to be no different as we think about the opportunity to team up with what we think the opportunity obviously the man's me. If you if you look at.
This opportunity globally in the in the restaurants category.
In the U S, where even as the market leader only 6% of total restaurant industry sales. If you extend that into these other categories of restaurants or convenience retail were a significantly smaller percentage. If we add in the countries now that volt ads on top of that which gets us to a combined portfolio of about 26 countries.
Almost in a noticeable percentage and then even if you combine that.
And then if you add on top of that the Digitization, that's happening on the merchants' websites and apps themselves many of which we power through products like the last driver storefront as long with other products.
We're in the earliest innings, but the investment philosophy remains the same where there is a maniacal focus on building the best in class products.
We will focus on getting.
Laser sharp on the unit math, so that that's actually positive before we.
Scale globally.
Yeah, Hey, Ross and just to add to that point, which I'll move on to the second part of your question.
If you recall, when we announced the board one of the things that we were excited about was better unit economics on the retention and so we've always gives us a more efficient engine through which we can invest internationally and that's why we had communicated was even after integrating board, we expect our EBITDA expectations for for the year to be materially unchanged, because we have essentially no redeploying capital that we would.
You've deployed the Thunderbolt engine, which is actually more efficient so.
That gets to the crux of your question on on your supply question.
We have not experienced supply shortages and we feel good about our supply position looking ahead.
Some stats to share with you.
<unk> costs as a percentage of our <unk> were lower both quarter on quarter as well as year on year, because if you recall last year in Q1, we were under supply due to bad weather as well as fiscal stimulus and we began investing in over the course of last year was what does this quarter frankly to continue to bid is supply base, where we.
Can we can address the demand that we had anticipated the second point that this is a little bit of a nuanced one batch rate are down both quarter on quarter and year on year and the reason I point to that is because in some occasions. If we find ourselves under supply you may see actually it's go up as a matter of fact, we actually had lower bad shape today than we were a year ago.
And even last quarter and then the last point I'll make is our cost to acquire new bashers. So our cost to acquire a renewed ashok is the lowest it's been in the last four quarters. So I'll, let us say, we feel really good from a supply standpoint, not just because we are investing in advance in order to address this demand, but because we don't compete.
With the rideshare for for Dash is this is a completely different.
Full of people.
Operator next question.
Your next question comes from Youssef Squali from tourists Securities. Your line is open.
Great. Thank you very much hi, guys. So just a couple of questions for me one could you maybe just talk about I know you haven't closed on <unk> yet but.
Considering their geographic footprint et cetera can you maybe just talk about how that business has performed.
Just given the warhead wins et cetera, and how has it been tracking relative to your own growth.
And then in the letter.
Tony you talked about how you guys continue to see opportunities to increase contribution margin as a percentage of that.
Market place G O V in the U S.
The marketplace I think.
Just can you just help us think through how much higher can these get over overtime tailwind next year or two as you keep as you need the money to invest in all these new initiatives that you're you've highlighted in the letter. Thank you.
Alright, thanks for the question so on the volt question specifically.
The deal is on track to close in the second quarter, we cant comment on voice performance before the deals close but in connection with in connection with the closing of the transaction will provide more detail on Quebec industry specific so.
So stay tuned for that now on your question around the U S contribution margins, we haven't disclosed the exact contribution margin in the U S restaurant business, but.
Let me try to answer your question.
And sort of qualitative terms, which is the first thing we have driven increasing margins in our U S restaurant business, while growing category share reason, that's important is because it's easier to one or the other which is either grow margins I'll go category share, but what's remarkable is the progress that we've made in actually growing both and looking into the <unk>.
There's multiple levers that are available to continue doing so without hurting growth sourced as we continue to drive up the efficiency of the logistics network that will help our margin structure in the U S.
Second as we continue improving the quality of the delivery experience that will help with.
With customer support costs as well as with refunds and then finally, there's leverage in certain parts of cost of sales as well as sales and marketing, which will help the margin structure now beyond this as our ads business scales. This is an incremental tailwind to the margin structure. So all of these things will come together to help the margins for the U S restaurant business grow and some not.
Other things with reinvestment in that in the core U S restaurant business because our objective is we're not running the U S restaurant business to harvest margins, we're still investing in U S restaurants in order to build scale and contribute to go category share.
Great. Thanks for the color prevail.
Your next question comes from the line of Steven Fox from Fox Advisors. Your line is open.
Hi, Good afternoon I was just wondering since you talked mentioned the unit economic changes on the convenience business and some of the other categories you're going into can you compare and contrast, those sort of unit economic curves.
Looking at maybe using the U S restaurants, as a baseline and how maybe some of these new categories could be different different as you sort of reach some ideal ideal scale. Thank you.
Yes, I mean, you remember that these are sort of comparing to your or do a 10 year or so it's kind of hard to compare that apples to apples, what I would say that in a matter of two years given that we've got line of sight to produced breakeven unit economics in our convenience business is quite remarkable.
You pair that with the fact that we are number one in the Canadian space and this is just in the matter of two years over time. This thing that we will do to continue driving up those margins. So.
Don't want to provide a forecast of where the margin structure gets too because you're going to even walk crawl London's away right now to walk stage, we're getting to the breakeven and in the future we'll continue driving up margins.
Today, the vast majority of the margin comes from the U S restaurant business. Other areas are sort of your margin consumer so to speak but over time as they as they hit maturity and start to see us generate more and more profits from these other areas.
Great. That's helpful. Thank you.
Your next question comes from the line of Lloyd Walmsley from UBS. Your line is open.
Okay.
Great I have two first kind of sticking to the unit economic question.
In the letter you talked about convenience looking to generate a positive variable profit in the second half can you just help us contextualize that in that and is this a big is this a big flip.
Over the last year or so and.
And what is actually what you see driving that flipped up kind of variable profit contribution in the second half.
Because.
It allowed us to take this problem that look unique group of restaurants, and actually create products around in the north to make the math work, even with lower basket size, and then picking and packing requirements.
That's what I'd say.
Suddenly a lot more we can do in terms of sort of caught up sells as well as other things, including advertising attached by the way to drive up the unit economics, and we're Super early given that it's only two years old.
Yeah.
Yeah, I think the only other thing I would add before I take the question Lloyd on hiring is just.
I think it's important to realize especially when youre talking about the immense opportunity in something like convenience or grocery which is a hundreds of billions of dollars.
More than a trillion dollar opportunity.
Globally.
It's a very long runway in terms of how we think about those to be candid I was very impressed by how our teams were able to do all the things that premier set and on top of that build a.
Our new catalog that is item base that has.
Tens of thousands to hundreds of thousands of items per store instead of hundreds of items inside of a restaurant menu rebuilt search into an item based.
Experienced first before a store based experience, there's a lot of things that the team built and they are able.
In parallel to move the unit economics, and I think it's just a it's a huge testament to the team in terms of the work that they did in both moving at the top and bottom line of building a better product that customers would be using over and again.
And then also making moves on the on the profitability front on hiring I guess, the first thing I would say is you've got to be careful with what you read because.
It's probably either not in context or just not accurate we're hiring it actually still very aggressive rates multiples in fact of what I believe has been reported.
But in general let me talk a little bit about hiring maybe in the context of.
Just our investment philosophy, because it's very similar if you look at the history of door dash or how perhaps over where we came from and maybe how we have.
Enabled this continuous efficient processes of inventing and in a disciplined way of scaling the business. It really came from the fact that we had a lot of constraints early on in the business I think for the first six to six five years of the business, we had a fraction of the financing of some of our peers.
And so there was no ability to hire a huge teams or spend a lot on marketing spend anything on discounts and subsidies we had to.
Event and win by building a superior product gain profitability in the right way is not by doing unnatural things that hurt the customer experience, but but by doing the things that would incur.
Increased selection that would improve the service quality of our deliveries that would offer more value in the form of dash pass and other programs and improve our customer support on all of these things is what led us.
Industry, leading retention, which has yielded I think some of the numbers that we've shown in the shareholder letter all time highs in our monthly active users even as thankfully customers are now finally, returning back inside restaurants.
All time highs in our dash past subscriber base, all time highs in our motor frequency across cohorts. So building the best product as well as gaining efficiencies from operations and scale economies from marketing that's really how the business has been built now when I apply that same investment philosophy towards something like hiring it can't just be.
No.
To hire aggressively has to also be to invest in systems of how we can reapply systems that we built for.
One category and make that.
Give us leverage into categories B C D E F.
And all of these ways of how we actually Architected system designed towards building the best customer experience and having the most efficient P&L.
Your next question comes from the line of Doug Anmuth from Jpmorgan. Your line is open.
Thanks for taking the questions I have two.
First I was hoping you could talk about whether the inflationary pressures seen by your restaurant partners are changing the way they interact with or utilize door dash and then second.
Also I was hoping you could talk about response from Bachelor of to your desk rewards program and any commentary kind of way of framing how much that's costing you. Thank you.
Maybe I'll start with the <unk>.
Sure.
Average order values have increased slightly as a result of completion.
Obviously, we pass on.
Sure.
Large portion of that due to our merchants so they benefit as one.
Given that they are experiencing price increases in the cost of the food.
Almost an equal this would also have a positive impact on our margins now the one thing I'll say is.
As we have seen some cost inflation for over a year now, but chicken prices and other things and so it's hard to tell exactly what impact inflation and the order volume and in consumer engagement, specifically, because we don't have the counterfactual, having said that when you step back and you look at the results in the quarter and the fact that monthly active users are at all time highs the effect of Nash.
<unk> members are at all time highs and order frequency as over time as it speaks to the resilience of the platform and the fact that the product has consistently gotten better and better and better in terms of selection in terms of quantity in terms of affordability and that leads to more consumer adoption habituation and increasing usage over time.
Yeah.
And then on your on your second sorry, Tony do you want to add something to that.
Yeah, So Doug I'll just chime in I think your question was also foreseen any behavior on the merchant and the dash on Friday, I would say a couple of things.
Inflation is definitely.
A concern we certainly are taking very seriously and we're doing that by making sure that all of our audiences are taking care of <unk> and <unk>.
And one of the things we've been fortunate to see.
So a little bit of a premier said and then ill.
Take your question on merchants doctors, which is.
It is just the resiliency of the core business of U S restaurants, where.
I think it's because.
When I take a look at all the possible areas, where consumers could spend and consume.
Meeting is still the.
One of the largest and certainly the highest frequency categories, where people eat three times a day 90 times a month if you start looking at some of the other categories. We now participate in that's well over 100 shopping occasions per month and when we have built the largest marketplace with the most retained and also the most in.
<unk> user base. It just gives us the most shots on goal in the face of something like inflation.
And when they translate that into.
Our other two audiences at merchants and dashboards merchants. They continue to see door dash is a way to actually gain sales even though.
Consumers are going inside their stores, which is fantastic and thats because <unk>.
In dining in is very complementary to actually order and delivery and then when youre dining and Youre looking for that experience to to maybe see people you haven't seen in a while and person and that's very complementary to ordering delivery because again multiple times a day $20 to 25 times a week and then.
On the on the Dasher front, what we've done is we definitely recognize that inflation is.
Is impacting dasher earnings and Thats really what we wanted the software. It was the right thing for us to do given that we had a very fortunate position of having a U S restaurants business does not only grown 250% over the last couple of years, but that have materially also increased.
Profitability is such that we can choose to reinvest reinvest those cash flows into serving all of our audiences and that's what we did we we.
We gave out two programs one was a 10% cash back on fuel expenses and the other was a bonus.
Program that was tied to the distance in which dashes would be driving and the results. So far have been.
Very very satisfying where 90% of dashes are are really really excited about the benefits that we've offered so far.
And just to just offer a little more color to what Don.
Just just described Doug.
We chose to absorb the cost of these benefits in order to preserve the things that we could have chosen to pass on the cost to consumers in decorative had an impact on growth due to consumer price elasticity, but then 70 chose to absorb the program. The program. So let me explain why we did that when we keep consumer prices unchanged.
And if we ensure the dasher and these are preserved that enables us to maximize group because in having adequate supply and ensures that the consumer quantity is Brazil, which then drives the group slightly slightly different right. So then there's the question of well how do you fund it and as Tony pointed out the U S restaurant business was very profitable and we use the profits from the restaurant.
Business for two things first as we previously talked about to invest in new areas and internationally. So on the second is to reinvest back in the core restaurant business. So we're growing scale in and generating growth in the core business historically with become use efficiencies and we've used them to lower consumer prices lower merchant commissions and fees.
Earnings today, because of gas prices business unique need for dashes, and so where we are.
Getting more investment to actually help enthused earnings gas prices revert in the future. We will revisit that this will ensure absorbing these costs is basically net neutral to EBITDA expectations.
Your next question comes from the line of Michael Mcgovern from Bank of America. Your line is open.
Okay.
Hey, guys. Thanks for taking my question.
I wanted to see if you double click into the.
The metric that Q1 'twenty two was the largest quarter for new consumer acquisition since Q1 last year, despite lower sales and marketing as a percent of revenue what's driving this and are these I was curious if these customers are still primarily coming from a restaurant from the restaurant category are there.
Sure.
Are they coming more frequently.
Non restaurant for the first time.
Thanks.
Thanks, Michael.
Let me take this question.
Yes, so if you look back.
Q1, 'twenty one so Q1 last year was elevated in terms of customer acquisition as a result of fiscal stimulus.
Ignoring that quarter. If you look at every other quarter. After Q1, when you do we will.
Quite a more customers than we did and that just speaks to the fact that we're still underpenetrated in this category and theres more customers to be acquired.
And then the last one with the majority of our business is the restaurant.
Business until a lot of these customers join and placed their first order on restaurants, but we're seeing an interesting mix change where now we've got a decent number of customers joining to actually use some of our other categories not just restaurants and so it's too early to give you a small percentage as you were talking about but overtime as jordache gets known for being.
Your destination for all things local commerce.
The source of what product these customers use when they first joined Nord Ashwin.
Only change.
Your next question comes from the line of Deepak Matthew Donna from Wolfe. Your line is open.
Great. Thanks for taking the questions two questions from US first maybe can you unpack the drivers of sustained frequency gains that's mass adoption in the non food convenience categories is very strong, but how does it look between subscribers versus non subscribers now lets consumers kind of going back to.
Breakover lifestyles are you seeing differences in maybe the type of autos in terms of time when it is placed in basket sizes, and then premier just.
Financial question.
Can you elaborate on the insurance reserves impact on first quarter cost of revenues is that some kind of accrual adjustment or is there any change in underlying unit economics. Thank you.
Goodbye.
Good bye.
Yeah, Yeah, I'll take the I'll take the first question when you talk and then and then Premier Ali handle the question on insurance.
The reasons for the frequency gains are really coming from the improvements.
In our product I mean, certainly in part some of the order frequency gains came from.
Increasing contributions from our desktop subscriber base, but if you.
When you step back I think a couple of points.
Still are very very important number one guy in and ordering delivery are very complementary and in fact, we saw this at almost every phase of the pandemic there were various geographies in various parts of the world, including the U S where certain states have reopened more aggressively perhaps than some others, where we see.
We saw that.
In the past couple of years and certainly we're still seeing that in the first quarter of this year and even currently where.
People are not substituting eating in.
With eating out the second point I would say is we're constantly making improvements to the products are constantly increasing function, whether that's restaurants grocery stores convenient stores pharmacy stores alcohol stores retail stores et cetera were increasing.
The quality of the deliveries by maniacally getting rid of defects where.
Improving affordability part of which is coming from Dash pass and we're continuously investing in customer support to make sure that we always can delight customers and meet their increasing expectations. So that's really why order frequencies are dropped.
And specifically on the depot.
<unk> user order frequency has grown and you've also got an increasing mix towards dashboards. So those two things sort of act in concert with each other.
And on your question on the question of insurance reserves.
An increase in the average claim amount driven by the outsized impact of <unk>.
Few very large claims as a result, we adjusted our reserves for both for existing claims as well as the future claims by by $35 million, which had a 30 basis point impact to cost of sales.
Even though the insurance cost increase.
Relatively small portion of our cost of sales certainly compared to other line items like payment processing of customer support and is lower than what you might see in rideshare.
So long way of saying this is an area, where we haven't because it's been a small cost we haven't focused on it but it also represents an opportunity where we can we've begun to put in place new processes to control. These costs in the long term.
The last thing I'll say is.
In the near term, we expect insurance costs to remain elevated in the near term because it takes a while for these changes to reflect in our claims data.
Going to manage within the EBITDA range.
Makes sense.
Your next question comes from the line of Brian Nowak from Morgan Stanley . Your line is open.
Thanks for taking my questions guys ever I have two the first one Tony I know you always put it a maniacal focus on efficiency and improving the process, maybe just sort of qualitatively could you talk to us about a couple of the the biggest low hanging fruit areas you still see room for improvement in the core U S.
Restaurant delivery business, that's the first one and then the second one.
Point about three P convenience, reaching.
Reaching positive variable contribution.
Was that sort of in line with what you all thought at the start of the year or is that ahead of schedule and if it is ahead of schedule or any reason why we're not raising full year EBITDA is just too small or going to reinvest and we talked about that a little bit.
Yeah, Hey, Brian .
There is still a large room to go in terms of finding more and more efficiency and really theres kind of two general ways. I think about this the first is how do we just find that next level of product market fit, which certainly would grow our retention and order frequency, even further, thereby give us even more leverage on the sales and marketing side of the P&L.
Overall P&L and then the second is really efficiency.
From operations.
Take for example.
The wait times, we still see at stores, I mean, especially given some of the labor challenges that youre seeing at whether its restaurants or whether it's grocery stores or convenience stores everyone.
In the service industry is certainly feeling this.
That makes wait times.
As well as inventory management have higher variance.
Being able to manage that variance and being able to lower those wait times and increase or improve the accuracy I should say.
Yes, the inventory management I think are all areas.
But really you can find efficiency in every line item and but the two general approaches I generally think of this as how do we build the next level of product such that our consumers love it even more which gives us lots of sales and marketing leverage and then on the other side, it's really finding efficiency on the cost front.
Okay.
And then on your question Bryan VP convenience and whenever the debate.
<unk> portion right now and secondly, any profits we generate as I mentioned earlier, we reinvest in trying to drive scale and growth. So that we maximize long term profit dollars.
Your next question comes from the line of Ronald Josey from Citi. Your line is open.
Great. Thanks for taking my question here I wanted to ask maybe a bigger picture on dash past, just given the importance and greater overall frequency of usage and we're seeing more categories being added here and available on the service and that talks to value, but I want to understand a little bit more how do you prove the value here to members and surveys that we've run one of the bed.
Parts of why people order <unk> passes because it saves money.
The amount of folks on the other side I'd say, it's too expensive. So can you talk to us about the value on dash path in marketing there and then in the letter Tony you talked about first party commerce, an under penetration here I wanted to hear a little bit more about what youre doing in terms of drive and how that might help.
To answer those questions. Thank you.
Okay.
Sure.
I can start and feel free you can prepare if you want to chime in on some of these but I think the first question around.
SaaS paas and value I kind of take this in two parts. One part you kind of answered I think in your question, which really came in the form of savings right and I think that makes a lot of times, especially for.
Users that are discovering our product multiple times, a month or possibly multiple times a week I think.
Oh.
And we will continue to make those investments, but the other thing I would say is that we also want to.
Improved product for dash path itself by making sure that we can offer.
Either exclusive or preferred types of product experiences that are only made available through <unk> as well as the fact that we're introducing so many more categories I know that overall.
Customers, who have ordered <unk>.
Ordering outside of our restaurants category. The last number we announced is around 14%.
In Q4, but in certain markets that number is much much higher than that and you see a lot of that coming from dash past buyers and subscribers.
And.
Remind me of your second question again.
Before you move on to the second question doing.
Just a couple of things to add on I mean, Youre executive I was so far as the program has been about delivering savings to consumers and that's fine because we have to start somewhere in the sort of the natural place to start over time now that we've got the program at scale and it's something that both merchants and consumers recognize the value and you can start layering in benefits that extend beyond.
Beyond just don't receive them right. So think of that as exclusive items of that sort of once your market something specifically to these these consumers. We can do exclusive items with dash button, we can provide exclusive access to certain restaurants that might be more thoughtful way compared to the restaurant today in your vicinity. We can do segmented offerings, we launched our dash by student plan and this is the wave of <unk>.
The benefits to a certain segment of the population to be more interesting for them. We can add selection so that.
Maybe you don't need from restaurants today and as a result, the savings opportunities available to you, but if you if.
If we add in grocery and convenience stores now you might have other use cases for which <unk> is actually beneficial. So there's the things we can do.
Within dashboards in order to tailor the benefit depending on who the audience isn't which is getting which is getting started.
And Ron It second question was actually about dry.
And kind of the Digitization of kind of the first party experience right and so.
First of all the premise is absolutely right I mean, I think if there is any positive from.
Covid it's that.
Every physical business was effectively forced or compelled to become a digital operations almost somewhat overnight and as a result, I think the major lesson everyone learned is that digital sales can complement their in store business and in store activity and in fact, those who have invested very aggressively in their ecommerce operations I think happen.
We really benefited and continue to have Shawn strengths and and so.
And that's what we're seeing in terms of the merchant demand and willingness to work with us to.
We transform their business models to becoming digital operations and so.
Drive obviously.
That's played a big part of that where it's effectively now diversified from starting with large enterprise restaurants only to now serving.
Everyone from non restaurants.
Convenience stores pet stores liquor stores grocery stores retail stores.
And it has a large runway both in the U S as well as globally, but it also has a big runway in serving small businesses as well and that's really why we felt storefront because a lot of these small businesses.
Arent, even able right now to have online ordering systems that will talk or seamlessly integrate into their back of house systems, and historically does that and our latest product that we've introduced as part of our.
Platform services business actually it was an acquisition.
Can be bought that product really helps manage the in store operations and becomes.
A bit of the operating system inside these restaurants and so there is a lot of work we have to do in order to build an end to end system to really power. The first party digital operations of these businesses, but it's an opportunity that youre absolutely right exist within restaurants.
Outside of restaurants globally.
Thank you Kelly.
Your next question comes from the line of Andrew Boone from J M.
<unk> Securities Your line is open.
Thanks for taking my questions I have two please so the first is from a letter it feels like convenience is starting to get to scale. The question is really what's the next category that you guys are really excited about that you think can.
You can lean into and invest behind and kind of get to that same kind of.
Variable contribution margin breakeven and kind of velocity and then the second question is just more bigger picture understood. It as you guys see larger opportunities from investing there, but can you just remind us in terms of a framework of how you think about allowing margin expansion of flow through to the model just overall.
So how do you think about kind of growth versus profitability. Thanks, so much.
Hey, Al Italia I'll take the first question and maybe for Bill can take the question on.
At the economics, and how we can reinvest those back into the model on the first.
Look all of these.
<unk> are pretty enormous right restaurants in the U S.
$800 billion I mean, if you.
We looked at grocery and convenience.
They add to over a trillion in the U S outside of the U S.
It's much larger than that and then if you include the other categories of pets alcohol pharmacy retail, we get to an even larger number and so I think when the opportunity is that large.
We don't.
I think that much about which one of them is going to get there first we instead just think about what's the right amount to invest and when to do it right and that really goes back to the investment philosophy that we kind of outlined from how we launch businesses in the first place, which and this is true for all of this is the door dash, whether it was the restaurants marketplace the platform business.
Products like drive, our storefront or the convenience business, where all the ads business that we're launching and the international markets, which really is how do we build the best possible product actually meet or ideally exceed customer expectations and keep doing that and then how do we actually line by line.
Worked down the cost so that we can achieve positive unit math before we consider spot.
And on the margin flow through question.
We're running the business with the objective of maximizing scales in the long term, we maximize buffer above us and so as Tony alluded to these categories that we are operating in the very large very underpenetrated today and Thats why we are investing to bring scale.
And would we look for is is this combination of strong signals of product market fit as well as a path to attractive unit economics. So let me give you. An example, we cited the third party. Convenience example, if you look at our dashboard today and I look at all the stores on door dash in any given day. The most popular stores in terms of orders off the top in the majority of that.
That's a signal a strong product market fit because thats the customer.
Speaking right then you'll see that in the data and so this this signals a product market fit coupled with progress that we see on unit economics.
This is what gives us confidence to continue investing because the belief is that it will lead to solid growth for many years to come.
The core U S restaurant business is profitable its.
Growing and the profit margins continue increasing and we're using those profits from that core business to make these investments. So said differently, we're not trying to manage the business to increase margins or even the dollar amount of EBITDA, because we're essentially reinvesting those profits in order to grow these other areas, but to the extent, we don't see the right.
Whether it's product market fit indicators or do they progress from a from a margin perspective, Youll economics perspective for these new areas, we scaled back and that's the discipline.
We've done the core U S business with up to this point, that's allowed us to build it.
Buffalo core U S business and so.
We will flex and adjust depending on the signals, we see but the intent right now is to reinvest. These profits provided the signals are there that we can drive growth for many years to come.
Thank you.
Your next question comes from the line of Eric Sheridan from Goldman Sachs. Your line is open.
Thanks for taking the questions two if I could Tony maybe a bigger picture question. Obviously, you haven't been a public company for very long and you see periods like this where valuation gets compressed very quickly capital becomes a little bit more constrained broadly and growth industries. How are you thinking about the <unk>.
Capital you have on the balance sheet as elements of playing offense and maybe accelerated things from a buy versus build decision and where do you want to keep the platform longer term versus using capital is sort of fortress.
Sort of shore up and keep about broader industry structures over the medium to long term would love your perspective on that given the broader market environment. We find ourselves and then maybe to ask Rob's question, a little bit differently.
Given the current labor.
Environment for delivery.
Do you see companies that have been more reluctant to maybe embrace platforms like you either wanting to partner either directly on the platform will utilize and drive and we.
We saw this in different hotel cycles with the Otas over the years were periods of time of demand or labor constraint can lead people to make partnerships in digital could.
Could we see partners that have historically been reluctant to partner with you maybe come back and think about platform dynamics.
Build their business needs.
Hey, Eric Thanks.
Thanks for the questions.
On the first one.
I think the best way to always grow is from your own cash flows right and that's why we're in a very privileged position where we are.
A very cash generating business and our U S restaurants marketplace that really allow us to make most of our investments in and.
We also have a cash balance north of 4 billion, which to your point gives us quite a lot of flexibility, but I think it's really important.
When to use capital to your advantage and maybe where not to use capital.
To your advantage I think.
From a building businesses and products perspective.
It's really important that we have to chief product market fit first right before we deploy capital to actually scale those businesses. In fact I would argue we have the first time product then find efficient ways to grow that are unique to that product and then consider deploying capital to very very aggressively scale that business.
And that's kind of how we think about deploying capital from an organic perspective, I think from an inorganic perspective I think the bar is just really high right.
M&A as I'm sure you know does not have a.
Our historical track record for success.
For us we keep that bar very very high and only really consider acting upon it if we see two things one obviously, if it's accretive to our business in terms of giving us the advantage.
Investing more efficiently.
An area that we find very attractive for years to come.
And secondly, if we find a team that we think is not only aligned on building the same thing over the long run, but how we actually built right and this really is reflected in the example of volt, which again should close the first half of this year, where we saw in their business.
World class retention and order rates.
Metrics that show that they built.
Product that is best in class loved by by really all of their audiences and they did it with an incredibly capital efficient P&L in many geographies, including a very difficult to operate in geographies and they had a team than fob.
Very similarly to how we wanted to build for the long run and what it is that we actually wanted to build and so I think.
That's really how we think about making these investments whether it's organic or inorganic, but I really do think there are times, where.
Capital.
Yeah.
It is a privilege we have now given the fact that we built the cash flow positive business as well.
A lot of money on the balance sheet with no debt, but when we deploy it as a very very important decision that we take seriously.
Your next question comes from the line of I'm sorry.
Alright.
I'm sorry, I don't think we answered. Your second question is where are you going to take that.
Yes. The second question was really around partnerships I mean.
Given the scale of our business now, whether it's the marketplace side or even the platform services side in the fleet that we have and size of that fleet.
Wood products, such as drive Theyre getting more and more interesting, particularly in this in this area.
Labor market is tight that particularly when it comes to delivery space because everyone would it.
Tony alluded to this in a more.
Good question around.
Interest and drive it began simply with the restaurants.
And now it's sort of it's all these different categories beyond restaurants at all looking to reach customers on our CMT. In fact, the same hour basis, and this is particularly relevant size of the U S will be the.
Options don't exist was actually unique to.
A unique customer experience, we are seeing the success will drive as well as the greater secular shift towards convenience drive an.
The increase.
Police conversations with partners outside of the restaurant category in different categories that actually interested in embracing.
Same day fulfillment.
Yes, the only thing I'd add Eric is just that.
Just as consumers are I guess, they are bidding behavior, where they're going back inside restaurants, a gene friend again and families again and eating together.
And there are also ordering and delivery at the same time.
Restaurants are noticing that too.
And as a result, I think the argument of increments not just in terms of incremental customers, but actually incremental orders is really starting to sink in.
The next question comes from the line of Mark Mahaney from Evercore ISI. Your line is open.
Thanks could you just touch on latest thoughts on AD revenue or yes.
Sure.
Overtime.
I think that's still very early stages, but.
Anything on timing and then on the average order frequency, reaching a new high can you provide any detail on how wide of a gap youre seeing between average order frequency for people, who just start and then it would become dash passers and then they become mature.
Dash past firms six months 12 months et cetera, like how wide is that.
Is that gap, maybe help us think about the the curve of usage in the future. Thanks a lot.
Sure.
So first on add on AD revenue, we haven't disclosed the size of the.
Business. It still is still young and NUCYNTA in and Theres a lot. There is room for it to grow I would say it is an attractive opportunity for us just given the size of our user base the frequency of interactions on our platform as well as a number of services that are available having said that we've not been in a rush to monetize.
So because we need to make sure we balance delivering an appropriate return to advertisers with the consumer experience. It would be a negative as consumer experience are impacted by conversions and back in any way and certainly over the coming.
Time periods I mean, as this business scales, we will use these incremental profits to invest into growth and to strengthen the core U S business as well as our own.
Other initiatives beyond restaurants.
On your question regarding order frequency.
It's a tough question to answer because we're continuing to see growth across cohorts.
So, let's dig Nash plus as an example, once a user joins dashboards.
Overtime that order frequency for that cohort has continued increasing so thats spread just continues to widen and so I'm not trying to avoid the question.
As an imprecise question it'll be a different story because it is order frequency has remained static but the reality is you've got growth taking place at a cohort level.
Okay. Thank you premier.
Your next question comes from the line of Brian Fitzgerald from Wells Fargo. Your line is open.
Thanks, guys a couple of quick ones. Some benchmarks essentially the micro fulfillment centers I think last time, we checked they were carrying around 2000 skus.
Can you talk about the kind of trajectory of growth in terms of locations or SKU base.
But you're running a dashboard and then.
We just got back from marketing around Europe , and we got asked.
Our remaining how is the U S North American consumer versus European.
Looking at more versus North America, any dynamics to call out there with respect to the strength of the price sensitivity of the of the.
<unk> geographically.
Hey, Brian It's Tony I'll take the question on <unk> and then.
Maybe <unk>.
Following the second question around kind of geographic differences in terms of what we are noticing.
On dashboards.
The way I think about this is.
The problem to solve isn't.
How many skus to offer inside of a dashboard or whether to build dashboards, but really to solve is how do we actually build the best convenience and grocery delivery experience and when you look at where the penetration levels are today than just take for example in the west.
Relative to where they could be I think theres a massive gap.
If anything the penetration levels today, and convenience and grocery there is fairly low and it has largely stagnated.
Post Covid and I think that suggests that the customer actually prefers perhaps either buying online picking up in store or perhaps just shopping inside the store altogether.
And so what we're trying to solve is how do we build an experience that.
It can work for both consumers.
Grocers retailers as well.
<unk> and the way we think about it is for consumers how do we build an experience that can give them exactly what they ordered.
That can.
Do it at a price point that matches their expectations with greater convenience and if we can figure that out which is going to require lots of intervention such as figuring out inventory management built from the ground up as well as.
Merchandising getting the right Skus and selection to the point of your question as well as doing it more conveniently.
And then I think that that's a service that grocers and retailers or like will want as well and thats something that we can help them with as they think about how can they add effectively another use case to their already very successful buy online pick up in store use case.
And make that incremental for them and have these warehouses that are actually optimized for doing so.
That's really what we're trying to do with dashboards.
And then on your international question in order to.
Europe .
Just as a point of reference I'm not sure the price sensitivity question to be honest with you at least based on our analysis.
If you look at outside the U S and as exclude UK for a second the levels of penetration in terms of food delivery are quite low right.
Whether it's European countries, whether it's Australia, or Japan or whatever.
And the reason for that is because it was a couple of things. One is the number of restaurants that are available and it was sort of selection problems first and foremost.
The quality of experience is iffy and.
And what I mean by that is some of these countries with food delivery is essentially lead gen, which means that it's the the restaurant that actually fulfilling the order and consumers don't have visibility into whether the order is going to be delivered.
Carla to lead and that just leads to poor consumer experience that then ultimately lead to lower adoption. So I think the opportunity is that as long as we address these fundamental building blocks of selection quality and affordability in these countries, whether it's Europe , or Australia, or Japan, or just very early in terms of their development.
It is these dimensions.
Got it thanks, guys I appreciate it.
There are no further questions at this time I'll turn the call back over to the door dash team.
Thank you Joelle and thank you everybody for the questions and your time today, we look forward to being in touch with many of you soon have a good evening.
Jim.
Yeah.
This concludes today's conference call you may now disconnect.
Okay.
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