Q1 2023 DoorDash Inc Earnings Call
Cause of <unk>.
Pandemic effects is that also what you guys saw just trying to reconcile that with the <unk> <unk> guide thanks a lot.
Yeah, Hey, Ross.
This is Tony I'll start with the first question.
And then I will let Ravi Ravi chime in on the second question. So I think the first question really was around the performance and the strength of the cohorts and our new categories.
The answer to your question is yes, I mean, the the retained.
New cohorts are.
<unk> stronger than previous cohorts a lot of this has to do with improvements in product quality. So adding selection players like Aldi, we now are.
We now serve 20 plus of the top grocers in the U S.
Number two we're also improving the quality of the experience itself, making sure that we are more accurate both in the <unk>.
Filling of the cards.
Yes.
The ability.
The ability to perfect the substitution experience when the items that we shop for are not inside the store.
And we're also doing this with greater convenience by allowing you more choices, whether you want this delivered in 30 minutes, whether you want it delivered a bit later in the day and so for all of those reasons Thats why youre seeing the cohort performance improve in new categories.
Hey, Ross on the second question consumer engagement and spending on the platform continues to be very strong you can see that our strong Q1 results as well as their double digit growth rate that we've driven consistently for the last two years in a row I'm not going to comment on the month to month, but it continues order frequency continues to be very good in fact, it's in all.
Time high retention continues to be very strong and the business retention. This past quarter is higher than the prior quarter, we feel very confident about the input metrics. We are seeing in the business and I feel very good about the guidance for Q2.
Yeah.
Thank you. Your next question comes from Deepak <unk> from Wolfe Research. Please go ahead.
Great. Thanks for taking the questions Tony I wanted to ask about your efforts on groceries verticals. It's still in early stages for you, but do you feel like you have the operating models are nailed down at this point and perhaps maybe talk about strategically what are the next steps and kind of scaling this huge opportunity and then second one maybe for Ravi It was nice to see the outperformance.
On EBITDA, but <unk> always talked about profitability being the output metric based on the level of investments that you could make whether any sort of like a strategic changes in your approach.
Investment areas and <unk> for thinking for 2023, maybe touch on areas, where youre seeing nice returns on investment areas currently as well. Thanks so much.
Yeah, I'll start with the first question, which.
Really was around grocery and the performance there.
You're exactly right I think both in terms of the numbers that we saw is that business collectively the top and bottom line I mean youre seeing continued.
Continued growth certainly in the core restaurants business, even faster growth in businesses like grocery and Youre seeing improvements in the unit economics of all of our business lines.
Altogether, including things happening overseas as well and so I think that's really what's reflected in the performance of the quarter.
And specifically on grocery while I think that we've made tremendous strides we continue to.
Grow faster than others and continue to gain share I think there is still a long ways to go.
From the perspective of building the product I mean, if you look compared grocery penetration.
In terms of online delivery in the U S relative to say online delivery of restaurant food.
It's substantially lower by by multiples and I think that's because the offline experience is still superior to the online experience, which means we have a long way to go to making sure that we can make the quality of the experience perfect, meaning you get exactly what you order that you can get it from all the places that you want to look <unk>.
Every from and that the prices are affordable or what you would expect to pay in store and I think there's a long ways to go between where we are today and where we will be in the future, but I'm very very proud of the progress that the team has made.
And your second question you don't nothing has changed in terms of how we think about our.
Investment philosophy, what Youre seeing in Q1 is a combination of a few factors obviously as your comment there would be high jewelry upside in the business, which drove some of the EBITDA upside in the business when I look at the various lines of business. Our core restaurants business is growing even added scale is continuing to grow quite nicely strong and stable growth for the last several quarters in a row the profit.
The ability of that line of business is continuing to improve our investment areas, both new verticals and international had a very strong first quarter growth has been strong we continued to gain share in both areas as well as margins have improved both sequentially as well as annually now if you combine that with the discipline. We've had on our operating expenses were Opex was flat for the last three.
Orders in the rule, that's giving rise to some of the EBITDA upside that youre seeing in the business.
That said, we are constantly looking to reinvest back in the business, but theres going to be times. When there is not going to be any efficient investment and it's okay for us to have that dropped to the bottom line in general our philosophy is to continue to drive efficient growth, while being disciplined with our investments in one other disciplined parameters of uses the EBITDA guidance that we've given.
Thank you. Your next question comes from the line of Bernie Mcternan of Needham and company. Please go ahead.
Great. Thank you.
As a general question. How you guys are thinking about the opportunity for regenerative AI for door Dash now AI.
It's probably been integrated in the marketplace for quite some time, but any new opportunities that are being opened up and then second restaurants civic partnerships like the recently announcements Starbucks how important are those for driving both <unk> contribution profit per order and just any way to frame the benefit there. Thank you.
Sure, Brian maybe I can take both its Tony on the first piece in our around generative AI I mean, certainly this is that's coming out moment right and I think it's some it's a super exciting both as a technologist as well as a user of the product, but also in terms of just seeing how fast developers are.
Candidly, making changes every day and so I think for US it's important to remind ourselves our purpose. Our purpose is really to build the defining local commerce company, which means that.
When you have two battles going on the battle for bids and digital attention in the battle for Adams, we very much are in the camp of the second category of making sure that we can win that battle. So very much the focus still remains to make sure that we are.
The highest quality last mile logistics network, and making sure that that asset is the most useful and most attractive as we think about how it interfaces with digital assistance in the future, but that said we are absolutely already.
Running different experiments.
Internally with some of the latest models that have been published when it comes to generative AI I mean, I think it has great promise for achieving productivity gains and doing especially a lot of the manual work that we have to do when we try to digitize the physical world and build the catalog for every city.
I think it has a lot of promise for making the consumer experience shopping experience a lot easier as well by reducing friction. So I think you should expect a lot of fun things to come in the future and will be a big part of that I think the second question really was around.
Adding restaurant selection and especially with companies like Starbucks joining the platform I mean, certainly this has always been a big part of building our products right I mean for us, it's always about improving selection and adding to what customers want it's about certainly increasing the quality of the delivery experience improving the affordability.
<unk> of our service as well as the customer support and so collection has always been key to making sure that we can give customers what they want to bring on Starbucks is something that we're super excited to do and we look forward to even more partnerships.
Thank you. Your next question comes from the line of Michael.
Mcgovern.
<unk> of America. Please go ahead.
Hey, guys. Thanks for taking my question.
I had two.
First is about I have noticed in the application a lot of.
Types of advertising and promotion of the New service, where you will pick up UBS and Fedex packages and deliver them for customers. So I was just wondering what the.
High level strategy is around that service because it seems to be really differentiated from what your other services are so a cool new feature and then secondly, I notice that there is a bit of a recent redesign and the layout of the interface on the application.
And I really like it because it seems too.
It's much more seamless and reorder reordering things that you've ordered in the past. So I was wondering if that was kind of a focus with this recent redesign.
<unk>.
Sure Hey, Michael Tony I'll take both of those questions. So on the first around package pickup and delivery, yes, it's certainly something that we're very excited about but I think the door dash, it's really important to again recognize what we're trying to do what we're trying to do is to make sure that we can help any physical business.
Throw in connect as many possible physical businesses with as many possible consumers and and it doesn't matter necessarily which direction.
In which travel is occurring in terms of those connections and so for us by.
Having achieved for instance in the United States. The greatest order density. We just have a lot more flexibility in terms of the choice of problems that we can solve for a lot of these customers and one of those problems that we had heard about was this notion of solving returns in some of these package orders that youre kind of <unk>.
Alluding to and so it's certainly something thats very early stage like we run many new things that <unk> all the time in the hope of solving increasingly higher customer expectation. This is one of them and we're excited about where things are right now, but theres a lot of these things happening always adored ash.
The second question on when some of the improvements with respect to reordering.
We're always trying to reduce friction when it comes to the ordering experience certainly reorders are very popular amongst the <unk>.
In particular, our most.
Keys to consumers, but there's a lot of things that we're trying to do to the App, we're trying to make it faster and we're trying to reduce the number of bugs were trying to make sure that you can find exactly what it is that you want that you can.
<unk> discover new things that might.
It might be enticing, so theres a lot of things that we're trying to do to always improve.
The experience.
And it's always with.
With the mission of reducing friction.
Thank you.
Your next question comes from the line of Michael Morton of.
Matson Nansen. Please go ahead.
Yeah.
Thank you.
I had a quick question on advertising I was wondering.
You could speak to the adoption rate you're seeing it sounds to us like Smbs are the early adopters.
Would love to hear some details about the larger <unk> and their interest in it and the advertising platform and then just last question. If you would be interested any additional details maybe around bookings growth and in new verticals.
Just to help us think about how that business is progressing thank you.
Yeah I'll start on the first question around ads and I'll, let I'll, let Robert take the second question, so with respect to advertising.
You're right we're off to a pre great start and it's a fast clip, especially given the high standards that we are trying to put out for ourselves which is on the one hand, we certainly have to meet the goals and create best in class return on AD spend for advertisers and merchants and on the other hand, we also have to achieve the best possible consumer.
<unk>, where there is.
Little to no degradation in terms of what consumers expect to see and this is hard to do because I think it's really important to remember that with any.
The marketplace business.
Certainly any desire to build an ads business. The most important thing is the engagement of the marketplace and so this is something that I'm really proud that our teams have balance.
Strong nearly one even though they've kept pace with.
I think the demands of what we see from advertisers, which is they want to run more ads and but we have to do that again in a very pro consumer way and and so we're seeing the demand.
On the advertising side from candidly every segment of merchants, whether and this goes for CPG companies. In addition to the the restaurants as well. So we're very excited that smbs have found this to be a very capital efficient way to grow and effectively serve as their marketing department and in some cases.
All the way to the largest brands in the world that you've heard of that have the biggest budgets in the world.
Our finding.
A very very large incremental use case when they work with the largest local commerce platform.
And Michael just to add to what <unk> already talked about it just specific question on the second one on AD business is growing is growing quite nicely, it's actually having an impact on our net revenue margin as well and our view for what that business is going to be is included in our EBITDA guidance for the rest of the year.
Thank you. Your next question comes from the line of Mark Mahaney.
Please go ahead.
Hi, guys. This is Ian Peterson on for Mark it'd be great. If you could just provide us an update on dash pass any engagement trends you can share there.
They're both in the U S and also.
The subscription business.
International as well.
<unk>.
Hey, Thanks for the question that came.
It came off of another great quarter, both in terms of sign ups as well as subscribers.
As we think about dash buses anything that you want in your city you can get it for $10 a month, whether it's bad food, whether it's retail whether it's grocery whether it's convenience and that's a very compelling value proposition for us and what we're seeing is and we are continuing to drive the overall product quality up as we're making the product more affordable as we're driving the selection of that's dry.
Going to more and more consumers graduate with <unk> and is driving the strength in the business both domestically as well as internationally, we're very comfortable with the progress. We've made in Q1 was a very strong quarter for <unk>.
Thank you. Your next question comes from the line of Andrew Boone of JMP Securities. Please go ahead.
Hi, guys. Thanks for taking my question I wanted to ask about Europe . It feels like you guys took share internationally can you talk about what youre seeing competitively and what's leading to greater traction and then Ravi I wanted to follow up on an earlier answer that you gave about contribution margin improving so it sounds like you are now willing to drop more to the bottom line can you just talk.
The pace of investments as it relates to new verticals is it just the <unk>.
Vertical is maturing.
You guys slowing down on any initial growth initiatives that may be more loss, making thanks so much.
Yes, I'll start on the first question, which was around Europe , and the competitive position I think.
This is a great place to remind ourselves of a lot of the investment thesis, we had behind teaming up with voltz, who runs the majority of the.
The markets outside of the U S for door Dash and and really the first thesis was that when you have the highest.
Retention and frequency.
Of engagement that that is what will really allow the most capital efficient growth, especially in a category that has.
Very very long runway is left and that's really what we've seen in terms of the execution of the whole business I mean, even against difficult comps with omicron of Q1 of last year, you see bolt.
Growing tremendously quickly at year on year, and certainly outpacing the rest of the class and so I think that a lot of that again happens to do with the strength of.
The engagement of the consumer that vault has been able to build and it's a reflection of the product quality and so, especially as bolt now.
Introduces some of their newer products with bolt plus which is it's dash pass equivalent as well as.
Some other products that it's borrowed from learning from the tour X U S business I think we're only going to see more growth in years to come.
And Andrew do the second question when I think about the contribution margin improving I think of it in terms of two dimensions. One is the core restaurant business that is growing it's growing quite nicely as well as improving in terms of profitability and when I look at the investment areas. When I think about the capital allocation I look at it across two vectors. One is does the product in <unk>.
<unk> has strong product market fit in terms of consumer demand as well as the second one is are they progressing in terms of unit economics, what youre seeing in Q1, as both new verticals as well as international Theyre growing theyre growing quite nicely, they're gaining share in both of these areas as well as the margins are improving both sequentially as well as annually now if you combine that with the fact that.
Especially on the new vertical side, we have a structural advantage, where we have a network of consumers and doctors already but it out that's giving rise to some of the efficiency gains that youre seeing in the business, which is naturally translating into margin improvement they've put both of those businesses. Together you have these businesses that are growing theyre growing nicely the margins are improving as well as the.
Core underlying fundamentals are improving it has all of the similarity of what we saw in the restaurants business very early on and we have strong conviction that if we continue to execute well. These two areas are going to be drivers of our strong free cash flow generation for us.
Put a different way, we're not slowing down any investments the businesses are just growing top and bottom line and thats, what youre seeing in terms of the flow through towards the results.
Thank you. Your next question comes from the line of Brian Nowak of Morgan Stanley . Please go ahead.
Great. Thanks for taking my questions I have two.
The first one I wanted to ask about how you think about the runway for new user growth in the U S.
Sort of what type of user growth or are you thinking about in the full year guide to grow new people to come to the platform in the U S and how do you do that at this point.
Kind of where we are in penetration than the second one on volte.
You've had the asset now for quite a while it's been executing at a pretty high clip Tony what would have been one or two of the biggest surprises to you about vault that maybe you didn't even appreciate when you when you acquired the asset.
Sure Hey, Brian I will take both questions on the first question about.
User adoption I think sometimes.
It's just important to remember that it's no different than acquiring users versus.
Getting users who may have tried the product to use the product more often which is we just have to improve the product and so whether that means we didn't have the right selection to attract a customer in that moment or that occasion, the right pricing the right.
Speed and our quality of delivery or are we messed up on customer support I mean, those are the building blocks of how we win any customer and I think the fact that people eat 20 to 25 times a week is really frankly, why I think there is such a large runway left for growth. It's not necessarily about can you serve all of the users.
And where are we on that journey.
One part of it but then you have to multiply that by 20 to 25 times per week and that potential and so thats at least how it works in my brain and to me. It's the same of whether we want to go attract new user or just when a new use case or any incremental use case of the 'twenty to 'twenty five occasions per week that a customer is eating and we know that that happens all the time.
So that's the first question on vault.
I believe is your second question.
I mean, I would say a few things that I've come to appreciate even further I think first is is really the.
<unk>.
Durability to to compete in a very capital efficient way.
It has been.
I think just really really interesting and unique I mean, I think sometimes especially now as door dash is generating more and more positive free cash flow, it's almost easy to forget.
When when some of the constraints or even tighter and the budgets were a lot smaller and I think it's been really impressive to watch what volts can do I think in that regard and that's really a testament to the team and the ability to always focus on the product to make sure that we can keep increasing the retention and the frequency.
The experience such that that's how we will actually out compete.
And make good investments not just this year, but for years to come I think the second is more of a comment around maybe the market which is.
And a lot of these <unk>.
European markets I think we.
We may be sometimes because we live in the U S or maybe we live in other countries where e-commerce has.
Has been a bit more at the forefront or just.
He has had longer to adopt.
Adopt for users that.
Lot of these countries are just kind of.
Having a lot of the physical stores come online for the first time and Thats true certainly for restaurants, but also outside of restaurants, and I think a lot of the fast growth that youre seeing.
Buy vault is their ability to serve all of the categories and then very much.
The same goals that door ash has to become the local commerce company wants to do the same thing in all of its geographies and so I think Thats shared mission is really what allows us to work really well together.
And Brian just to the specific question on the guidance point until we do expect to grow both users as well as order frequency and thats baked into our guidance that we've given.
Thank you.
Your next question comes from the line of Youssef Squali of Truth Securities. Please go ahead.
Great. Thank you I have two questions as well so just on the guidance Ravi. So again, if I look at the <unk>. The total market it looks like the midpoint of the growth is in the low twenties. If I look at the last nine months last three quarters. It was really more like 29%.
Over 30%.
Is there anything.
Related to may be Walton annualized now thats kind of causing that number to two two.
The decline or is that just kind of lack of visibility potentially considering the macro et cetera anything there could be would be really helpful and then.
I guess as you look at.
Free cash flow. So certainly your execution has been pretty pretty impressive how should we be thinking about timing.
To hit positive free cash flow for the non restaurant business on the back of that.
The stronger top line has that timing kind of shortened thank you.
Yes, So let me start with the first one on the jewelry itself a couple of points here.
And earlier that consumer engagement continues to be strong and when I look at both retention as well as order frequency I feel very optimistic about the signals that we're seeing in the business, that's what's giving us confidence to bump up the <unk>.
The rest of the year do you have specific point on the growth rate comp itself. We do lap the world acquisition in June . So you are seeing an impact of that in the second half of the year in terms of your second question on free cash flow and it also when I look at the new vertical business in Q1. It had a very strong first quarter, both in terms of growth as well.
Improvements in margin and underlying what we're seeing in the business is as you're continuing to improve the quality is continuing to make the product more affordable that's driving not just top line growth, but also we are seeing efficiency in the business and that efficiency is contributing to the improvement in our margin on the absolute dollar basis, they are not going to comment on it.
But I feel good about the investment levels and that's included in our EBITDA guidance for the rest of the year.
Yeah.
Thank you.
Your next question comes from the line of Ron Josey of Citi.
Please go ahead.
Thanks for taking the question I have two Tony in the letter you talked about double digit improvements in grocery quality and efficiency metrics can you just help us understand what these improvements were to drive the improvements in overall quality and efficiency and any insights would be would be helpful. And then Ravi just a quick clarification on contribution margins last year.
So our convenience as a vertical become variable contribution positive and so I'm wondering if other newer verticals are contributing here given the structural advantage that you've talked about or do you expect perhaps grocery or alcohol or others to start delivering.
Variable contribution margins by the end of this year. Thank you.
Yeah, Hey, Ron on the first question around the improvement in the product quality and grocery.
Part of this.
Stems from the fact that today physical stores grocery stores that is.
Don't always know exactly what's on their shelves.
That's quite a hard problem to solve for a variety of reasons. We can literally go on for hours to talk about all of the different reasons.
But that's the problem that we've gotten better at in terms of making sure that we can get you exactly what your order I'm not saying, we're perfect and I mentioned I think to an earlier question that we're still a long ways to go in terms of where I want to see this product experience, but I think we've made tremendous strides in two years that we've been.
<unk> this and I think as a result of that Youre seeing increases in the cohorts engagement that we we talked about in the letter and and Thats showing therefore both.
Basically a capital efficient way to grow because to me the most.
The best way to achieve capital efficiency is through improvements in product quality and I think that that was a very nice one to one correlation that we saw and that that really stemmed from many quarters of work that showed up in some of the results in this quarter.
And going to your second point is really just to add onto what Tony said some of the quality improvements that we're driving in the business is also resulting in the efficiency gains the third party convenient that you've talked about this but it will go up.
Profit positive and it's continuing to improve all categories within our new verticals umbrella, whether it's grocery or <unk>.
<unk> business third party convenience are improving we feel good about the progress and we talked about in the letter overall on a margin basis on new verticals is improving both sequentially as well as annually.
Thank you.
Your next question comes from the line of Rohit Kulkarni of Roth.
Please go ahead.
Oh, Hey, thanks for taking my question, so one of them.
Gender degree areas on bubbles.
Most of mine, but I can just internally speaking maybe talk about longer term.
What are you thinking about using AI to improve productivity of the engineers marketing salespeople I think structurally do you see kind of broad ocean. All silicon valley companies are going to be much more profitable as they start to figure out applying AI to all the internal processes BBVA becomes the first.
Without these productivity.
<unk> and then the second question is on just the new vertical margins.
It's been a couple of years since you have how do you see where it goes and.
It seems that.
Yes.
The overall margin profile.
So maybe just structurally can you talk about the puts and takes between.
The core restaurant, most profitable business versus all the new verticals.
Start.
Kind of layering on the.
The bunkers from them.
How you should think about.
Overall profitability for these data and such.
Yeah I'll take the first question, maybe Robert can take the second with respect to AI and its ability to change the trajectory of some of these functions that you asked about the question look I mean, I think it certainly represents the promise for a lot of productivity gains in terms of how those productivity gains.
B expressed in terms of financial results for our company I think that's very hard to estimate because on the one hand youre going to have.
The same number of people, who can hopefully do more with what they have with now more advanced tooling, but then on the other hand, you have to not forget the customer the customers expectations are always going to go higher and higher and higher take coating for instance, the number of engineers.
Engineers.
Almost never seems to be enough.
In terms of what the demand for.
Engineering talent is as well as just frankly like the number of things to build and so I think youre going to have kind of two forces competing for this one is the productivity gains which I.
Certainly we would expect to see but then on the other hand I also believe that customer expectations always go in one direction, which is higher and higher and higher and so I think the balance of the two will be what all of us will be going through.
Hey, Louise on your second question on margins the way. It is I think about it is.
Good restaurants business is growing as well as improving in terms of overall profitability, but we still are a small portion of the overall sales for the restaurant industry. So we continue to invest behind that business because it's important that we continue to invest behind quality invest behind making the product more affordable because thats going to drive long term growth in that business secondly on new verticals, what we are seeing.
Some of the quality improvements that Tony touched on earlier in the previous question that is driving efficiency in the business that business as a whole is improving in terms of margin.
Sequentially as well as annually, but the market is very large we are still.
Underpenetrated and I think if we continue to improve the overall product that's going to drive long term free cash flow generation for us. It's a business that we're going to continue to invest in and continue to improve the product experience for our consumers, which is where the doctors.
Thank you.
Your next question comes from the line of Eric Sheridan of Goldman Sachs. Please go ahead.
Thanks, so much for taking the questions maybe two quick ones. If I can squeeze in first when you look out over the landscape in 2023 and beyond what do you continue to see some of the key investments you need to make on the merchant side of your of your platform that will continue to drive more merchant growth more merchant adoption and where you can gain.
Deeper relationships and market share of the merchant side that'd be number one and then number two when you look further out how should we be thinking about you, making the app more shopper bowl for lack of a better term.
<unk> talked on the last call about increasing velocity in order volume among your user base and I'm just curious given all the direct traffic you have to ask how you think about overlaying all the SKU diversification, you've built on possibly driving greater levels of frequency and app across all those skus. Thank you.
Yeah, Hey, Eric I'll take both of those questions on the first question with respect to merchants.
Okay.
I mean the <unk>.
Basically the short answer is that we're going to have to solve more and more of their problems in order to work more and more deeply with them with the goal of helping them improve same store sales and profitability.
And sometimes these things take swings right I mean take for example, we can.
Span out a little bit.
In the years of 'twenty, one 'twenty two particularly when.
Consumers are.
Roaring back inside stores.
There was a big focus for merchants to make sure that they can staff up to meet that in store demand and they needed to take maybe the gas pedal off of.
Digital for a bit you are starting to see some of this now swing back for instance, as these merchants are lapping those years of in store growth and Theyre now returning back into investing in.
Into their digital channels, so I think youre going to see these kinds of ebbs and flows but I think all of this is really in the name of how do we build enough tools and products for merchants to better understand their customers better engage with those customers. The long term relationships with those customers do it through the first party channel.
And whether that's being with products like door, that's driving storefront or the third party door dash platform in the marketplace and so.
I think theres a lot there that we're going to have to continue to do to just solve more and more problems because just like consumer expectations for a merchant expectations grow too and I think there are always going to be on this when you are a business owner and particularly if youre if youre like my mom or a single store owner Youre going to have 50 things youre thinking about but at the end of the day, you're always thinking between growth and.
Profitability in that dynamic.
Your second question is I think how do you make the app more shop of one phenomenal question I mean, I think it's going to be it's it's certainly the endeavor that we're we're marching on where we are becoming more and more of a multi category destination. I mean, you see this early in the numbers.
And you see this I think even in the fact that we're now acquiring more new customers into the grocery and convenience sector is more than anyone else.
<unk>.
And for the first time and so I think.
That is true.
Telling us that customers expect door to ash to be able to deliver upon those experiences whether they are coming in and trying to buy a baseball bat from Dick's sporting goods or trying to buy.
<unk> a pound of lettuce from from a grocery store and so we're doing lots of things right now.
We're improving the catalog, we're making sure that.
There's improvements.
Improvements to search we are making sure that we can create an item based shopping experience. There is lots of things that we have to do in order to.
Catalog.
Digitally at the physical World and then presents that catalog in concert with our merchants.
So that it makes sense to the consumers and that they can achieve the merchant Scholes too I mean this is the.
Delicate and very important responsibility that we have to make sure of that.
Door Dash can work for everyone and if it can work for everyone. Then we believe the results will be something that we're proud of.
Thank you. Your next question comes from the line of Lloyd Walmsley of UBS. Please go ahead.
Hi, Thanks, two questions on just.
Some of the numbers if I can first just if we look at sales and marketing and it looks like growth there stepped up a bit from <unk> wondering if that's kind of a new newish normal and then similarly, we saw a nice step up in gross profit margin.
So wondering if that.
If we should be thinking about that as well.
A new level or just continuing to expand those.
Yeah, Hey, Lloyd I'll take the gross margin one first in the last call I mentioned that 2023 gross margin was going to be higher than Q4 levels. That's exactly what you're seeing in the business and a few factors at play here over the last year and have driven a number of improvements on the product side, which has made our logistics engine more.
<unk> and Youre seeing that leverage.
Come through in terms of a dash or cost per order quality has been a key priority for us and what you'll notice is that we continue to work on quality, that's driving retention higher we are seeing the benefit in terms of growth as well as lower credits and refunds costs that combined with our ads business, which I mentioned earlier, that's growing that's also having an impact on our margin.
That said, we don't operate on run the business to a specific margin target. Our goal is to invest flexibly across the P&L in order to be able to drive efficient growth.
Second question on sales and marketing.
One was a strong quarter in terms of topline volume for us and in order to support that volume we had to acquire more <unk>. That's the result of your industrial acquisition costs going up which is driving sales and marketing higher that said I would not read too much into the volatility if you take a look at over the course of the last year, we are doing it on a leverage on sales and marketing all from.
Product improvements that we've made I do expect there to be more leverage on the sales and marketing side and that view is included in our EBITDA guidance that we've given.
Thank you. Your last question comes from the line of John <unk> of Jefferies. Please go ahead.
Great. Thanks for taking my questions.
Curious to dig a little bit into dash past member adoption of.
New verticals like grocery retail and convenience and how that compares to nonmembers and.
Related to that we know we know dash past members order more once they become members and more order more than non members.
But I'm curious to hear if you're able to provide any color on how these upticks in frequency vary across verticals.
Two grocery or retail orders increased even more than restaurant orders after user becomes a member.
Hey, John .
Tony I'll try to answer your questions.
I don't think we run the business.
That way in the <unk>.
Sense that we're trying to necessarily steer a customer into one category or the other and said what we're trying to do is we're trying to build the best in class experience with in each category.
And then allow the customer to choose.
Which one of those experiences make the most sense for them for that particular shopping occasion, and then dash path to your point, it's something that we can stitch across to provide the greatest possible value because we're going to give you everything inside your city within that Dash pass memberships. So I don't think that were trying to necessarily steer people one way.
Or the other.
Probably.
Intuitive that.
Prepared meals something like restaurant food is going to have the highest frequency, but that makes sense, because we 2025 times a week, which is the highest possible shopping category that we have relative to other categories, but that said I mentioned earlier to an earlier question that we know are attracting more new customers into the industry outside of restaurants here.
And anyone else and.
And so people are now coming to door at ash for the first time not shopping for restaurants, but also shopping for their grocery items there.
Liquor needs their retail items et cetera, and et cetera. So I think this is just one of those things where as long as we continue to build the best possible shopping experience with in each category and then stitched across the categories and then overlay that with the value of dash path will be in a good position.
Thank you there are no further questions at this time.
This concludes today's conference you may now disconnect.
Yeah.
Okay.