Specialist
Former executive at DoorDash Inc
Agenda
- DoorDash’s (NYSE: DASH) operating environment – restaurant vs non-restaurant gross order expansion runway over the next year
- Evolution of merchant priority toward first-party vs third-party channels to attract and retain customers
- Outlook for 2022 and beyond – merchant take rate evolution, competitive dynamics and DashPass growth prospects
Questions
1.
DoorDash reported fairly recently it experienced continued but more normalising growth in the third-party delivery segment in Q4 2021. Obviously there was a ton of very strong growth during coronavirus and we’re getting back to a point where we can think a bit more around what normalised growth came in the form of. It expects USD 11.4bn-11.8bn in marketplace GOV [gross order value] for Q1 2022, back down to 17% YoY growth but still growing sequentially and the same for 2022, in total USD 48bn-50bn, again, 17% YoY growth. As we think about where growth stands today and what it has been borne of over the last 1-2 years with all the coronavirus dynamics, could any piece of the revenue story drive this more than others? Obviously the company has 25 million MAU [monthly active users] and an AOV of around USD 30 on an order base per year of 370 million. What might drive the company’s growth across users, order size and order frequency?
2.
Are there any headwinds on the AOV side of things? How much might fast food, new verticals being lower ASP or order basket sizes offset some of the DashPass consumers being willing to put more in the basket because they’re forgoing fees?
3.
DoorDash states DashPass is 40% of the MAUs, ten million-plus out of the 25 million total but it’s 60% of order mix, so if you use ten million as the metric for DashPass members, that comes out to 22 orders per quarter, 5-6 orders per week on a per member basis relative to 2-2.5 for non-DashPass members. When you think about order frequency improving, is that a result of getting the mix of overall users higher and the order frequency reaching five or six, or is there even further runway to order frequency, even for the DashPass members?
4.
What will drive better adoption of DashPass across the MAU base? Would you say the MAU base is starting to stagnate in growth, so this 40% mix might even improve because the overall user base isn’t growing as quickly as it had been, given we have fairly good third-party delivery penetration in the consumer mindset?
5.
How could the non-restaurant verticals play at the consumer level with DoorDash? It seems there are instances where it’s standalone orders so much as added to a restaurant order, or perhaps this is a result of doing it all in one place. Could it more frequently become this standalone vs bundled dynamic with the restaurant portion of the business?
6.
I hear DoorDash has plenty of room to continue to grow. In previous independent food delivery updates, it seemed user growth was saturating, at least in the US, where mostly everyone who has heard of food delivery has tried an app. US growth may be harder to come by, but obviously this is a global opportunity all the same. I think DoorDash management talks about a 500 million-plus consumer opportunity across the existing regions it’s in, so the US, Canada, Australia and Germany. It’s only 5% short of a penetration rate and probably even lower for those that are tuning into the app weekly. Where do you expect a lot of this growth to come from and is it easy to picture a 100 million MAU-type company being talked about over the course of the next 5-10 years?
7.
Are you familiar with the company Wolt, which DoorDash acquired? How might the company play into the more internationally oriented consumer growth dynamics?
8.
The most recent shareholder letter demonstrates that as DashPass’ percentage of overall order mix increased, contribution per margin, per consumer, also increased to what seems to be around USD 25, at a 60% order mix, from USD 5-10 in 2019. It would seem, given the fees are forgone, that there might be some headwinds to the actual contribution margin element. What might be the reasons for this metric to be positively related to contribution from DashPass members?
9.
I noticed the Sapphire promo is not paid by the consumer to the extent that this will eventually wane off. Could this deal or structure contribute a large portion of the opted-in DashPass members? Are they loyal purely because they’re not paying the USD 10 per month, or could they eventually have stronger pricing power for the product over time?
10.
How much focus should we place on DoorDash’s continued growth in merchant count anymore? The company is already at 550,000 total merchants, adding 150,000 in 2021, probably industry-leading from a selection standpoint. However, presumably, competitors catch up on this over time. Could the merchant business drive a lot of differentiation in the long term, when you think about DoorDash relative to Uber or other local competitors and considering international markets?
11.
You bring up a point of exclusivity. Why wouldn’t it be in restaurants’ best interest to sign up on as many platforms as possible? There are still some instances of exclusive partners. What might this be a result of?
12.
You touched on integrating the POS [point of sale] for some of the more national chains. Feel free to distinguish by restaurant type, given there’s independents, these single locations relative to national chains and the onboarding process is much more different on each flip of the coin. What other obstacles exist for a successful initial onboarding process for restaurants? Is there anything about DoorDash’s approach that is worse than its competitors there?
13.
How does the value proposition from merchants typically evolve? Feel free to differentiate by restaurant type because I’m sure it differs, if it’s McDonald’s vs your local Chinese restaurant. How do they value the role of the third-party channel in the marketplace over the longer term relative to their own first-party channel? It seems the third-party marketplace was an area of necessity during coronavirus and great for user acquisition, to get more people to try their food. Once you find those consumers, could the importance be placed more highly on subsequent first-party channels? What might this indicate for the role DoorDash would play?
14.
Do you think the highest part of the markets, so the top 50 national chains, will be much more hybrid-oriented or perhaps increasingly prioritised into first party? Could this indicate that for this portion of the market, the Drive order mix will increase where DoorDash increasingly becomes a white-label logistics partner as opposed to the front-facing marketplace dynamic?
15.
Do you expect Drive order mix to increase as accretive to profitability? When we think about the same customers utilising Drive more than before, does that make those merchant partners less or more profitable, and why?
16.
To the extent that some of the integration at the merchant level is of the utmost importance, I think companies such as Olo are trying to solve a lot of that. Could DoorDash’s Storefront product be an area for larger-scale merchants to consider doing more in the longer term? Why or why not? The Storefront product is given away for free to a lot of SMBs.
17.
You mentioned the labour shortage issues and rate of inflation. How could the Dasher supply and productivity dynamic evolve for the next 1-2 years, given the current background and gas price being high and rising?
18.
Would you say there’s a balance for supply and demand, considering where DoorDash is now and where it will end up being as it scales a lot of the new opportunities on the demand side? Is there a need for a lot more Dashers to achieve growth and everything it’s aiming to do in the future?
19.
You touched on some of the Dashers probably considering going back to Uber and Lyft. Uber likes to talk about its high and more flexible earnings potential area, because you can do it in peak times and work a full-time job outside of your commute. Does DoorDash consider ride-share-oriented churn as a significant factor to keep under control?
20.
DoorDash did a bit of an overhaul with its commission structure, setting commissions at 15%, 25% and 30%. It’s an integral part of how it makes revenue per order. How do you expect take rates to behave within this 15-30% boundary when you think about the Basic, Plus and Premier tiers and how they resonate with merchants?
21.
The current neighbourhood metric is 5% of overall restaurant sales are done via this third-party marketplace side of things. As that increases, might a necessary decrease to the take rate need to occur for merchants to be happy to have partners involved on such a large portion of the transactions? Might there be any headwinds to this or is it the case that once the volumes pick up, the take rates can come down with time?
22.
DoorDash discusses 14% of the overall MAU base are making non-restaurant orders, a fairly low number on an overall basis. Could a lot of this be a result of us being at very early innings in the non-restaurant merchant add situation? Could this be a lower order frequency dynamic, so users might not consider using an online service for convenience, pet supplies, alcohol or grocery? How might this evolve? Could this super app play into reality where 100% of the users are making orders across all verticals at the same time?
23.
Considering some of the ways DoorDash differentiates vs other options is still speed of delivery and low take rate, do you expect grocery, convenience, pet supplies and alcohol to be profitable verticals without advertising? By advertising, I mean if you are a CPG brand and wanting good product placement in the grocery portion of the DoorDash marketplace. Is this the be all, end all for profitability, given the logistical headwinds for these other verticals relative to restaurants?
24.
Is there anything you’d like to highlight around DoorDash and the third-party delivery segment? Do you have any closing remarks?
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