On Feb. 17, DoorDash Inc. (DASH, Financial), a U.S. food ordering and delivery service provider, reported better-than-expected quarterly revenue, driving the company's stock 30% higher in after-hours trading.
The revenue growth in the fourth quarter was driven by strong food delivery demand as well as total orders that surpassed analyst forecasts, demonstrating that online food ordering habits will continue to trend higher.
Even on the back of a positive market reaction to earnings, DoorDash stock is still down 43% in the last 12 months, and the company is still struggling to become profitable despite robust revenue growth.
The demand for food delivery services remains high
DoorDash and other food delivery companies were big winners of the global lockdown in 2020 as people had to rely on online ordering instead of eating out at restaurants. While stay-at-home orders were short-lived in the U.S., people's caution regarding the pandemic last year made it possible for food delivery companies to grow exponentially. However, as pandemic-related restrictions are easing, delivery providers are now coming under pressure to maintain the stellar growth rates they enjoyed over the last couple of years.
It seems that DoorDash delivered. The company reported revenue of $1.3 billion in the fourth quarter of 2021, up 34% year-over-year and somewhat better than the $1.28 billion expected by analysts. The revenue beat is a clear indication the demand for food delivery services remains strong. In the fourth quarter, DoorDash reported strong order numbers and gained new users, totaling 369 million orders, up 35% year-over-year. The total value of gross orders in the fourth quarter increased 36% to $11.2 billion, while monthly active users were also up 22% to 25 million.
According to YipitData, DoorDash now runs 74 DashMart warehouses in the United States, up from 33 in April 2021. The report also highlights that the company accounted for 55% of the U.S. food delivery market vs. Uber's (UBER, Financial) 31% market share. Furthermore, DoorDash took advantage of the increased demand by investing extensively in expansion efforts to improve its competitiveness. The company has begun delivering flowers, pet supplies, alcohol and groceries in addition to restaurant food deliveries, and these additional options are likely to help DoorDash attract more consumers to its platform.
According to Bloomberg Second Measure, meal delivery services revenue increased 7% year-over-year in January, and 51% of U.S. consumers have now purchased from at least one of the meal delivery services included in the study, up from 46% a year earlier.
Exhibit 1: Meal delivery – monthly sales and January 2022 share of sales
Source: Bloomberg Second Measure
The Bloomberg report also highlights that the average sales per customer have also increased during the pandemic. Over the last two years, the average sales per customer of DoorDash and Uber Eats have increased the most, with DoorDash reporting a growth of 104%. DoorDash customers also spent the highest absolute dollar amount in the fourth quarter of 2021, averaging $309 per client.
Exhibit 2: The average quarterly sales per customer
Source: Bloomberg Second Measure
Besides operating as food delivery partners, these companies play an important role in increasing the sales of restaurants as well. DoorDash also receives fees for driving customers to restaurants in select areas. As a result of this additional income-generating opportunity, partnering with popular restaurants has become the most important growth strategy for key players in this industry.
In 2020, DoorDash partnered with Little Caesars Pizza, a brand that has never previously offered food delivery, adding to the company’s existing partnerships with The Wendy’s Company (WEN, Financial), Chick-fil-A and McDonald’s (MCD, Financial). In January, DoorDash accounted for 11% of sales at Buffalo Wild Wings (BWLD, Financial) and Chipotle Mexican Grill Inc. (CMG, Financial) before accounting for payments to DoorDash. The company remains focused on partnering with high-profile restaurant chains and small food joints with increasing popularity, and this strategy could help DoorDash maintain attractive revenue growth rates in the coming years.
Takeaway
Despite predictions that relaxing travel restrictions might diminish the demand for online delivery companies, the food delivery industry is seeing above-average demand, and this helped DoorDash beat analyst estimates for revenue for the fourth quarter of 2021. Consumers' ongoing willingness to pay for the convenience of delivery should continue to boost the demand for DoorDash, in my view, and the company appears to have maintained its dominance in the restaurant delivery segment despite a notable increase in the competition over the last couple of years.
Even though DoorDash is moving in the right direction, the company is still finding it difficult to become profitable, which is a reason to be worried as non-profitable tech companies are likely to be punished in the market this year as inflation spirals out of control and the U.S. Federal Reserve contemplates hiking interest rates. The long-term outlook for the company, however, remains promising.
