In the first 3 quarters of 2020, Doordash has $131 million loss on $1.9 billion revenue, and they spend $610 million on sales & marketing alone. So if they cut their sales & marketing budget 21% without doing anything else they'd be breaking even.
This seems like a healthy business that is using available VC money to grow faster rather than an inherently a money-losing business model.
I think that these effective consumer subsidies are included in their "sales and marketing" budget.
Promos and discounts are a core component of many (not all!) businesses.
Serious suggestion: try (your area code)-867-5309 and it will probably work.
That's not to say it's a bad thing that they are getting what they want. Not all data collection is an evil surveillance problem. Data can be useful for society too.
It isn't an achievement to gain 100% market share if each transaction makes a loss. If they try to raise prices to neutral or profitable levels it is likely that the market will shrink and competitors will charge in.
It may be that the equilibrium market is restaurants and food outlets do their own delivery for free or at cost. Then there isn't much of a market for a service like DoorDash to make a profit in.
It is possible that there is a market there and DoorDash will one day, somehow, make more money than they spend. But having a high market share is not much compensation when it requires constant losses to maintain.
My understanding is sometimes companies fudge the numbers though. If a $40 order has a $5 discount, they might consider $40 as revenue and put the $5 discount under a marketing expense
If you sell something for $100 and give a future voucher for $80, you recognize $20 in revenue for this quarter and $80 liability on your balance sheet. In the next quarter when that voucher is used on another $100 purchase, you can claim $100 revenue this quarter and remove the $80 liability. But you already took the $80 hit to revenue from the voucher on the previous quarter.
If you sell something for $100 and immediately give a $80 refund then you only take a $20 revenue.
People think the SEC and accountants are dumb or blind but they aren’t. They have seen all of these tricks before and act very quickly if they see new ways to mislead.
Here's from the S-1:
> >> Our marketing efforts currently include referrals, affiliate programs, free or discount trials, partnerships, display advertising, television, billboards, radio, video, direct mail, social media, email, podcasts, hiring and classified advertisement websites, mobile “push” communications, search engine optimization, and keyword search campaigns. Our marketing initiatives may become increasingly expensive and generating a meaningful return on these initiatives may be difficult.
A great example of non-GAAP accounting was WeWork's "community-adjusted EBITDA." When you use non-GAAP metrics to measure your business, you get to kind of define the standard by which you're measuring yourself. You get to do things exactly like the parent suggested, where you count 100% of the income as revenue and all your incentive spending as "marketing expenses."
Uber does this too, for instance (back when it was a thing) 100% of the sticker price of an Uber Pool ride was reported as revenue while only the 30% cut of an UberX or Uber Black was reported as revenue, and yes, they would list driver incentives as marketing expenses.
Revenue is a well defined term and you can’t change the term just because you say “non-GAAP”. The SEC would step in because it’s obviously misleading.
To be clear, Uber does use non-GAAP accounting in the form of both EBITDA and "segment-adjusted EBITDA", the latter of which excludes stock comp, platform operating expenses, corporate expenses, accounting, lobbying, etc.
Regarding the SEC, they are actually quite upset about the use of non-GAAP accounting, and have begun taking enforcement action against companies which give prominence to non-GAAP numbers.
In terms of X vs Pool, it depends on the risk that the company takes. If Uber advertises a fixed price for the customer but they pay their drivers a variable cost (time and distance) then there is risk that Uber takes less money than they predicted or even a loss. That is the Principal model and they take the gross. To be extremely clear, this is what they are supposed to do under GAAP. If you look at their 10K which I’m guessing you haven’t, they don’t call the driver payouts a “marketing expense.” They call it “Cost of revenue”.
If they charge a % on the ride and there is no risk of revenues changing, it’s an Agent model and they take the net. I don’t know what the current model is, but I believe in California it’s the Agent model now. Pool used to be Principal a few years ago but again I think things have changed in California. Other countries will have different models so it’s on Uber to make sure their accounting is correct in all jurisdictions.
Whether one believes this is ok or nor, or a good to necessary is, I guess, an ideological persuasion.
In order for regulators to proactively prevent all misbehaviour such organisations would need to be impractical huge and financially inconvenient to tax payers.
Rather, society generally tolerates some level of fraud / crime / misbehaviour, probably because the benefits out weigh the costs to liberty.
So they can barely be profitable (assuming they don't die overnight if they reduce marketing spending) during the out-of-this-world perfect scenario for their business caused by the social isolation? ...notice that the article didn't even bring the "perfect" situation 2020 brought them to also be able to squeeze the restaurants for insane margins.
Did you forget any disclaimer about being involved in the deal? because that was a stretch to paint it in a good color.
generally in business management practices, not necessarily in financial reporting.
Not at all. If they cut this budget by 21% they would likely lose even more money. Business isn't a game where your competitors are like posts buried into the ground that can't move. All of these companies are battling for the same slices of pizza. If one backs off the others take more slices.
As a related thought: This is one of the things that lots of people don't understand about outsourcing and the migration of manufacturing to China.
One of the narratives is that companies are greedy and they went to China to lower their costs and take advantage of consumers. That couldn't be farther from the truth, which, in reality, tragic.
In any given industry there as a first mover who thought they could grab greater market share if they could lower their COGS by manufacturing in China and beat their competitors in pricing. What they did not foresee is that they triggered a chain reaction: After their move every single competitor was forced to move manufacturing to China because it was impossible to compete given the regulatory and labor constraints in places like the US and Europe.
And so, one after the other, they all followed each other off the cliff. Very soon they all found themselves manufacturing in China. They also woke up to having to sell their products at about the same prices, which means their margins were now really slim.
Years later, the factories where they all made their products decided they would now sell direct in the US and Europe and eliminate the foreign middle-men from the equation. And that's what you call being in a pickle.
Food delivery is an arms race. They are burning cash like it's free. I have no clue how it will all shake out. I don't think the math supports a business that isn't subsidized by money that is willing to burn in huge piles quarter after quarter.
Much like the migration of manufacturing to China, if one competitor turns-up marketing campaigns the others are forced to burn even more cash for even more negative returns.
Somehow we live in a world where this is called "investing". What do I know?
>> Our marketing efforts currently include referrals, affiliate programs, free or discount trials, partnerships, display advertising, television, billboards, radio, video, direct mail, social media, email, podcasts, hiring and classified advertisement websites, mobile “push” communications, search engine optimization, and keyword search campaigns. Our marketing initiatives may become increasingly expensive and generating a meaningful return on these initiatives may be difficult.
I think you implied that marketing is expensive for them and I think you're right. And I think the commodity job that DD does is pretty dangerous since there isn't a lot of brand power to be had. I could be wrong there since I only order delivery once every few months.
But if they have some amount of organic growth that is close to or higher than their rate of churn (which is not too crazy an assumption) then they could cut marketing spend and they would grow slower but not start shrinking.
As a consumer, my cost for using ten different delivery providers is nil. If there's a constant trickle of new entrants always giving away the store to attract me to sign up, I'd be stupid not to use them all.
As a restaurant or driver, they'd have to offer some very expensive incentives to make me say "DoorDash only, no UberEats/etc."
I feel like there was a large bet made on autonomous vehicles being ready before the music stops. Once you no longer have to hire human drivers, the "big ball of capital" model works better-- buy a million robovans and you can provide a service level or geographic scale no new entrant can match without a similar up-front spend..
That's an alarm bell if I ever heard of it in an industry famous for losing money.
"We can't really tell you why we'll make money and nobody else will, other than that our culture is better!"
There was a talk at [Guess the programming language]-conf last year, where a director at a pretty big investment fund was talking about how their choice to use said language (as opposed to being another C++/Python shop) has very much effected their approach to finding solutions to problems for the better.
It's probably impossible to measure, but the confidence to do things differently company-wide could set you in good stead asymptotically. Even if culture just means not being Uber e.g. no "a very, very strange year at [CompanyName]" blog posts or similar.
It might be why you'd want to work there, but it's not a reason to invest there.
This type of statements and the type of people behind them are the only reason why startups are successful. On paper, two people in a garage have no chance against a multi-billion dollar conglomerate. Except that in many of those companies, there's a dude walking around and sharing those wonderfully brutal views.
Let's get very specific - why didn't Amazon launch food delivery? Clearly, they are keeping an eye on the space and are trying to make Instacart's life as difficult as possible. There's a very good chance that there's someone at Amazon who at some point said a bunch of rubbish about this idea and slowed down their expansion into this space, which is now going to be extremely expensive. But it will certainly come, and that dude will have cost his employer billions of dollars.
The same way that we drag people over the coals when their startups fail and burn millions of dollars, I think we should do the same with the people who cost their employers the same amount of money.
Everyone failed in execution because nobody has done it profitably yet. Maybe the opportunity doesn't actually exist?
> In the first 3 quarters of 2020, Doordash has $131 million loss on $1.9 billion revenue
If a startup starting from 0 can pull that off, Amazon should have been able to do (even) better with their customer base and logistics know-how + infrastructure.
"You have insanely large pools of capital creating an incredibly inefficient money-losing business model. It's used to subsidize an untenable customer expectation. You leverage a broken workforce to minimize your genuine labor expenses. The companies unload their capital cannons on customer acquisition, while this week’s Uber-Grubhub news reminds us, the only viable endgame is a promise of monopoly concentration and increased prices. But is that even viable?"
[0] https://themargins.substack.com/p/doordash-and-pizza-arbitra...