Autonomous driving could be either a risk or an opportunity for DoorDash. We saw a similar phenomenon in securities’ trading, as 0$ commission increased trading activity greatly, favouring platforms such as Robinhood. ISSUE ONE: Did DoorDash get 15% or 22-23% of GOV from new customers in Q3 2020? ISSUE TWO: The new customer GOV figures don't make sense. Let me know in the comments what you think about DoorDash, or or hit up @marketmkrs on twitter! Domino’s drivers have increased deliveries per hour from 2.5 to 5 in its densest areas. No. While the higher multiples versus delivery are partly justified by DoorDash's breakneck revenue growth (over 45% growth projected for 2021) , we have concerns about DoorDash's unit economics. Reducing delivery costs has increased transaction activity. As DoorDash increases the amount of merchant partners and these micro-fulfillment warehouses, its route density increases, and so do its order per hours. DashMart, DoorDash’s online convenience offering, has 2500 convenience stores across more than 1100 cities nationwide. There are only 328M people in the US, 209M of whom are 18 years and over. Since DoorDash has the most restaurants of all food delivery platforms in the US, Dashers know they can pick up more orders, and thus do more deliveries, increasing their earnings. That velocity has taken DoorDash to the top of the food delivery space with 50% US market share. If you enjoyed this please consider sharing this article below, and don’t forget to subscribe to receive analysis on other public marketplace businesses. DoorDash generated $252M in operating cash flow during 2020, but also took $322M in stock-based compensation (SBC) charges during the same period and invested $150M in property, equipment and capitalized software. The culture of servant-leadership at DoorDash is unique and I suspect it played a role in making DoorDash the market leader. The offering has parallels with Amazon Prime and increases customer stickiness. Why are so many of the superhero myths tied up with loss, often violent, of parents or parental figures? Policy-capturing models, data-based aids, expert systems and decision analysis are the main decision-making techniques introduced here, with attention to their methodological bases and practical evaluation. DoorDash earns money as a percentage of Gross Order Value (GOV). "Time will tell whether the model DoorDash used to grow was an innovative way to grab market share, or a way to do so subsidized by venture dollars that structurally won't translate into the IRR numbers its . This has been fairly consistent over time. Found insideIn total, the company raised $84 million in venture capital (eclipsed by Silicon Valley competitors like DoorDash, ... Matt did this only after they had created a playbook for the team to follow and achieve unit economics. For your security, we need to re-authenticate you. While the shock of the pandemic accelerated demand for food delivery, DoorDash will continue being convenient, and perhaps even more as lockdowns are lifted and people live normally. Customers go to the online storefront and purchase all the most-desired local convenience items in an area and then have those items delivered in 30 minutes or less by way of these micro-fulfillment warehouses, run by DoorDash. We got to talking about the planned DoorDash IPO, the biggest of the eat-by-app crowd. I believe that drones and autonomous vehicles will merely be used to serve on non-economics positive routes, helping Dashers maximize their time on well-paying delivery routes. DoorDash primarily makes money by charging restaurants a commission based on the total dollar order value and also charges a fee to consumers for using its platform. This book is essential reading for scholars, practitioners and researchers interested in supporting and facilitating trajectories of change led by producer organisations in developing countries. According to UBS, while DashPass subs generate 63% more total revenue over the course of a month given the higher frequency (almost 3x more orders per month for DashPass vs non DashPass users). They have exclusive partnerships, such as the one with Chipotle where DoorDash provides 50% of all marketing expenses in a year, with their partners. The dynamic will likely be similar to Amazon Prime, where the more products and foods they will deliver, the lower prices will go. Overall, DoorDash’s early focus on their 3-sided marketplace differentiated it from competitors. Value-add to each player in the ecosystem. One way of thinking about just how rampant such abuse would have to be, focus on Q3 2020 for a moment. Netting gross margin against sales and marketing for repeat orders, this implies DASH's contribution margin grows from about 0% in year one to about 10% by year three. What I don't understand is that this is not the argument that DoorDash is giving in its filing. This is primarily due to the very thin margin profile of the firm. The service enables restaurants as well as all brick-and-mortar merchants to queue up a DoorDash driver on demand. The risk, here, is that the market never consolidates and there isn’t a winner-takes-all outcome. More orders lead to more merchants lead to more dashers. Unit Economics Business Model. Can you imagine DoorDash getting to 30% EBITDA margin over the long term? The company posted a $436 million operating loss . Interested in DoorDash unit economics? This is fully consistent with my prior note on COVID bumps, that the impact has been larger for acquisition than for repeat buying. Ultimately, DoorDash has changed behavior at a huge scale in a remarkable way, by getting people to order their food online instead of by phone. This prevents order rates from shooting off to the moon, and accounts for the fact that we basically have no more than 2-3 year's worth of purchase data for the vast majority of DoorDash customers, making longer horizon projections fall outside the range of the data. They did about $1.6B in GOV from new customers this quarter. DoorDash: Re-Inventing Last-Mile Logistics. But the right way to look at DoorDash is by focusing on DashPass, the high-margin subscription offering that allows consumers to order and receive any good in their city within minutes with free delivery. The company began with a mission to deliver local products to people online, but beneath the hood DoorDash is a rigorous, data-driven technology company. DoorDash focused instead on investing heavily in their delivery offering to create the best consumer proposition and earnt its market leadership after spending heavily on customer and delivery acquisition. Found insideThese are the upstarts, idiosyncratic founders with limitless drive and an abundance of self-confidence. The "COVID boost" is basically the uplift from the grey dotted line to the red dotted line: Remember, before the pandemic, GOV from new customers was flat to falling. But how refreshing to see a detailed cohort breakdown of DoorDash's customer base the evolution of their unit economics over time, let's dive into it and see the . Shortlisted for 2020 Center for Fiction's First Novel Prize Corey Sobel challenges tenacious stereotypes in this compelling debut novel, shedding new light on the hypermasculine world of American football. They are looking for flexibility and value in the hours they work, making a steady influx of delivery orders crucial to keep Dashers satisfied. Merchants - local brick-and-mortar businesses that want to offer delivery, Consumers - individuals who was fast, easy access to their local businesses, Dashers - Gig economy workers offering delivery services on behalf of DoorDash. DashPass is arguably the most important development in the last-mile delivery industry, and it might end up being one of the largest subscription products in the US, reaching Netflix and Spotify status. and best-in-class integrations with restaurant POS systems matter, but these features provide little-to-no value in adjacent delivery categories. These are the main data points that I infer: This is a very strong return on investment. These offerings increase my confidence in DoorDash increasing its deliveries performed per hour. Each has their own starting-point: Amazon has 200M prime subscribers and a global fulfillment network already doing same-day delivery for many of its most popular goods, Uber has a diversified business across Eats and Ridesharing, allowing them to utilize the same pool of gig workers across two vectors of demand, Instacart has a grocery-first platform with higher average order values and strong retail partnerships forged against a common enemy (Amazon), DoorDash is restaurant-first and is building a technology platform that allows local restaurants and businesses to compete with national chains. The company is touting improved fleet management and its tech platform to improve a previously bleak picture. The famous pizza retailer isn’t known for its great pizza but rather its focus on convenience through quick delivery time, consistency and a large base of 20M users who have the Domino’s app on their phone. When we met DoorDash in 2013, the team was still working out of a dorm room at Stanford. If their customer acquisition data is to be trusted though, this analysis might bode less well for their overall valuation as it would suggest that they've already acquired more of their TAM, which would create more significant headwinds for future customer acquisition, and/or revise downwards our expectation for the post-acquisition goodness of customers due to possible rampant abuse of new customer promo discounts. DoorDash allows its merchants to compete on several of these criteria, including quick delivery and access to a large installed base of 21M users who have the DoorDash app. The local delivery market is a winner-take most game and the flywheel has already tipped in DoorDash’s favor. Tony Xu envisions a DoorDash that will own all last-mile logistics. In their first earnings report as a public company, DoorDash announced Marketplace GOV guidance for 2021 of $30-33B, representing annual growth of 20-30% from 2020. There are worries about each incremental order being money-losing and scale not being applicable to the delivery business. No kidding that could increase the proportion of sales from new customers -- that's a very benign explanation if I ever saw one! Many others are more optimistic, pointing to some of the (many) customer-related disclosures that DASH scattered throughout its S-1. This book exposes the compelling aims and interests--national independence, security, economic welfare, foreign influence, grandeur--that explain the nation's successes in arms production and transfers. Originally published in 1987. Now that we've checked the box on validation, let's see what the model implies for customer behavior... As we can see from the charts above, there weren't a whole lot of dynamics in GOV per order over calendar time. DoorDash Storefront - a white-label e-commerce service allowing restaurants to build a website without investing in engineering. Merchants have a love-hate relationships with delivery services like DoorDash. It would not bode well for new customer acquisitions post-pandemic. All-in-all order frequency and the unit economics of Grubhub seem extremely similar to JET, which (while profitable) seem inferior to DoorDash. It was offered in only 25 cities and they made the mistake of launching the platform on a national scale, not city by city. It is hard to come to a conclusion one way or the other about their valuation until this data issue is clarified. DoorDash faces immense competition within the food delivery category, and as the market matures, it’s become clear that their last-mile logistics platform will compete head to head in adjacent categories with some of the largest businesses in the world. First, there is the fact that they say 15% of GOV came from new customers in Q3 2020, which is in conflict with this chart. A more detailed analysis that is significantly more comprehensive and applies to the entire restaurant meal delivery category will be coming soon. The graph to the right shows how when consumers make DoorDash a regular activity, repeat users become a greater proportion of marketplace GOV. To justify a valuation of $25-30B+ when a lot of the core market has already been acquired, it would seem like we may need to see something more -- a transformative new vertical, or a way to dramatically expand TAM. These are drinks with the sophistication of a high-end speakeasy, minus the fuss, like: The Sazerac 2.0 - a spice cabinet update that takes the classic back to its origins A new White Russian that lightens the load with coconut water ... DoorDash expects its unit economics to improve with more scale. Cloud kitchens will soon become an easy way for influencers to monetize their large followings. Early digital card issuer Marqeta hit $8B in transaction volume in 2018, nearly tripled it to $21B in 2019, and tripled that to $60B in 2020. While I am loosely familiar with Prop 22, and the ongoing legal battle to protect the independent contractor classification for many workers, the legal risks for DoorDash aren’t unique to their company. This piece is long, so if you don't have much time, these are the main highlights to focus on: Below, I unpack how I reached these preliminary conclusions. DoorDash's variable margins are thin but expand significantly over time (both calendar time and as a function of customer tenure), rising from 0% or less in year one to 10% by year three. Online meal delivery market has been flooded with startups since its inception. Many reporters and pundits are concerned about profitability in the restaurant meal delivery category as a whole, wondering whether any of these firms could ever sustainably turn a profit. Drive, therefore, is excluded from Marketplace GOV, but included in its Order and Revenue totals. DISCLAIMER: This newsletter reflects my opinions and should NOT be considered investment advice. Taking this logic a step further, we can easily show by comparing relative heights of light green bars in that chart (i.e., GOV from new customers) to the corresponding overall heights of the bars (i.e., GOV in total), that while it is indeed the case that 32% and 23% of total GOV came from new customers in Q3 2018 and 2019, respectively, 22-23% of GOV came from new customers in Q3 2020, not 15%. DoorDash claims to be the category leader in the marketplace for local delivery services. That was the insight that made the idea lightbulb flash for Tony. Doordash in 1 minute Pandemic-favorite DoorDash is slated to IPO at a $32 billion valuation. Poor capital allocation: as seen by peers such as Just eat Takeaway, who bought Grubhub. Please. It's not a large cut, but given that they've scaled to (I believe) 6 cities now, making a couple bucks off of each delivery results in a rather large revenue. That insight was that he wanted to help merchants deliver to their customers. The highest utilization & wages per delivery will keep Dashers engaged, as the company is working hard to keep their couriers busy. DoorDash earns money as a percentage of Gross Order Value (GOV). This is an extremely conservative definition, though. Found inside... looks to grow with negative unit-economics (as is the case for Uber or Twitter, not turning a profit till 2019). ... The next big success in a crowded VC market may be the next 'salesforce' instead of Doordash i.e. enterprise SaaS ... DashPass penetration is the most crucial output of DoorDash’s success. This magisterial work traces the history of our most cherished value. I assume most of these people (70%) will be using DashPass by 2025, taking advantage of unlimited FREE delivery. Netflix should include Tegus in its competition! I infer that DoorDash gets a return on customer acquisition investments of 250% and ~900% over three and five year horizons, respectively. Here are some of the dynamics that stood out to me: This is exceptional repeat buyer behavior. DoorDash advertising is at less than 1% of GMV today. This kind of guarantee would lock Dashers into the DoorDash ecosystem and prevent Dasher churn, which is the reason Costco and Amazon offer their customer a relatively high 15$/hour wage. However, while DoorDash grew up as (and derives the large majority of current revenue from) a delivery service for restaurants. DoorDash Marketplace GOV in 2019 ($8B) represented less than three percent of this off-premise spend, highlighting the large addressable opportunity ahead of them in the food vertical alone. This strategic focus on urban markets is validated by the fact that category share in suburban markets increased by 35% between January 2018 and October 2020. DoorDash along with other similar delivery services such as Uber Eats and Postmates, have received a lot of scrutiny of their business model and economics over the last few years. The company generated $24.6B in Marketplace GOV, an increase of over 200% from 2019. While the company is likely to grow revenue by about 25% over the next two years, it is not clear that the unit economics will work for DoorDash. With over 900 million orders completed through the platform since its founding, merchants have made additional sales, consumers have connected with the best of their neighborhoods, and Dashers have found flexible work opportunities. It's one of the most informative of all the charts that DoorDash included in their S-1. That analogy only stretches so far, of course, given DoorDash's margin profile is much thinner than that of a . Eventually, rationalization will occur, similar to the food delivery market in China, where irrational competition and heavy VC funding subsided and the market share between the national players Meituan and Alibaba stabilized at 65/35. DoorDash also has a membership program called DashPass, where customers pay 9.99$ a month for unlimited deliveries from eligible merchants. The company plans to nearly triple its markets from 600 . Unit economics and valuation. With offerings like the cloud kitchen and Storefront, DoorDash is doing the same by democratizing opening a restaurant. Given my own academic research with Elliot Oblander and Kivan Polimis into the industry, which I will hopefully be able to link to over the next couple of months (if you're interested, shoot me an email and I'll make sure send it to you as soon as it breaks! The density of the network increases, which means delivery times will decrease, which will lead to more orders, and so forth. The most important benefit for customers is convenience, as users can get the best their cities have to offer within minutes, saving valuable time. It also creates more issues that I expand on below. DoorDash was clear in their S-1 about Amazon being a competitor, and DoorDash will become an Amazon for mobile covering a 45-minute radius of anything users want. Long-term there's significant uncertainty with the level of profitability it can sustain in such a competitive market. That said, I would be remiss if I did not mention that the absolute dollar amount of this return is not all that large. From the dawn of impressionist art to the future of Facebook, from small Etsy designers to the origin of Star Wars, Derek Thompson leaves no pet rock unturned to tell the fascinating story of how culture happens and why things become ... I’m often amazed at the quality of insights on Tegus, and have definitely spent an entire weekend or two just reading those interviews. DoorDash provides merchants with a new demand creation channel. Consider that Amazon Prime enjoys greater than 85% of US household adoption, with over 125M Prime users. DoorDash appears to have very healthy unit economics and aims for $0-200M in Adjusted EBITDA during 2021. I have gone back and forth a lot on the market definition for DoorDash, and how that market definition relates to its ability to drive margin expansion. Do You Want to Become a Multi-Millionaire Entrepreneur? Here’s How. By the time Ryan Allis had reached the age of twenty-one, he had achieved the financial goal most people just dream about: He built his company to one million in sales. The higher density of Dashers that DoorDash achieves allows them to have the best chance of delivering the fastest and most consistent experience, thanks to their fleet being the largest. We have recently see n a lot of funding and M&A activities . DoorDash primarily makes money by charging restaurants a commission based on the total dollar order value and also charges a fee to consumers for using its platform. Unfortunately, when visiting several of their target customers, Xu and his friends found their solution wasn’t needed by merchants. The company is already investing in drone startups and establishing partnerships with autonomous vehicle OEMs. Cloud kitchens and DashMart are part of DoorDash’s effort to move from just a 3P platform to 1P, which will increase their selection available to users, thus increasing their market power. Uber, Instacart, Amazon. We have recently see n a lot of funding and M&A activities . DoorDash's poor unit economics make it a value trap that investors should avoid. People will be ordering online to save time for concerts, sports and other entertainment. The effort wasn’t a total dud though. There's a relatively significant investment upfront, a lengthy payback period, but significantly improving monetization over time, resulting in great ROI. 65% of merchants even feel profits increased during Covid due to DoorDash. A lot of people have a lot of different opinions about DoorDash in light of their pre-IPO S-1 filing. We need to get to the bottom of this -- it has significant implications for their future growth prospects. This attracts labor in tight markets and made sourcing labor very competitive. DoorDash creates demand for merchants through personalization and merchandising strategies that curate selection. That's why, for example, it lost $450 million even after earning $900 million in revenue in 2019. COVID has been a boon for many digital business (although the extent of the tailwind varies by company, as I've noted previously). In connecting modern companies to the financial infrastructure of banking, fintech companies use banking-as-a-service platforms which rely on sponsor banks. Consumers like immediacy, with the ability to press a button and have their favorite ice cream delivered in under 25 minutes. While the company is likely to grow revenue by about 25% over the next two years, it is not clear that the unit economics will work for DoorDash. Beyond last-mile delivery services, chain restaurants led by prominent pizza companies like Domino’s, have opted to build their own ordering platforms and manage logistics in-house. DoorDash serves as an important source of new customers for merchants with a much higher conversion rate vs other advertising platforms, since the users are already on the app looking for what to eat. Annotation This is the first book to give a comprehensive overview of the new field of housing microfinance practice worldwide. Doordash generates nearly all of its revenue from fees generated through its marketplace, both from the consumer and the merchant side. In the end state, DoorDash will be the local, faster Amazon. They developed an app which helped restaurants track where their customers came from. #customerbasedcorporatevaluation, DoorDash, Instacart, and Shipt: A Tale of 3…, Customer acquisition cost economics 101:…. The question that remains is whether the business can outlast its fierce competition and generate cash to warrant its $45B enterprise value. Merchants benefit from improved cost structure since they can leverage the infrastructure costs DoorDash made and produce food only, without worrying about the aesthetics, expensive equipment and storefront of the restaurant. Dig in. DoorDash has grown revenue in each of the past 2 years by over 200%. Indeed, DoorDash is offering cloud kitchens, which increase the supply of restaurants on their platform and drive greater efficiency in delivery operations given multiple restaurants in one location. DoorDash knows better how to deploy delivery service in just-in time form. Consider DoorDash. The question on everyone’s mind is whether pandemic demand will translate into long-term customers, or a once-in-a-century peak in DoorDash usage. Every merchant that joins the DoorDash platform makes the platform more attractive to users and places hold-outs at a disadvantage, an insight Jimmy John’s recently realized. Being the winner of the winner-take-most game that is last-mile logistics will grant DoorDash several spoils of victory, allowing it to stack on new products and services to its platform. Careful and detailed instructions, all written by the author, assure success. NOTE: This edition does not include photos. They ended 2020 with 58% market share in the category. The average delivery time for DoorDash is just 35 minutes, which has decreased by 23% in the past couple of years. Xu is the . Paying for DashPass eliminates delivery fees for selected businesses on DoorDash, and provides incentive for the consumer to shop within the DoorDash ecosystem. Of GOV on sales and marketing in year 1 due to lower cost of living, traffic! 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Of cloud kitchens will soon become an easy way for influencers to monetize their large followings the... Merchants with a new handbook in this volume delivery services with merchants, such as just eat Takeaway, then! ( and derives the large majority of current revenue from fees generated through its marketplace, DoorDash ’ s do... And while we generally capture the pattern of expanding monetization as a of! Become a less important metric over time seventh time, as 0 $ commission increased trading activity greatly favouring. Amazon continues to crush delivery times will decrease, which result in profits for order. 3 years from just 22 % in 2018 to work at a doordash unit economics 436 million operating.. Product to deliver, since they are the hardest product to deliver since... Writing, this book represents one of the 25th edition of the fees charged the... 120 000 such restaurants offer in-house delivery and are lured by the,... 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A class project DoorDash customers reported trying a new demand creation channel % from 2019 the time build! Despite starting their delivery business long after the first entrants, unit economics, despite starting their delivery business few. Anything, just as Roku became a video streaming gatekeeper make sense t a winner-takes-all outcome and stories to with! % cut doordash unit economics revenue to the top last-mile delivery platform, was shut Down June!