DoorDash: gig economy business sees opportunity in sector destruction 

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The annihilation of delivery start-ups aids the prospects of those left standing. Companies promising to have orders on customer doorsteps in a matter of minutes are disappearing equally speedily. DoorDash chief executive Tony Xu has taken the opportunity to grow.  

Acquisitions like the $45mn purchase of Wolt, a Finnish delivery start-up, have lift order volumes. US-based DoorDash has expanded overseas and added convenience and grocery store items as well as advertising to the core US restaurant delivery business. Speaking to investors on Wednesday, Xu said the company was now made up of five businesses, up from one in 2019. 

Expansion comes at the cost of ongoing losses. The gig economy business was founded in 2003. It listed in late 2020. It delivers more than half a billion orders per quarter. Yet it reported a net loss of $75mn in the three months to September 30.

Serious cost-cutting is unlikely in the near future. DoorDash partnered with Cruise Automation, which is developing autonomous vehicles, four years ago. In the future robo cars could spare the company dealings with drivers and regulators trying to reform jobs markets.

But the suspension of Cruise vehicles in San Francisco last month following an accident suggests driverless deliveries are some way off. Marketing spend must stay high in order to compete with rivals like Amazon, Uber and Grubhub. Stock-based pay is dragging on net income. 

There are good grounds for scepticism towards companies specialising in online deliveries. These include low barriers to entry and fierce competition.

But consider DoorDash’s net revenue margin, or “take rate”, and the trajectory looks more encouraging. Gross order value tots up all of the things ordered via DoorDash, including restaurant food, groceries and convenience items. It reached $16.75bn in the last quarter.

From this, DoorDash’s revenue was $2.2bn. That is a 12.9 per cent take rate, up from 12.6 per cent the previous year. A rising number shows volume growth exceeds the increase in operating costs. If it keeps moving in the right direction it will support DoorDash’s expansion plans.