DoorDash consumers benefited from the on demand convenience and habits formed: DoorDash CFO

Prabir Adarkar, DoorDash CFO joins the Yahoo Finance Live to discuss the company’s first earrnings report.

Video Transcript

AKIKO FUJITA: We begin today, though, with earnings out from DoorDash. We've seen the stock. They're coming off of the lows in this session. But it is still down about 5%. Even after the company beat Wall Street estimates on the top and bottom lines, revenue was up 226% year on year to $970 million. The company posting adjusted earnings of $94 million in the quarter, while its key metric, marketplace gross order value, jumped 227%.

Let's bring in the CFO of DoorDash, Prabir Adarkar joining us today. Prabir, this is a pretty strong quarter all around. But there does seem to be this underlying concern right now in the market. That, how much of this momentum that you saw in the quarter is simply the result of these COVID-related restrictions that were in place? How do you think investors should be looking at the momentum that will inevitably slow as more and more people opt to go out to restaurants instead of ordering in?

PRABIR ADARKAR: Thank you. It's a pleasure to be here. Let me share some specific insight on what we're expecting to see, certainly in the near-term versus the long-term. We're rooting for the restaurants to reopen. It's important for them to reopen so that they can get back on their feet. And we're hoping that people go back into these restaurants. And so over the near-term, there will certainly be a phenomenon where people go back into restaurants.

But in our experience, consumer habituation tends to persist over the long-term. And what I mean by that is consumers have discovered DoorDash. They've ordered from their favorite restaurants. They've benefited from the luxury of on-demand convenience. And new habits have formed. And so over the long term, we expect that these habits will persist.

And what we've seen in markets across the US, particularly those that were relatively advanced in terms of reopening compared to others like Texas and Georgia and Florida, is even against that context of the markets reopening, our volumes, our weekly orders continue to grow. And so we're hopeful that over the long-term consumer habits persist. But in the near-term, certainly we hope that people get back into the restaurants.

And that uncertainty with respect to what consumers are going to do, frankly, with respect to whether workers go back into their offices or whether remote work continues to persist, these types of uncertainties are what's embedded in our outlook.

AKIKO FUJITA: Well, we saw huge growth in the quarter. We also saw the losses surge-- the number there $312 million compared to $134 million in this same period last year. I know a significant chunk of this are costs related directly to the IPO. But you also made it pretty clear on the earnings call yesterday that you plan to invest and continue to invest in a significant way. How should we be looking at that number in the context of where you want to go, to put more money towards the growth side of the company?

PRABIR ADARKAR: Sure. And as you pointed out, the elevated Q4 net loss-- net loss results from elevated stock based compensation expense usually-- and it's typical for companies that go through an IPO for there to be an event in connection with the IPO, where these restricted stock units that were granted to employees in the years leading up to an IPO vest. And that's what creates the accounting expense that you're seeing.

Internally, what we look at is two things, adjusted EBITDA and free cash flow as indicators of profitability. And so on adjusted EBITDA, we've had three consecutive quarters of positive adjusted EBITDA. Our latest quarter in Q4, we produced $94 million of positive adjusted EBITDA, which is higher than we ever have in the history of the company. And then finally, in terms of free cash flow, for the entirety of 2020, we generated positive $93 million of free cash flow.

And so we focus on those in order to-- as an indicator of profitability. To your broader question regarding the company's philosophy towards capital allocation, we're building for scale. We think the opportunity ahead of us is immense, both in terms of food but also these new verticals. Even convenience, which we launched less than a year ago, we're already the market leader. And that's a multi-hundred billion dollar category.

And so given the runway ahead of us, we prefer to invest any excess profitability towards maximizing our scale and our top line growth and using our EBITDA guidance as a way to create discipline. And so that's the priority we operate with.

BRIAN CHEUNG: And Prabir, what's also interesting is just the retail move also with your partnerships with Michaels, Macy's, PetSmart. But I want to pivot to restaurants specifically, kind of your bread and butter business. It was mentioned on the call that your analysis about the odds of surviving during that pandemic were actually eight times better for DoorDash merchants than all us restaurants. But that last quarter may not have covered the depth of the winter where a lot of businesses had difficulty getting by.

So what is the kind of outlook from your perspective of restaurant closures, and whether or not the supply of your partners might be impacted as we close in on a year now of this pandemic?

PRABIR ADARKAR: Sure. Brian, and if you look at our shareholder letter, we've actually provided a graphic that includes the number of restaurants on our platform over time. And as you've-- if you've looked at the letter, the number of restaurants, the supply on our platform has increased over time, even during the pandemic. And part of the reason for that is because we view ourselves as being critical to help restaurants grow and not just survive the pandemic.

And in order to do that, we're providing restaurants with a range of products and services that help them grow their businesses. So if you're a smaller restaurant, and you need our help with customer acquisition and generating demand and processing the order and providing customer support, as well as fulfilling the order using our delivery feed, we provide you with the DoorDash Marketplace.

If you're a larger restaurant that has its own established brand and its own customer-- loyal customer following, and all you need is access to our delivery fleet, and you don't need us to generate demand for you, we have DoorDash Drive. If you're a restaurant that needs to maintain an online presence, or that needs to create an online presence, we provide you with DoorDash Storefronts that then allows you to establish a branded online presence.

And so we provide restaurants with a variety of products and services. Because the needs and the challenges faced by restaurants are unique and differ from restaurant to restaurant. And it's this varied approach or this merchant first focus that has led to restaurants having a greater likelihood of staying in business on our platform.

BRIAN CHEUNG: And one interesting thing about not just restaurants but broadly speaking are the amount of partnerships that DoorDash has embarked on over the past few years. One that kind of comes to mind is its partnership with Chase, with offering the premium subscription to Chase Sapphire holders, for example. How does the company view partnerships like that? Is it a way to try to implement the payment system into the platform? Is it a marketing spend? How does the company approach those types of partnerships? And could we see more of that in the future?

PRABIR ADARKAR: From our perspective, partnerships are yet another investment. It's a form of investment. And we view all investments alike. They need to earn the cost of capital. They need to produce an acceptable return. And each investment is constantly measured over and over again repeatedly throughout the course of the year, to ensure its earning its cost of capital.

And it's that focus on operating efficiently and ensuring that we're allocating capital wisely that's allowed us to generate improving unit economics over time. And the improvement in those unit economics is what we're investing not just in partnerships but also in the marketing front, to grow our customer base as well as to add new products, such as convenience and drive and storefronts.

AKIKO FUJITA: Prabir, there is a lot of interest, a lot of speculation about your expansion plans abroad. You're already in Canada. You're in Australia. There are rumors that you could potentially be looking at Japan, maybe already hiring up in preparation for the entry. What do you see as the qualifiers to entering a new market, as you look to expand your global footprint right now?

PRABIR ADARKAR: We aspire to be a global company. And so we started in the US. As you pointed out, we launched in Canada. And then about a year ago, a little more than a year ago, we launched in Australia. And we view this as a long-term marathon. And so we're prepared to make investments over a long horizon, in order to build out our international operations.

Based on what we're seeing in Canada and Australia, again, those markets are early, but we're seeing encouraging progress, both in terms of category share as well as improvements in our unit economics. And so we're looking for these types of signals in order to determine whether to continue investing. And we like what we see. Over time, we'll continue evaluating additional places to launch into where our core strategy of providing wide selection, high quality deliveries, and better affordability differentiates us from the incumbents in those markets.

And you have to remember that, even in markets with incumbents, the level of penetration in terms of food delivery, let alone other verticals, such as convenience and grocery, the level of penetration is still relatively low. And so we think there's enormous opportunity for us to take our playbook and our strategy and expand outside the US.

AKIKO FUJITA: And finally, Prabir, there are questions about regulation. Certainly Prop 22 was a big win for companies like yourselves. And you have said that you don't necessarily want to pass on the cost to customers right now. But there's no question that's going to go, up as you do double down on some of these benefits to your employees. How are you looking at that picture right now? Because it's just California.

But there's no question, there are conversations that are happening across the country in individual states about how exactly the gig economy should be handled.

PRABIR ADARKAR: Yeah, Prop 22 was an important milestone. Because it was the first time where both Dashers and voters had a voice at the ballot box. And the overwhelming support we saw for Proposition 22 was a good indicator that both Dashers and voters alike in the nation's most liberal state support a model that bears independence and flexibility with economic protections and benefits.

And Prop 22 has been in effect now for-- it's only been a couple of months. But there's been a significant increase, a 50% increase in positive sentiment from Dashers. And Dasher earnings are significant as well. In the Bay Area, Dashers are making $36 per active hour, including tips. And in San Diego, that number's $33. And so it's been a positive, based on our data, for Dashers.

From our perspective, it's important for us to fight for what Dashers want. And so we will continue to advocate for what Dashers want. And what they tell us is that they prefer a model that bears this independence and flexibility, that's associated with an independent contractor model, with benefits and protections. And so we're engaged in these discussions with policy makers, both at the state and federal level, in order to ensure that advocating for Dasher rights.

AKIKO FUJITA: DoorDash CFO Prabir Adarkar, it's good to talk to you today. Appreciate your time.