DoorDash's Strong Earnings Reflect Business Strength Despite Unchanged Stock Price

DoorDash reported healthy earnings with a strong accrual ratio of -0.21, indicating good cash conversion and earnings understating its free cash flow. The company's statutory profit may actually understimate its earnings potential. Despite losing money last year, DoorDash made a profit this year, which is a positive sign.

DoorDash reported strong second-quarter (Q2) earnings, with revenue and non-GAAP profit figures surpassing Wall Street expectations. The company’s performance was driven by the expansion of DashPass memberships, enhanced product features, and improvements in order frequency, particularly within new verticals beyond restaurant delivery. CEO Tony Xu emphasized the company’s ongoing focus on product quality and selection, stating, “Our product today is better than our product yesterday, and our product next year will be better than our product this year” [1].

Key highlights from the earnings report include:

- Revenue: $3.28 billion, up 24.9% year-on-year (YoY) and 3.8% above analyst estimates of $3.16 billion.
- Adjusted EPS: $1.51, up 40.4% YoY and 271.1% above analyst estimates of $1.07.
- Adjusted EBITDA: $655 million, up 19.9% YoY and 2.3% above analyst estimates of $640.4 million.
- Operating Margin: 5%, up from -7.6% in the same quarter last year.
- Orders: 761 million, up 19.8% YoY.
- Market Capitalization: $112.9 billion.

The company’s strong accrual ratio of -0.21 indicates good cash conversion and earnings understating its free cash flow. Despite losing money last year, DoorDash made a profit this year, which is a positive sign.

Analysts highlighted several key points during the earnings call. Shweta R. Khajuria of Wolfe Research asked about the drivers of DashPass membership growth and advertising scale. CEO Tony Xu highlighted multi-year investments in product improvements and a disciplined approach to ads, while CFO Ravi Inukonda stressed maintaining best-in-class merchant return and consumer conversion [1].

Deepak Mathivanan of Cantor Fitzgerald probed on the role of AI in user experience and operational efficiency. Xu described rethinking the business model using AI for personalization and automation, while Inukonda noted strong cohort growth in new verticals [1].

Ronald Victor Josey of Citi inquired about DashPass cohort engagement and the anticipated integration of Deliveroo. Inukonda pointed to continued strength in both new and mature cohorts, and Xu reiterated a focus on building the best product experience for any acquisition [1].

Michael Paul Morton of MoffettNathanson questioned operating expense trends and future headcount growth. Inukonda explained disciplined investment in product and engineering, aiming for long-term leverage, and Xu noted that headcount growth is targeted at new problem areas [1].

Lee Horowitz of Deutsche Bank sought updates on retail and drone delivery initiatives. Xu emphasized retail’s early-stage growth and complexity, and highlighted ongoing partnerships and regulatory progress in drone delivery [1].

Looking ahead, the StockStory team will closely watch the pace of adoption and profitability in new verticals like grocery and retail, the integration and financial contribution from recent acquisitions such as SevenRooms and Deliveroo, and progress in automation and AI-driven operational efficiencies [1].

DoorDash currently trades at $264.50, up from $258.17 just before the earnings. The stock has seen a positive market reaction following the earnings report.

References:
[1] https://finance.yahoo.com/news/doordash-q2-earnings-call-top-053349809.html
[2] https://www.linkedin.com/news/story/doordash-sees-high-delivery-demand-6494284/