DoorDash Isn’t Profitable Despite Higher Sales Amid COVID-19
Restaurant delivery company DoorDash isn't profitable yet despite increased sales amid the COVID-19 pandemic. When will the company be profitable?
Feb. 26 2021, Published 1:14 p.m. ET
U.S. food delivery service company DoorDash saw a revenue boom in 2020 amid the COVID-19 pandemic. As millions of Americans stayed home and restaurants closed in-person dining, customers turned to DoorDash to get their favorite takeout meals conveniently delivered.
DoorDash was founded in 2013 by four Stanford University students. The company debuted on the NYSE on December 9, 2020. Co-founder and CEO Tony Xu said that while going public is a major milestone, it's “one day on this multi-decade journey.”
DoorDash still isn't profitable
Even though DoorDash has emerged from the worst of the COVID-19 pandemic as one of the “winners,” it still hasn't reached profitability. The company takes payment from restaurants for every order placed through the DoorDash app. Restaurants that already operate on thin margins don’t always benefit from DoorDash orders.
In its first quarterly results as a publicly-traded company, DoorDash said that its revenue was $970 million for the fourth quarter of 2020—up from $298 million in the same period in 2019.
However, the net losses for the fourth quarter of 2020 were also much higher than the fourth quarter of 2019. The company lost about $312 million for the fourth quarter of 2020 compared to $134 million in losses for the fourth quarter of 2019.
The fact that DoorDash uses third-party drivers to deliver restaurant items to customers likely cuts into the profits for both DoorDash and local restaurants.
DoorDash settlement explained
In November, DoorDash settled for $2.5 million on a suit filed by Washington, D.C. Attorney General Karl Racine over allocation of tips. The lawsuit claimed that DoorDash misled customers about how tips would be distributed. Customers thought that tips would increase drivers' pay instead of going directly to the company.
Racine claimed that DoorDash used customer tips to offset the minimum payment the company promised drivers from 2017–2019 instead of raising drivers’ pay as customers believed.
The settlement stipulates that DoorDash must allocate tips to drivers (called Dashers) without decreasing their base pay. The company also has to provide transparency of communication about its payment model and policies to both customers and drivers.
The financial agreement of the settlement requires DoorDash to provide $1.5 million in relief to delivery workers, $750,000 to the District of Columbia, and $250,000 to two local charities.
Should I buy DoorDash stock?
DoorDash Inc. (NYSE:DASH) had the largest share of the U.S. food-delivery market in January, according to Edison Trends. Shares of the company were 60 percent higher than its IPO price to close on Feb. 25, according to The Wall Street Journal.
Analysts expect the company’s revenue to decrease or stagnate for the first three quarters of this year compared to the same period in 2020. The outlook likely caused the stock’s 10 percent drop in after-hours trading.
However, Xu said that he’s optimistic that consumers will continue their DoorDash habits as COVID-19 pandemic restrictions ease.
DoorDash's top competitors include Grubhub and Uber Eats. Grocery delivery company Instacart operates in a similar manner (and also faced lawsuits from the D.C. attorney general for misallocation of tips).