DoorDash (DASH) 3Q Update- Lowball and Slash

4Q outlook looks aggressive given possibly unsustainable cost cuts that drove 3Q results

We reviewed DoorDash (DASH) a few weeks ago in our September report DoorDash Away All! where we pointed out multiple ways we believe the company’s non-GAAP performance measures have distorted its true profitability. Last week, the stock price skyrocketed following DASH’s third-quarter earnings announcement which beat forecasts for both Gross Order Volume (GOV) and Adjusted EBITDA. However, a closer look at the quarter reveals that guidance was an easy hurdle to clear. What’s more, we saw multiple unsustainable cuts to key expenses that paved the way for the EBITDA beat. Investors should be aware of these cuts and the potential for them to reverse in upcoming quarters.

Gross Order Volume

One of the key metrics investors follow at DASH is its Gross Order Volume (GOV). The company defines this as “the total dollar value of orders completed on our marketplaces, including taxes, tips, and any applicable consumer fees, including membership fees related to DashPass and Wolt+.” Note that GOV is different than what the company reports as revenue which is net of taxes, tips, and the fee paid to the restaurants. Regardless, GOV along with Adjusted EBITDA are the two metrics the company focuses attention on and the only performance measures on which it provides formal quarterly guidance.

DASH’s guidance for third-quarter GOV was for $15.8-$16.2 billion, and $64.2-$65.2 billion for the full year. This implied guidance for the fourth quarter of $16.0-$16.2 billion- DASH had already reported in 1Q and 2Q. However, the 3Q goal was actually below the GOV DASH had already reported in 2023. Consider the following table showing GOV for the last 7 quarters:

DASH forecasting $16 billion in GOV for 3Q and $16.3 billion for 4Q (at the midpoints) was hardly shooting for the moon. Also, despite GOV coming in above consensus, the growth rate was still the second straight deceleration in growth as shown below:

Another point to take away from the above table is that GOV growth was outrunning order growth in previous quarters partly as a result of food price inflation. However, those two growth rates fell in line with each other in the third quarter signaling that this source of growth has wound down.

Adjusted EBITDA

The other guidance point, Adjusted EBITDA, also came in well above an easy-to-beat guide. Going into the quarter, DASH had promised the number would be between $220-$270 million. The market was overjoyed by the actual result of $344 million. However, look at the last seven quarters of Adjusted EBITDA:

The company had already reported $279 million in adjusted EBITDA in the second quarter and the high end of guidance was below that number. More importantly, when we dig deeper into the results, we see signs that the outperformance was based on several unsustainable trends that could easily reverse in upcoming quarters.

Another figure the company touts is Adjusted EBITDA as a percentage of GOV which has gone through the roof in the last couple of quarters:

It was this margin expansion that drove the EBTIDA outperformance as GOV topping guidance was worth only $9.4 million in EBITDA while the margin expansion was worth over $66 million.

While the company’s third quarter guidance seemed easy, its updated fourth-quarter guidance appears very aggressive to us. We estimate the midpoint of DASH’s implied adjusted EBITDA guidance for the fourth quarter before the third quarter results was $172 million. Fourth-quarter guidance after the third quarter was $350 million, an increase of $178 million.  However, a closer inspection of third-quarter results reveals multiple significant cuts to key operating expenses which explain essentially all of the reported EBITDA beat, and we see most of those cuts as unsustainable.

For a closer look at what drove the third-quarter outperformance, let’s get “Behind the Numbers”.