DoorDash - Q2 2023

Transcript

Operator (participant)

Good afternoon, and welcome to the DoorDash Q2 2023 Earnings Call. My name is Brianna, and I will be your conference operator today. Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. To withdraw your question, again, press star one. I will now turn the call over to Andy Hargreaves. You may begin your conference.

Andy Hargreaves (VP, Finance and Investor Relations)

Thanks, Brianna. Good afternoon, everyone, thanks for joining us for our Q2 2023 earnings call. I'm very pleased to be joined today by Co-founder, Chair, and CEO, Tony Xu, and CFO, Ravi Inukonda. We'll be making forward-looking statements during today's call, including our expectations for our business, financial position, operating performance, our market, guidance, strategies, our investment approach, alignment with merchants and Dashers, and the consumer spending environment. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described. Many of these uncertainties are described in our SEC filings, including Form 10-Ks and 10-Qs. You should not rely on our forward-looking statements as predictions of future events. We disclaim any obligation to update any forward-looking statements except as required by law.

During this call, we'll discuss certain non-GAAP financial measures, information regarding our non-GAAP financial measures, including a reconciliation of such non-GAAP measures to the most directly comparable GAAP financial measures, may be found in our earnings press release, which is available on our IR website. These non-GAAP measures should be considered in addition to our GAAP results and are not intended to be a substitute for our GAAP results. Finally, this call is being audio webcasted on our IR website, and audio replay of the call will be available shortly after the call ends. Brianna, I'll pass it back to you, and we can take our first question.

Operator (participant)

Thank you. At this time, I'd like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from Deepak Mathivanan with Wolfe Research. Your line is open.

Deepak Mathivanan (Equity Research Analyst)

Great. Hey, guys. Thanks for taking the question. Maybe one for Tony and one for Ravi. Tony, can you give a little more color on what categories drove the acceleration in US non-restaurant verticals in Q2? Are there any that is sort of at an inflection point of the, you know, S curve, where we can expect healthy contribution to growth over the next few quarters? Then, maybe one for Ravi. The illustrative Excel calc was very helpful. Can I ask, maybe if you kind of like, think about Dash in the context of that, where the company currently is, do you think you're in year two or year four in the chart?

Maybe asked another way, are you at a place right now where the rate of profitability increase in many different businesses is kind of offsetting the rate of losses, you know, in a few, which could lead to sort of sustained profitability improvement? Is this sort of a transitory period in which you're looking for signals before you scale investments in many other products? Thank you so much. Any context you can add would be great.

Tony Xu (CEO)

Hey, Deepak, it's Tony. I'll, I'll take the first one, you know, on growth outside of restaurants. Well, I mean, as hopefully you all saw in our June update, when we celebrated 10 years as a company, we actually rolled out, you know, one of our biggest product updates, you know, this year. That really, one of the featured things that we shipped was actually the launch of both our grocery and retail tabs.

You know, I, I think this is another good example of how we do product development in a very disciplined way, which kind of, I, I, I think, aligns a bit to the, to the sentiments behind your second question, where everything effectively is stage-gated, and we give, you know, maximum exposure or investment, you know, once we see that they are ready for prime time. You know, I think when it comes to a lot of these categories outside of restaurants, you know, I think you saw a lot of that growth for us happen in the first couple of years of the pandemic, in which we launched with third-party convenience retailers, whether they be the likes of Walgreens, CVS, 7-Eleven, and, and many, many others.

You know, over the last 2.5 years, we've built a multi-billion dollar grocery business from scratch, and it was, you know, really ready for prime time exposure. You know, that's one of the things that you saw as we now have more non-restaurant stores on the platform in North America versus any other platform. We're growing faster than every other platform and gaining share dramatically in virtually all categories, and certainly, and very specifically also in grocery. You also see this in retail.

You know, we've, we've seen a lot of growth in categories that, is even outside of food, whether that be in, sporting goods with DICK'S Sporting Goods, or office supplies with, with Office Depot and OfficeMax, or, you know, the pet category with, PetSmart and Petco, or the health and beauty category with Sephora.

A lot of this is happening, and, you know, we, and we found ourselves in a position where, you know, not only were we seeing very resilient growth in the core US restaurants category at all-time high frequencies, which gives us just more shots on goal to introduce a lot of these new categories, but we also saw the readiness in terms of product-market fit from a selection, quality of service, and affordability perspective when it came to our grocery and our retail offerings, and that's why we made the announcement and, and why we shipped, you know, the features that we did in June.

Andy Hargreaves (VP, Finance and Investor Relations)

Deepak, to your second point, you know, maybe taking a step back, right? Like, what you're seeing in the business is a combination of a couple things.

One, the growth in the business continues to be very strong. In fact, in Q2, growth actually accelerated compared to Q1. Given the business is positive on a unit economic basis, that's driving some of the upside in EBITDA that you're seeing in the business. At the same time, our core restaurants business is continuing to improve in terms of overall profitability, as well as both new verticals, as well as international, are also becoming efficient when you look at the unit economics year-on-year. That's driving the underlying EBITDA upside that you're seeing in the business. For us, as you know, it's always important that we are constantly looking to reinvest back in the business. We did that in Q2 as well, which drove some of the upside in growth, as well as the category share gains that Tony talked about.

Two, as I look forward, our goal is to constantly reinvest because our goal is to build the largest local commerce business possible. Referring back to the chart, right? Ideally, the chart goes on forever, 'cause we're always looking to manage efficiently, we're always looking to reinvest back in the business to build the largest local commerce business possible.

Operator (participant)

Thank you. Your next question comes from Mark Mahaney with Evercore. Your line is now open.

Mark Mahaney (Senior Managing Director and Head of Internet Research)

Okay, let me try two questions. One high-level question for you, Tony. You talked about solving big problems for local commerce. Could you just sketch out what you think are some of those big problems that you've not yet, you know, fully or not yet partially addressed, you know, like logistics and marketing? Like, when you think about those problems beyond that, what do you think are the biggest problems for local commerce? Would you provide any color on just talk about Wolt, the acquisition, here we are a year on in. How do you think that's fared? Has it gone according to plan, better than planned? You know, the year on in, the positive and the negative surprises you've come across. Thank you very much.

Tony Xu (CEO)

Yeah. Hey, Mark. I'll, I'll take both of those questions. You know, on, on the, on the first one, you know, with respect to large problems to solve, I mean, first, I, I, I think this probably goes without saying, but I think it's worth, you know, repeating, just given the resilience or continued resilience, I should say, of the, of, of the strength of the, you know, restaurant delivery business. You know, even though that business has achieved a, a great deal, it's still a single-digit percentage representation of the US restaurant industry in terms of total sales. I think I don't wanna just skip over, you know, some of the businesses that we do run today versus just, you know, talk exclusively about the invention of, of new businesses or, or solving new problems.

I think there's still a lot to solve in our core business, which I believe has many, many years of runway in it. When we talk about, you know, some of these new categories, that's obviously, you know, almost starting just many years behind, given the fact that we launched a lot of these new businesses, you know, about two and a half years ago. I, I, I, I want to start with, you know, that as context. I think when you talk about a lot of local commerce, I mean, let's think about it. I mean, the, the pandemic, in, in, in many ways was a very alarming and aggressive wake-up call for every business to be an omni-channel business.

I think it, you know, for a period of time, forced physical retailers to exclusively invest in online because that was the only channel available to them. I think that as we now kind of, you know, especially as e-commerce goes back into, you know, a bit of a, you know, steady state curve of adoption, I think there's a lot of problems there to solve. I, I think that there's. You know, the world only tends to wanna go faster. Customer expectations tend to only go in one direction when it comes to something like delivery, whether that's, you know, with food or other types of items beyond food. You know, that is only going to, you know, happen at a greater and greater rate.

If you're a physical retailer, you need to think about how you're going to participate in that. There's lots of logistical problems we have to solve in order to do that. You know, we're investing, you know, quite tremendously in building up certainly these partnerships, but also in a lot of infrastructure so that we can, you know, create the tooling with, you know, products like DashMart, such that we can work concurrently with all of these retailers so that they can actually compete, you know, I, I think at the highest scales, you know, with global ambitions. I think that's, you know, a big part of, of, of still making sure that last-mile delivery can be true, not just for a handful of retailers, but for every retailer, small, medium, and large.

you know, second and beyond this, there's a lot of tools that now local businesses need to invent. you know, I think a lot of times people think: Oh, e-commerce, that's just a website, or that's just a mobile app, and you're done. Well, actually, everything needs to be rethought of, right? For example, if you used to take care of customer support requests inside your store, whether it's a shopping request or a dining request, well, you can't do that anymore if the orders are happening, you know, through your digital channel. You're gonna have to invent customer service in a different way.

If you're used to, you know, being once very successful buying real estate at the right locations, at the right prices, and, you know, effectively using that as a way to market, well, that's no longer good enough, and there's gonna be, you know, many ways in which you're gonna have to think about not only attracting customers, but building, you know, repeat relationships with all of the customers that you do have. I think there's lots of problems to solve, but, you know, whether that's in logistics, whether that's in, you know, customer service, whether that's in, you know, honestly, every part of what you do now needs to, you know, turn from physical to digital. That's what all businesses need to do. There's a lot, a lot of work and, and, and the roadmap ahead is, is, is quite lengthy.

Your second question was about Wolt. You know, in, in short, Wolt is meeting our expectations, which were really high to start with. I mean, in, in general, we tend to have very high expectations of ourselves, and I think when you look at, you know, the Wolt performance, or the thesis, I should say, you know, starting a couple of years ago, before we closed the, the partnership a year ago, it was really betting on, you know, a, a world-class team that has achieved the highest retention and order frequency, in other words, built the best product in the world, and whether or not we can, you know, keep growing those geographies, which had long runways for growth, as well as take some of their exceptional management and, you know, run a global portfolio.

Those are kind of the two, you know, theses involved a couple of years ago. On the first point of whether or not we can keep growing, I mean, I, I think you kind of see it in the growth rates. We are growing at multiples of what anyone else is growing internationally, and we're also improving our unit economics at the same time. I, I, I think from a business perspective, that's certainly meeting the bar. The second is more of a management perspective, and what you see there is that, well, actually, you know, Miki and the team actually runs all of DoorDash's markets outside of the US.

I think we're seeing, you know, a very strong start on that front as well, as that team now is taking up a bigger geography, and we now get to split the management, you know, bandwidth in the right way so that we can give, you know, international, which is a huge, you know, investment area for us, the right single-threaded focus, and do the same for our US business as well.

Mark Mahaney (Senior Managing Director and Head of Internet Research)

Thank you, Tony.

Operator (participant)

Your next question comes from Nikhil Devnani with Bernstein. Your line is now open.

Nikhil Devnani (Senior Analyst)

Hey there. Thank you for taking the question. I had one on the investment framework as well in the letter. You mentioned kind of a six year period of investment and $1 billion spent on U.S. restaurants before it started to generate some cash. When you look at the investment areas you have today, do you expect them to take longer to return and cost more because they might be, you know, more operationally complex, so there's more incumbents? Do you expect the return to actually be quicker because you've already built a strong network of consumers and Dashers? Then maybe a second question, Tony, you've talked about people eating 20-25 times a week as the opportunity.

What's the ceiling, you think, on frequency for your business and kind of the primary constraints, between bridging the gap to, to that point? Thank you.

Tony Xu (CEO)

Yeah. All right. Well, Nikhil, maybe I'll take, you know, both of those. I think the first is on the, you know, in how we think about investments, and the second is really, you know, around where we are on, on frequency and, and where it can go. You know, on, on the first, you know, let me just say, we, we kind of, you know, offered a quantitative framework, you know, in the shareholder letter on, on how we've thought about things, but it was meant, you know, as a guide, not as, you know, something that is just a formula that, that, that always, you know, can be applied, right?

I mean, sometimes these things take judgment, and so, you know, the, the answer to your question about, you know, are, are timelines or investment dollars going to be, you know, larger or longer or shorter or I guess, less, it really depends on the problem at hand, right? I mean, obviously, we have a benefit of having the largest local commerce, audience that has the greatest frequency, which gives us the, the most shots on goal. That doesn't mean that, you know, we just win de facto.

I mean, we have to still build the best-in-class product for each problem that we're trying to solve, and then I think the benefit of the scale will actually, you know, really translate in a way that makes, you know, productive sense for all of the audiences, and frankly, you know, generate a great return for everybody. I don't think there's, you know, necessarily, you know, one way to, you know, to think about this. We try our best to apply a first principles approach to each problem. We obviously want to take advantage where we can, but, you know, the way we tend to think about this is, you know, first and foremost, how do we solve a problem that in a way that is significantly better than how incumbents are doing it today?

Make sure that we are very disciplined in both the product investment as well as the dollar investment in which we stage gate, you know, those investments, because, you know, precious resources, whether it's the attention we can give in our, in our distribution or the dollars that we have in our budget, or frankly, the people that we have working at the company, that's a big consideration. Then the final consideration is whether or not we see an efficient path towards strong long-term economics. That's in, just in general, how we think about it, but I wouldn't, you know, over-rotate necessarily on, you know, that being the exact formula that we, we, we have to repeat over and again. Your second question, I think, had to do with frequency and its long-term potential.

You know, the, the short answer is we continue to see the numbers grow, right? I think, you know, on the one hand, we, there's a few ways to look at this. I think, in, in your question, I think you're kind of saying, well, there, there, there's, you know, there's 20-25 eating opportunities via shopping opportunities on top of that, we're talking about north of 100 occasions a month. That's certainly, I, I think, you know, theoretically, max, and, and, and I think, that's one way to look at it. We also can look at it from just, you know, what, what some of our power users or top, you know, decile users are, are, are, are, you know, actually doing today, so it's not even a theoretical number.

We think that we can keep growing much, much bigger, I guess, is the short answer. I mean, our, our top decile users are, you know, using our service a, a, a very large number of double-digit times, I guess, is what I would say. For us, it's thinking about, well, you know, how do we actually graduate people to that? I, and the answer is there, there isn't, you know, a silver bullet here, right? It's the combination of the selection of stores, the affordability of the program, the quality of the service, and making sure that we get the efficient- we can deliver the efficient frontier for each individual user, each individual occasion. If we can do that, these numbers will continue moving up.

Ravi Inukonda (CFO)

If you just add to, you know, what Tony said, right? Like, our goal is to, you know, target, track our teams for both unit economics as well as volume. We're comfortable with the timeframe as long as we are making progress across both of those. If you look at the results of both of our investment areas, we are growing quite nicely, as well as the unit economics continue to improve. We obviously want to run these businesses efficiently. We're happy with the progress we've made so far.

Nikhil Devnani (Senior Analyst)

Great. Thank you both.

Operator (participant)

Your next question comes from Ron Josey with Citi. Your line is now open.

Ron Josey (Managing Director and Senior Internet Analyst)

Great, thanks for taking the question, guys. Maybe two. Tony, I think you mentioned this earlier, earlier as well. Just the frequency is at all-time highs in what's traditionally a slower quarter, Q2. Just talk about the drivers here in the here and now, I guess, more. Is this DashPass just having greater impact, newer cohorts ramping faster, the revamped app, as we talked about? I'm sure it's all of the above. If there's anything to call out, though, that would be interesting on, on frequency. Then, Ravi, on contribution profit, I think the press release talked about US restaurant marketplace generating annualized $2.4 billion in contribution profit this quarter. Can you just talk about. That's essentially all contribution profit for the company. Talk about the margins across non-food.

I think convenience are sustainably positive there. Talk about grocery, Wolt, any insights there would be helpful. Thank you.

Tony Xu (CEO)

Yeah. You know, on the first question, in terms of, you know, where the growth is coming from, I mean, we're, we're seeing it mainly in, you know, two big areas, right? One is users, and the other is the frequency. You're right in that there is no one individual, you know, driver of this. I mean, DashPass did have a record quarter, so it's, it's, you know, continues to achieve all-time highs. You're, you're right, as one of the assumptions that, you know, that was one of the drivers. We're also just seeing, you know, stronger and stronger cohorts. You know, I, I think that this is a question at the, certainly at the beginning of the pandemic, and certainly at the beginning of the reopening or the first reopening in 2021.

I think what you've seen now for 8-10 straight quarters, in addition to the output metrics in the GOV, the revenue, the input metrics we're seeing are stronger and stronger cohort retention and, and, and growth. That's a combination of offering the best selection, quality, affordability. The new use cases, to your point, around non-restaurants certainly adds to it, but there's also improvements in the core restaurants business as well. I think all of these things is adding to it. The short answer to your question, what's driving the growth, is it's users and frequency.

Ravi Inukonda (CFO)

Yeah, Ron, just a couple of points there on your second question. I mean, the $2.4 billion contribution, that was the US restaurants contribution from Q3 of last year. Obviously, that has grown substantially since that point. What we're seeing in the business is, as we continue to improve the underlying product, whether it's adding more selection, improving the quality of the product, that's driving efficiency of all lines of business. What we saw this past quarter was, like I mentioned earlier, core restaurants improved in terms of unit economics as well as profitability, are both new verticals and international areas improved in terms of unit economics. More specifically, when I look at the new verticals area, last year, we mentioned that third-party convenience was positive on a unit economic basis. It has continued to grow from that point, both grocery as well as DashMart.

There's been a step change improvement in the unit economics compared to last year. International business accelerated in the quarter, as well as unit economics improved. Again, all of the unit economic improvement we are seeing is being driven by product innovation. We've driven leverage on Dasher cost, we've driven leverage across credits and refunds, as well as sales and marketing.

Ron Josey (Managing Director and Senior Internet Analyst)

That's great. Thank you, guys.

Operator (participant)

Your next question comes from Lloyd Walmsley with UBS. Your line is now open.

Lloyd Walmsley (Managing Director and Senior Research Analyst)

Thanks. Two, two questions, if I can. Just first, just following up on Mark's question earlier, can you, you know, maybe give us a sense of some of the interesting greenfield investment areas that might be interesting to you all? It seems like maybe there's, you know, you're open to things that are perhaps less directly adjacent than some of what we've seen already, like advertising or, or, or otherwise. Am I, am I misreading that? Anything you can share there. Then the second one, it seems like we're, you know, in a sweet spot, getting healthy growth and good margins. Clearly, core, core restaurant business firing on all cylinders and, and good progress on unit economics of the investment areas.

Yeah, as you, as you showed in your letter, sometimes unit economics are improving a lot, but as you fuel investment behind that, it can be like a, a headwind in an absolute basis. Where, where are we in that cycle with some of these investment areas? Should we expect, while unit economics are getting a lot better, just a step up in investment behind that, that may mute the flow-through of that? Anything, anything you can share on the kind of medium-term outlook for, for where we are in that cycle there, on existing growth, growth investments? Thanks.

Tony Xu (CEO)

Yeah. Maybe I'll, you know, take a shot at the first one and, and maybe say a few things on, on the second one, too, and then I'll, you know, ask Ravi to jump in on the second one as well. You know, I think on the first one, I mean, you're right in the saying that, you know, there's no, like, exact formula of, what are the exact adjacent problems to solve when it comes to unlocking local commerce, right? I mean, I think if you think about it today, even e-commerce is still a, you know, a minority of overall retail.

When you look within, you know, local commerce, so the small, medium, and large physical businesses offline that are trying to come online and kind of compete against, you know, maybe, you know, digital only or, or, or kind of traditional e-commerce players. I mean, they're even further behind, right? Our mission has always been to grow and to empower these businesses. We have to, on the one hand, build a marketplace that can drive incremental demand at profitable sales, and on the other hand, we have to give them tools. Some of these tools are related, but, you know, at the end of the day, it's just what does it take to solve, you know, the customer's problems?

We think that, you know, local businesses can solve a lot of the problems when it comes to consumption that traditional e-commerce businesses solve. We, we, we, we have to just make sure that we can build the tooling to allow them to do that, both through their own channel as well as through ours. You know, I think on the second question, I, I think one of the important things here is we certainly are, are, are, you know. There's, there's kind of like two thoughts I, I have on your question. You know, the first is, we don't get to control when product-market fit occurs, right?

A lot of the, even though we would love to have prescribed organizational timelines set around, you know, every project with a perfect formula that's exactly replicable across all projects, that's not exactly, you know, what the customer cares about. The customer is gonna, you know, vote with their activity, whether or not we've done a good enough job. You know, for us, you know, sometimes these things are, you move one step forward, a couple steps sideways, one step backwards, three steps forward.

I think that, you know, while what we, you know, demonstrated in our restaurants business as well as these investment areas, is that, you know, when you step back and take a look holistically over a multi-year horizon, you get this nice, you know, looking up into the right graph. That's not usually what happens in real life, right? I think it's pretty hard sometimes when, when you're just making investments, you know, during the period, especially as you're searching for product-market fit, to have any prescribed timelines. On the flip side, it doesn't mean that you have to bet at all, you know, in that, you know, period of time either, right?

I think a lot of what we're trying to explain in our shareholder letter is just our investment philosophy, that we're not just betting at all costs. We're betting when we see signal, and when we see that signal, do we actually scale? This was true, you know, in our product development. We didn't release the grocery, we didn't release, you know, maximum exposure to our grocery product until very recently, after 2.5 years. We didn't do that for our retail categories either. We don't do that from a dollars and cents perspective on the P&L either.

I think, you know, when it comes to timeline, I think judgment is quite important, and I think, you know, the most important thing to take away from the shareholder letter is that we're a disciplined way in thinking about how to make these investments.

Ravi Inukonda (CFO)

Lloyd, just to add to, you know, what Tony talked about, right? Like, to your second question, for us, we don't focus on the absolute level of investment in terms of the quantum of dollars. Our philosophy has always been, we goal our teams, we goal our lines of business on two metrics, which is demand in terms of volume growth as well as unit economics. As long as both of those are progressing in the right direction according to plan, we're happy to continue to invest. Because the most important thing in our business is scale, and we've seen that in our restaurants business, we've seen that in our third-party convenience business. Our goal is, as long as we're seeing success in terms of volume and the unit economics are continuing to improve, we're gonna invest behind our investment areas.

Lloyd Walmsley (Managing Director and Senior Research Analyst)

Yeah, makes sense. Thank you, guys.

Operator (participant)

Your next question comes from Douglas Anmuth with JPMorgan. Your line is now open.

Douglas Anmuth (Managing Director and Internet Analyst)

Thanks for taking the questions. A couple just on the Dasher side. Can you just talk about the drivers of lower than expected acquisition costs in Q2, and then what makes you think those efficiencies may not continue in the back half? With the update recently, any thoughts, early thoughts, I know, but on the flexible pay model for Dashers and perhaps any discussion around unit economics for you guys? Thanks.

Ravi Inukonda (CFO)

Yeah, Doug, I'll take both of those. You know, on the Dasher acquisition cost itself, in any given quarter, there's some volatility in our Dasher acquisition costs. I wouldn't read too much into it. Let me give you a few examples. In Q1, we under forecasted volume. We had to ramp our Dasher acquisition spend in the quarter. That's what we saw in Q1. In Q2, we saw two things, right? First, the underlying product improvements we made, that helped us in terms of Dasher retention. Number two, we also benefited from seasonality, where you have college kids come back during the summer. We see this, you know, every single summer.

What we said in our letter is, we expect the product improvements to continue to bear fruit in the second half, but we don't expect the same level of benefit or efficiency from seasonality. Again, I wouldn't read too much into the quarter-to-quarter movement, 'cause there's some inherent volatility in Dasher acquisition. At your second point, the Dasher product changes we've made, you know, Doug, that was not a financial move for us. For us, it was mostly about offering choice, offering flexibility to Dashers. If you think about our Dashers, right, like, Dashers are at different parts of their journey. Some Dashers are new to the platform, where they just want to hit the button, go, and start earning. There's others who are more experienced, that want to pick and choose the orders that they want to go after.

For us, it was truly about giving a choice to Dashers to continue to engage with us on the platform, depending on where they are in their journey, less so about a financial move for us. Hopefully, that helps.

Douglas Anmuth (Managing Director and Internet Analyst)

Helpful. Thank you.

Operator (participant)

Your next question comes from Brian Nowak from Morgan Stanley. Your line is now open.

Brian Nowak (Managing Director and Head of U.S. Internet Research)

Great. Thanks, guys. maybe two. The first one, Tony, just to sort of talk about your 10-year-old, sort of the oldest, the core US restaurant business.

As you sort of think about, you know, customers voting with their activity, talk to us about sort of how you break down the forward growth and what you have to invest in to kind of continue to grow that core US restaurant business from here across users, frequency, spend per transaction. How, how do you continue to get more customers to, to vote more in that core oldest business? Then the second one on the grocery, non-restaurant piece in the US, recognize the new app design is having an impact. When do you think about sort of increasing your marketing to bring new users into the funnel for grocery first? Has that started yet, or is that something to, to think about in the back half or in 2024? Thanks.

Tony Xu (CEO)

Yeah, maybe I can, you know, take a shot at both those. You know, I, I think on the first question of growing the US restaurants business, well, I wish it was just one lever that, you know, we'd have to pull. I mean, we continuously have to work on selection, the quality of the service, the affordability of the programs, and our customer support, right? I mean, this is one of these businesses where, you know, I think it's really easy to make surface-level comments about the business, but really, the execution happens at the order level, and you have to, you know, be better on each one.

For us, you know, I, I think the criteria to be better, really goes back to the hallmarks of how we have achieved the scale that we have in the restaurants business in the first place, which is offering the best combination of selection, quality, affordability, and service. You know, there's certainly a lot of things that we have in the books planned for each one of these areas, but, but that's really, you know, how we always think about building a better product. We can measure whether or not we're making progress, based on our retention and, and, and order frequency, and, you know, we continue to have the, the highest retention and order frequency rates amongst any other platform.

You know, the second question, I mean, it, it, it in some ways, you know, some of this is already happening, where we have, to your point, customers maybe finding out about DoorDash for the first time, you know, through a, a non-restaurant category, whether that's groceries, or pets, or flowers or, you know, some of the retail categories that we discussed earlier. Already, you know, outside of the restaurant category, we attract more of new customers that are ordering from these non-restaurants for the first time in the industry than any other platform. I think that's, you know, pretty remarkable given that a lot of these categories for us only started about 2.5 years ago, which, you know, suggests that some of this activity is actually already happening organically.

Of course, we're investing in some marketing behind this, for sure, and especially as, you know, I think we are making the evolution of a, you know, from being a restaurant delivery product to something that delivers your entire city. We're not there yet. Obviously, we have a long ways to go on the selection, the quality, and the affordability, but I think it's encouraging to see that, you know, we already attract more new customers into this field than anyone else, and that a lot of customers are coming to us for the first time, not for restaurants.

Ravi Inukonda (CFO)

You know what Tony talked about, right? You know, what we saw in the quarter was growth in both, you know, users as well as order frequency. You know, order frequency hit an all-time high. It's growing year-on-year. User growth has also been very strong. The way at least we think about it is, if you think about our platform, we have roughly over 30 million active shoppers on the platform any given month. If you look at that number over the course of the last year, that number is multiples higher. It's just a fraction of the overall users using the platform, right? That tells you the scope of the opportunity on the user growth side. Order frequency, again, very similar.

The blended order frequency across the platform is mid-single digits, off of the base of, you know, more than 100 usable moments. When I look at both of those, the scope of the opportunity in front of us is large. The good news is, again, what moves both is largely the same. It's improving selection, improving quality, making the product more affordable. When I look ahead, as we are continuing to innovate on the product, I'm confident that we'll drive growth both across users as well as order frequency.

Brian Nowak (Managing Director and Head of U.S. Internet Research)

Thank you, both.

Operator (participant)

Your next question comes from Eric Sheridan with Goldman Sachs. Your line is now open.

Eric Sheridan (Managing Director)

Thanks so much for taking the question. You know, in, in reading the letter and, and some of the answers so far on the call, I just want to come back to this concept of signal. You know, if you think about the mix between being a marketplace and, and being more of a first-party player yourself in local commerce, and, and what signal you might be looking for when you think about a business like DashMart and thinking about growing geographic footprint or SKU diversification inside that business as a potential area for investment over the medium to long term, to be a, a larger, more scaled 1P player against the local commerce opportunity. Thanks.

Tony Xu (CEO)

Yeah. Eric, I'll, I'll take that. You know, I think it's, you know, important to start with the context of, of why we even are investing in some of our 1P efforts in the first place, which really comes back to this, you know, capability, you know, point of making sure that we can enable every small, medium, and large physical business to compete effectively and efficiently in the digital world. You know, at the end of the day, what we're trying to build ultimately is a product that can deliver you everything from, you know, your city, exactly what you ordered, and at around the same price that you would have paid yourself, you know, to do that service. Today, that's not where status quo is, right?

In terms of, I think, any product that delivers anything outside of, you know, restaurants for sure. That's kind of, you know, why we invested in DashMart in the first place. It's always in concert of, with in partnership, excuse me, with our, you know, merchant partners, of how to make sure that something like DashMart can be a useful service for them. It's not necessarily, you know, signal of, oh, is, is, is our 1P now going to, you know, take a bigger, you know, portion? It's actually instead learning how to do it really well, such that when we work with these third parties and think about inventing some products for the future, that this could be one capability set in our back pocket.

Eric Sheridan (Managing Director)

Thanks, Tony.

Operator (participant)

Your next question comes from Ross Sandler with Barclays. Your line is now open.

Ross Sandler (Managing Director and Senior Equity Research Analyst)

Thanks, guys. First of all, shout out to Andy or Ravi, or whoever's idea it was to put the SBC table at the bottom of the letter. Appreciate that. My question, Tony, is about DashPass. You guys were, I think, the first in the industry to roll out subscription, and it obviously drives a huge amount of value, but now we're at the point in the industry where it's maturing, and there's a lot of other subscription services from folks that compete with you guys in grocery, folks that compete with you guys in restaurant, you know, e-commerce companies that compete with you guys. As you look out, you know, into the future of DashPass, do you feel like selection and your advantage in selection is enough to continue to differentiate?

Do you think you'll need to add different things to the bundle, whether that be like physical retail or, I don't know, digital services, et cetera, to continue to differentiate DashPass? Any thoughts on that? Thanks a lot.

Tony Xu (CEO)

I mean, customer expectations always go in one direction, right? I, I think I, I, I've said this, you know, plenty of times, and I think that goes for subscription programs, too. The other thing that goes for subscription programs is, the most important thing is usage, right? You wanna you know, subscription programs that are really successful are those that get used, you know, the most often, which is what, you know, drives the value, right? Sometimes that's measured in dollars and cents. Sometimes that's measured in, you know, time spent on a service and or time saved from a service, and, and, and et cetera, right? You know, for us, I, I don't think it's necessarily one advantage, right?

I wish if it were just one advantage, then it'd actually be quite easy to invest from a product perspective. It's always been, you know, thinking about the selection, the quality, the affordability of the program, such that we can drive the North Star of usage. We're gonna always have to invest to make sure that our products are, you know, are, are getting used, you know, the most. I think the benefit for us is that, the, the, the category that we started in, eating, which we've talked about on this call for, for, you know, a bit, is, is the largest and most frequent, which means that it does have the largest usage from both, you know, I think, how people think about spending their discretionary income, to just what they do, physically, to survive.

I, I, I think, you know, that was a very natural, you know, candidly reason why we started in the restaurant delivery category, but as we, you know, expand and, and, and try to be more useful to the cities that we operate in and all of the different types of categories of retail that we participate with, we're gonna have to keep thinking about investing more into things that will continue to drive the usage of our subscription programs, which is ultimately what will drive the value of DashPass.

Ravi Inukonda (CFO)

Ross, just to add to, you know, what Tony said, right? Like, what we're seeing in the business is, as we're continuing to improve the selection and the quality of the business, that's driving MAUs. These MAUs are retaining at a higher rate. They're ordering more. As they order more, they habituate on the platform and graduate to DashPass. In fact, if you look at Q2, DashPass had a record quarter, where subscribers grew, not just quarterly, but on an annual basis. It was one of the best quarters ever for DashPass for us.

Ross Sandler (Managing Director and Senior Equity Research Analyst)

Thank you.

Operator (participant)

Your next question comes from Michael McGovern with Bank of America. Your line is now open.

Michael McGovern (VP and Research Analyst)

Hey, guys. Thanks for taking my question. Just maybe a couple for Ravi on guidance. Looks like even at the upper end of guidance for Q3, we're expecting a little bit of a quarter-on-quarter drop in GOV. I'm just curious, is that just seasonality or anything else to point out there for the quarter-on-quarter drop? Then second question, if I take the upper end of guidance, between Q3 and the full year, looks like Q4's EBITDA profit and margin will be higher in Q4 than at any other point in the year. Just in that upside scenario, hitting the upper end of guidance, what are some of the factors that contribute to that?

Ravi Inukonda (CFO)

Yeah, Mike, I'll take both of those, right? Like, on the guidance point itself, I mean, you know, what we're seeing in the business is, A. Obviously, consumer spending continues to be strong. The underlying cohorts continue to be very stable. That's what's giving us confidence to, first of all, you know, bump up the GOV guide for the rest of the year. What you're noticing in Q3 is, you know, normal seasonality that we largely see every year. There's, you know, nothing more to that outside of seasonality. In terms of, you know, EBITDA guidance, I mean, again, like I said earlier, right, the combination of continued improvement in growth for us, the overall business is positive on a unit economic basis. Q4 growth is higher than Q3. You're gonna see some upside in EBITDA flow through.

Number two, the product improvements that we are making is continuing to drive efficiency. Very important to remember, right? Like, we are constantly looking to reinvest back in the business, and if we have good opportunities to invest, we're gonna continue to drive efficient growth, as long as we can stay within our discipline parameters.

Michael McGovern (VP and Research Analyst)

Got it. Thank you.

Operator (participant)

Your next question comes from Youssef Squali with Truist. Your line is now open.

Youssef Squali (Managing Director and Head of Internet and Digital Media Research Group)

Excellent. Thank you so much. Maybe, Tony, going back to the investment letter and the framework that you're, you're putting out there. Outside of customers and Dashers, and the network that, that creates, which are going to be super powerful, can you maybe talk about core competencies that you believe that you, you're kind of leveraging just better than anybody else out there, that kind of gives you this potential compare, unfair competitive advantage that's allowing you to grow so much faster? Then, Ravi, I think you talked or you mentioned that your GOV, your aggregate GOV accelerated year-on-year. Was that, is that statement true for US GOV as well? Thank you.

Tony Xu (CEO)

Yeah. You know, on, on, on the first question, I think there's basically like a timeline or sequencing, if you will, almost of how to arrive at the answer to your question, which is, you know, first, when it comes to, you know, building a product from the very beginning, what allows that product to grow faster, you know, relative to someone else's, is whether or not we solve a customer's problems better, right? I think what's hard to see in this business is that it's really a combination of things that a customer is asking us to solve.

They're asking us to, you know, make sure we can get the right stores or, and the right items from those stores, at the right price point, at the right service level, obviously, if things go south, that we fix it. There is no shortcut in many ways, you know, in kind of, you know, betting on any one of these factors. You kind of have to be better at the combination. I think that if you can achieve that, then you kind of have this timeline where, after a certain point of scale, the, the, it translates into a few structural benefits. One of those benefits is, you know, recall customers kind of come to us first as the eating app.

We're working on that to make that true in every country, but in the United States, that's certainly the starting point. Again, when eating is the starting place where you have the most shots on goal, and Ravi talked about, you know, the multiples of, of the 30 million, you know, monthly active shoppers who shop with us, you know, once a year. I mean, there's an even bigger number than that, that comes and just opens the app, who doesn't shop at all. In many ways, we don't have to acquire any more new customers from external channels. We can just go within our own ecosystem because we started with the largest one, which, when it comes to consumption, which is, which is eating. Other benefits come from the scale logistics components that you talked about, right?

Knowing how to operate that really efficiently is something that continues to compound in terms of, you know, giving a natural funding source for other types of investments that we want to make. I, I, I think, you know, the way I think about this is always, you know, the execution starts first, making sure that we can solve a problem better than, than someone else can, so that we can create the best product. That's what generates the growth. You know, structurally, over time, you know, what are the things that actually... you know, can we actually use the, the, the product advantage that we built to, you know, generate a structural advantage?

I think you're seeing that in both instances, which is why you've seen the resilience and the growth in the core restaurants business. It's why you've seen, you know, faster growth and share gains in these non-restaurant businesses, as well as improving or very, very quickly improving unit economics, and that's why we're continued to continuing to invest.

Ravi Inukonda (CFO)

Hey, Youssef, on your second question, orders accelerated from Q1 to Q2, not GOV. If I break it down by the different lines of business, core US restaurants, even at our scale, the order growth was stable. Both new verticals, international, as Tony just mentioned, they both accelerated from Q1 to Q2.

Youssef Squali (Managing Director and Head of Internet and Digital Media Research Group)

Got it. Okay, that's helpful. Thank you both.

Operator (participant)

In the interest of time, there will be no further questions. With that, we will conclude today's conference call. Thank you for joining us. You may now disconnect.