Good afternoon, and welcome to the DoorDash Second Quarter 2023 Earnings Call. My name is Briana and I will be your conference operator today. Please note that this call is being recorded. I will now turn the call over to Andy Hargreaves. You may begin your conference.

Thanks, Briana. Good afternoon, everyone, and thanks for joining us for our second quarter 2023 earnings call. I am very pleased to be joined today by Co-Founder, Chair and CEO, Tony Xu; and CFO, Ravi Inukonda. We will be making forward-looking statements during today’s call regarding our expectations for our business, financial position, operating performance, 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 our Form 10-K and 10-Q. 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 will 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 Investor Relations 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 webcast on our IR website. An audio replay of the call will be available shortly after the call ends. Briana, I will pass it back to you and we can take our first question.

Thank you. Your first question comes from Deepak Mathivanan with Wolfe Research. Your line is open.

Great. Hi, 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 will be accelerating in U.S. non-restaurant verticals in Q2? Are there any that are sort of at an inflection point, where we can expect healthy contributions to growth over the next few quarters? And then maybe one for Ravi. The illustrative Excel cap was very helpful. Can I ask if you kind of 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? Or maybe asked another way: Are you at a place right now where the rate of profitability increase in many different businesses is offsetting the rate of losses in a few, which could lead to sustainable profitability improvement? Or 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.

Hey, Deepak. It’s Tony. I will take the first one on growth outside of restaurants. Hopefully you all saw in our June update when we celebrated 10 years as a company. We actually rolled out one of our biggest product updates this year. One of the featured things that we shipped was actually the launch of both our grocery and retail tabs. I think this is another good example of how we do product development in a very disciplined way, which aligns with the sentiments behind your second question. Everything is effectively stage gated, and we give maximum exposure or investment once we see that they are ready for primetime. When it comes to a lot of these categories outside of restaurants, you saw a lot of that growth for us happen in the first couple of years of the pandemic. We launched partnerships with third-party convenience retailers such as Walgreens, CVS, 7-Eleven, and many others. Over the last 2.5 years, we built a multibillion-dollar grocery business from scratch, and it was really ready for primetime exposure. Currently, we have more non-restaurant stores on our platform in North America than any other platform. We are growing faster than every other platform and gaining share dramatically in virtually all categories, and certainly in grocery. You also see this in retail; we've seen a lot of growth in categories outside of food, such as sporting goods with Dick's Sporting Goods, office supplies with Office Depot and OfficeMax, pet care with PetSmart and Petco, and health and beauty with Sephora. A lot of this is happening, and we found ourselves in a position where we are seeing very resilient growth in the core U.S. restaurant category at all-time high frequencies. This gives us more opportunities to introduce new categories. We also saw the readiness in terms of product-market fit from selection, quality of service, and affordability perspective in our grocery and retail offerings. That's why we made the announcement and shipped the features that we did in June.

Deepak, to your second point, taking a step back, what you're seeing in the business is a combination of a couple of things. One, growth in the business continues to be very strong. In fact, in Q2, growth accelerated compared to Q1. Given that the business is positive on a unit economics basis, that's driving some of the upside in EBITDA that you're seeing. At the same time, our core restaurant business continues to improve in terms of overall profitability. Both new verticals and international are also becoming efficient when you look at unit economics year-on-year. That's driving the underlying EBITDA upside you're seeing in the business. Our goal is to constantly reinvest back into the business. We did that in Q2, which drove some upside in growth as well as category share gains that Tony talked about. Looking forward, our goal is to constantly reinvest because we aim to build the largest local commerce business possible. Referring back to the chart rate, ideally, it goes on forever because we're always looking to manage efficiently and reinvest to build the largest local commerce business possible.

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

Okay. Let me try two questions. One high-level question for you. Tony, you talked about solving big problems for local commerce. Could you sketch out what you think are some of those big problems that you've not yet fully or partially addressed, like logistics and marketing? When you think about those problems beyond that, what do you think are the biggest problems for local commerce? And then, would you provide any color on Wolt, the acquisition? How do you think that's fared a year in? Is it according to plan, better than plan, or have you encountered positive or negative surprises? Thank you very much.

Yes. I’ll address both questions. First, regarding our ability to solve large problems, it's important to emphasize the strength of our restaurant delivery business. Despite its achievements, it still represents only a small fraction of total sales in the U.S. restaurant industry. We have significant opportunities within our existing businesses, which still have many years of potential growth. When we talk about new categories, we are starting from behind since many of these initiatives launched about 2.5 years ago. The pandemic highlighted the need for businesses to adopt an omni-channel approach. It pushed physical retailers to invest exclusively online, as that was the only option. Now that e-commerce is stabilizing, there remain many challenges to address. Customer expectations for faster delivery continue to rise, whether for food or other goods, prompting physical retailers to rethink their competitive strategies. We are heavily investing in partnerships and infrastructure to help all retailers, regardless of size, compete effectively, especially in last-mile delivery. Local businesses also need to innovate various tools as traditional customer support methods may no longer suffice in a digital-first environment. Moreover, the way to attract customers and forge lasting relationships has evolved. There are many issues to tackle in logistics and customer service as businesses transition from physical to digital operations, and the challenges ahead are extensive. As for Wolt, it is performing beyond our expectations. Prior to the partnership, we had confidence in their team, which has demonstrated high retention and order frequency while delivering a strong product. We are successfully expanding in regions with significant growth potential and improving our unit economics. Business-wise, this aligns with our standards, and from a management perspective, Mickey and his team are effectively overseeing all DoorDash markets outside the U.S., showing a solid start in that area.

Thank you, Tony.

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

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 starts 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 more operationally complex, or do you expect the return to actually be quicker because you've already built a strong network of consumers in Dashers? Also, Tony, you've talked about people eating 20 to 25 times a week as an opportunity. What's the ceiling you think on frequency for your business? What are the primary constraints bridging the gap to that point? Thank you.

Yes, all right. Nikhil, maybe I’ll take both of those. On how we think about investments, we offered a quantitative framework in the shareholder letter as a guide, not a formula that can always be applied. The answer to your question regarding investment timelines will depend on the problem at hand. We have the benefit of having the largest local commerce audience, which gives us the most shots on goal. But that doesn't mean we simply win. We must still build the best-in-class product for each problem we are trying to solve. The scale will translate efficiently into strong long-term economics. I wouldn't say there's only one way to think about this. We try our best to apply a first-principles approach to each problem while taking advantage where we can. The most critical consideration is how we can solve each problem in a way that's significantly better than incumbents. We must be disciplined in product investment and dollar investment, given that these are precious resources. We try to manage efficiently. Regarding frequency, the short answer is we continue to see the numbers grow. In your question, you indicate 20 to 25 eating opportunities per week, which is over 100 occasions monthly. I think that might be the theoretical maximum. But we can also look at our top decile users who are using our service a large number of times. If we can graduate people to that level, the answer lies in selection of stores, affordability, quality of service, and delivering an efficient frontier for individual users. If we can achieve that, these numbers will continue to move upwards.

And Nikhil, just to add to what Tony said, our goal is to track our teams for both unit economics and volume. We're comfortable with the timeframes as long as we're making progress across both. Looking at the results of our investment areas, we are growing nicely and unit economics continue to improve. We want to run these businesses efficiently and are pleased with our progress so far.

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

Great. Thanks for taking the question, guys. Maybe two. Tony, I think you mentioned earlier that frequencies are at all-time highs in traditionally slower quarter Q2. Can you talk about the drivers here? Is it DashPass users having a greater impact, newer cohorts ramping faster, the revamped app? If there's anything to call out, that would be interesting on frequency. And then, Ravi, on contribution profit, I think the press release said the U.S. restaurant marketplace generated annualized $2.4 billion in contribution profit this quarter. Talk about the margins across non-food categories. Are we sustainably positive there? Talk about grocery, Wolt, any insights would be helpful. Thank you.

Yes. The growth is coming from two big areas: users and frequency. You're correct that there is no single driver. DashPass had a record quarter and continues to achieve highs. But we are also experiencing stronger cohorts. We've seen improvements in core restaurant business as well. So the short answer to what is driving the growth is users and frequency.

Yes, Ron. To your second question, the $2.4 billion contribution profit you mentioned was from Q3 last year and has grown substantially since then. The underlying product improvements, whether it's adding more selection or improving quality, are driving efficiency across all lines of business. Q2 metrics showed core restaurants improved in terms of unit economics and profitability, as well as new verticals and international also achieving improved unit economics. The third-party convenience area has continued to grow significantly, showing step change improvement compared to last year. The international business also saw acceleration and improved unit economics. Overall, all unit economics improvements we see are driven by product innovation.

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

Thanks. Two questions, if I can. First, following up on Mark's earlier question, can you give us a sense of some of the interesting greenfield investment areas that might interest you? It seems like you're open to things that are perhaps less directly adjacent. Am I misreading that? Anything you can share there? And second, it seems like we're in a sweet spot with healthy growth and good margins. The core restaurant business is firing on all cylinders, and there's good progress on unit economics. However, as shown in your letter, sometimes unit economics improve significantly while fueling investment behind that may pose an absolute headwind. Where are we in that cycle with these investment areas? Should we expect a step up in investment that may mute the flow-through? Any insights on the medium-term outlook for where we are in that cycle? Thanks.

Yes. You’re right in saying there is no exact formula of adjacent problems to solve in local commerce. E-commerce is still a minority of overall retail, and local commerce businesses, both small and large, are even further behind. Our mission has been to empower these businesses. We must build a marketplace that drives incremental demand at profitable sales while providing them with strong tools. Some of these may be related, but ultimately, we need to solve our customers' problems. Physical businesses trying to compete with digital-only players need help. There are numerous logistical problems to solve to help them, and we're investing heavily in partnerships and infrastructure to enable this. Regarding your second question, we cannot control when product-market fit occurs. It’s challenging to have prescribed timelines for projects based on customer voting with their activity. Sometimes, investment takes a step back or sideways before moving forward. However, we do not have to bet at all costs. Our investment philosophy is to scale only when we see a clear signal, whether that be in our product development or from a dollars perspective on the P&L as well. For timelines, judgment is crucial, and our shareholder letter reflects how we view our investments.

Lloyd, just to add to what Tony mentioned, we do not focus on the absolute level of investment in terms of dollars. We goal our teams based on volume growth and unit economics. As long as both metrics progress according to plan, we will invest. Our most important goal is scale, which has been demonstrated in our restaurant and third-party convenience businesses.

Your next question comes from Douglas Anmuth with J.P. Morgan. Your line is now open.

Thanks for taking the questions. A couple just on the Dashers side. Can you talk about the drivers of lower-than-expected acquisition costs in Q2? Also, what makes you think those efficiencies may not continue in the back half? And any early thoughts on the flexible pay model for Dashers and unit economics for you? Thanks.

Yes, Doug. I’ll take those. The Dashers acquisition cost can be volatile in any given quarter, so I wouldn’t read too much into it. For example, in Q1, we underforecasted volume, so we ramped our Dashers acquisition spend in that quarter. In Q2, a couple of factors helped: first, product improvements increased Dashers retention. Secondly, seasonality with college students returning for summer also contributes. We expect product improvements to continue benefiting us, but we don’t expect the same level of seasonal efficiency in the second half. Regarding the Dasher product change, this was not a financial move but about offering choice and flexibility for Dashers at different journey stages. Hopefully that helps.

Helpful. Thank you.

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

Great. Thanks, guys. Maybe two. The first one, Tony, can you talk about your 10-year-old core U.S. restaurant business? As you think about customers voting with their activity, how do you break down the forward growth and what you need to invest in to continue to grow the core U.S. restaurant business—across users, frequency, and spend per transaction? How do you continue to encourage customers to spend more in that core business? The second question on the grocery non-restaurant piece in the U.S. The new app design is having an impact. When do you think about increasing your marketing to bring new users into the grocery funnel? Has that started yet or is that for later this year or in 2024?

Yes. On the first question about growing the U.S. restaurant business—it's not about just one lever. We continuously work on selection, quality of service, affordability, and customer support. Execution happens at the order level, which means we must excel at each individual point. The criteria to do this revolves around providing the best combination of those factors. Specifically, we have plans for improvements across these areas, which help us measure progress based on retention and order frequency. We currently have the highest retention and order frequency rates compared to any other platform. As for your second question, some of this is happening organically, where customers may learn about DoorDash for the first time through non-restaurant categories. We're attracting more new customers ordering from these non-restaurant avenues than anyone else. We are investing in some marketing, particularly as we evolve from being a restaurant delivery product to a broader service delivering everything from your city.

I’d like to reiterate what Tony mentioned. We observed growth in both users and order frequency, with order frequency hitting an all-time high. User growth has also been very strong. Today, we have more than 30 million active shoppers on the platform monthly. Over the last year, that number has significantly increased, indicating we have ample opportunities for growth.

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

Thanks so much for taking the question. I wanted to come back to the concept of signal. Thinking about the mix between being a marketplace and being more of a first-party player in e-commerce, what signal are you looking for regarding a business like DashMart as you consider growing geographic footprint or SKU diversification?

Yes, Eric. It's important to start with the context of why we are investing in some of our first-party efforts. This really concerns our capability to help every physical business—whether small, medium, or large—compete in a digital world. Ultimately, we aim to build a product that can deliver every item from your city at approximately the same cost as if you went yourself. As that is not the current status quo for many products outside of restaurants, this context informs our investment in DashMart. It’s a tool that we can leverage to assist third parties and develop future products as necessary.

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

Thanks, guys. First of all, shout out to Andy or Ravi's idea to put the SBC table at the bottom of the letter. I appreciate that. But my question, Tony, is about DashPass. You guys were the first in the industry to roll out subscription, driving significant value. Now we are at a point where the industry is maturing and there are many subscription services from competitors in grocery and restaurant e-commerce. Do you feel that your selection advantage in DashPass is enough to differentiate, or do you think you'd need to add more elements to the bundle to keep differentiating DashPass? Any thoughts on that? Thanks a lot.

Customer expectations only move in one direction, and that applies to subscription programs too. Successful subscription programs require high usage, which drives value. Sometimes, that’s measured in dollars and sometimes in time spent on the service. I don’t believe there is a single advantage; if it were, it’d be easy to invest accordingly. Rather, we must always think about selection, quality, affordability, and more to drive usage. The category we began in—restaurant delivery—is the largest and most frequent, which means it has the largest user-upside. This is why we started here, but as we expand into other categories, we will need to keep investing to ensure we drive continued usage of our subscription program.

To add to what Tony said, our continual improvement in selection and quality is resulting in increasing MAUs. These MAUs are retaining at higher rates, ordering more, and thus driving more DashPass subscriptions. In Q2, DashPass had a record quarter, where subscriptions grew not just quarterly but also annualized basis.

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

Hey, guys. Thanks for taking my question. Just a couple for Ravi on guidance. It looks like even at the upper end of guidance for Q3, we're expecting a quarter-on-quarter drop in GOV. Is that just seasonality or anything else to point out there? Secondly, 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 than at any other point in the year. What are some of the factors contributing to that in an upside scenario?

Mike, on the guidance point, what we’re seeing in the business is that consumer spending continues strong, and the underlying cohorts are very stable, which gives us confidence to bump up the GOV guide for the rest of the year. Q3 is influenced by normal seasonality that we see yearly, with nothing extra to highlight. In terms of EBITDA guidance, Continued improvement in growth will play a role. The overall business is positive on a unit economic basis, and growth in Q4 is expected to be higher than Q3, contributing positively to EBITDA flow-through. The product improvements we are making are driving efficiency. It’s significant to note we will always look to reinvest back into the business, and if we have good opportunities, we will continue to cultivate efficient growth while remaining within our disciplined parameters.

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

Excellent. Thank you so much. Tony, going back to the investment letter and framework you put out, outside of customers and Dashers, what core competencies do you believe you're leveraging better than anyone else to give you the potential competitive advantage that allows faster growth? Ravi, I think you mentioned your GOV accelerated year-on-year. Was that true for U.S. GOV as well? Thank you.

Yes. Regarding your first question, the execution begins with our ability to solve customer problems better across several aspects—right stores, right items, pricing, service quality, and issue resolution. There’s no shortcut in focusing on any one criterion. You must perform well at all. If we accomplish this, we create a timeline where these factors expand into structural benefits. The repeat purchase behavior leads customers to favor us first, which we have observed. The scale we have allows us to invest in logistics efficiently, and we continually see growth in the core restaurant business as well as rapid improvements in non-restaurant businesses due to effective unit economics.

Youssef, on your second question regarding GOV—orders accelerated from Q1 to Q2; however, GOV did not. For a breakdown of our different lines of business, core U.S. restaurants exhibited stable levels in GOV while new verticals and international businesses accelerated.

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.