Earnings Call Transcript
DoorDash, Inc. (DASH)
Earnings Call Transcript - DASH Q4 2020
Operator, Operator
Ladies and gentlemen, thank you for standing by, and welcome to the DoorDash Q4 2020 Earnings Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Andy Hargreaves. Please go ahead, sir.
Andy Hargreaves, VP of Investor Relations
Thanks, Elaine. Hello, everyone, and welcome to our fourth-quarter 2020 earnings call. I'm Andy Hargreaves, VP of investor relations. It's a pleasure to be joined today by DoorDash CEO and co-founder Tony Xu and CFO, Prabir Adarkar. We'd like to remind everyone that we'll be making forward-looking statements during this call, including statements related to the expected performance of our business, future financial results and guidance, strategy, long-term growth and overall future prospects as well as statements regarding litigation and regulatory matters. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the company to differ materially from those described in forward-looking statements are set forth under the captions Forward-looking Statements in today's investor letter and are described in our risk factors, including in our SEC filings, including our final prospectus for our initial public offering filed with the SEC on December 8, 2020. You should not rely on our forward-looking statements as predictions of future events. Also note, that the forward-looking statements we make on this call are based on information available to us and assumptions and beliefs as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will be discussing certain non-GAAP financial measures. Information regarding our non-GAAP financial results, including a reconciliation of such non-GAAP results to the most directly comparable GAAP financial measures, may be found in our investor letter, which was furnished with our Form 8-K filed today with the SEC and 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 in its entirety is being audio webcast on our Investor Relations website, and an audio replay of the call will be available on our website shortly after the call ends. With that out of the way, I'd like to turn it over to Tony.
Tony Xu, CEO
Thanks, Andy, and thanks, everyone, for joining our very first earnings call. 2020 really put into focus the mission of our company and why we started this journey 7.5 years ago. We exist to grow and to empower local economies. As this is our first earnings call, I thought I'd give you a snapshot into how our team has executed this mission during the most critical times, and I'll follow by sharing a few thoughts on where we are going as we hopefully soon emerge out of this pandemic. 2020 was a difficult year for all of our audiences, and our operations faced great challenges and enormous uncertainty. While exhausting at times, I'm proud that our team chose optimism, built plans, prepared for all scenarios and executed 24/7 to ensure that we did our part in supporting the best of our local communities. While much of the work began in March 2020, a lot of the impact was carried into Q4. We prioritized safety by shipping no-contact delivery, distributing more than 10 million units of PPE in the form of hand sanitizers, gloves and masks to Dashers, and we collaborated with merchants on tamper-proof packaging. We prioritized Dashers' health by offering affordable telehealth visits with doctors, ensured financial assistance for those impacted by COVID-19, and just last week, hosted our first webinar to provide Dashers with information about the vaccine. Equally important, we became a lifeline to millions of people who saw flexible earnings opportunities, especially after furloughs and other forms of job loss. In Q4 alone, over one million Dashers earned over $2 billion in supplemental income on our platform. We reduced our commissions by half to local merchants, an investment totaling over $100 million, while funding national marketing campaigns to drive growth and add instant liquidity. We provided grants to nearly 2,000 local restaurants to help them adapt to the COVID winter. And by the end of Q4 2020, our analysis showed that the odds of surviving during the pandemic were eight times better for merchants on DoorDash versus all U.S. restaurants. For consumers, we accelerated our entry into the convenience and grocery categories. From September to December last year, we observed 95% growth in consumers who order from these new categories on the DoorDash marketplace. Finally, we supported our community by donating free DashPass subscriptions to healthcare workers across the country and partnered with organizations like the New York City Department of Public Schools, United Way and Feeding America to deliver food, groceries and supplies to those most in need, powering the delivery of 6.5 million meals to those in need during 2020. I want to thank all of our teams worldwide and the millions of consumers, Dashers and merchants who each stepped up in their own ways to navigate this pandemic. As we progress out of the pandemic, I thought I'd remind everyone of our long-term vision, which will take decades to build. In order to grow and empower local economies, we plan to build a marketplace and platform to enable every brick-and-mortar business to compete in today's convenience economy. The job of our marketplace is to grow merchant sales, and we aspire to bring all of your city to you in minutes, not hours or days. Today, most of our business is in the restaurant category, where we still see massive runway. We are investing to extend our category-leading position in the U.S. while doubling down on the momentum we see overseas in Canada and in Australia. Outside of restaurants, we're excited about the early progress we're making after launching into the convenience and grocery categories. According to third-party data, DoorDash became the largest online convenience delivery platform in the U.S. in less than a year, demonstrating the extensibility of our platform. And this is just the beginning as we have a long way to go in building our marketplace to serve these and many other categories in the future. The job of our platform is to empower a brick-and-mortar merchant to build their own digital channel, a task necessary to adapt to evolving consumer preferences before the pandemic and a task certainly necessary to survive COVID-19. This business is even more critical as we come out of the pandemic as consumers have only become more habituated to a convenience economy, aided by a possible longer-term trend toward working from home. Today, merchants can use DoorDash Drive to offer on-demand and same-day delivery from their own digital channels. In cases where merchants don't have an online ordering solution, they can use DoorDash Storefront, which enables them to participate in e-commerce and gives them a product that's seamlessly tied to their back-of-house systems. Over time, we will have to build even more products and services to enable merchants to run their digital business as effectively as we operate our marketplace. Underpinning our marketplace and platform is our maniacal focus on operating efficiency, where we believe that best-in-class execution will result in an improving cost structure that unlocks further investment capital as we grow.
Prabir Adarkar, CFO
Thanks, Tony, and good afternoon, everyone. Throughout our history, we've been laser-focused on our four core constituents: merchants, consumers, Dashers, and our employees. And today, we are excited to welcome our fifth constituent, our shareholders. I want to take this opportunity to share how we manage the business and allocate capital. We are still early in our life cycle and believe we have substantial growth opportunities ahead of us. We intend to invest aggressively to pursue these opportunities. When navigating capital, we start small and experiment to refine product market fit. If we see strong demand with a path to unit economics that meet our thresholds, we invest incremental capital. Each project we invest in must continuously earn capital on its own merits. To date, the bulk of our investments have been made through our income statement rather than through our balance sheet, and we expect this to remain the case for the foreseeable future. We are the category leader in the U.S., but despite our scale, we see significant room for growth. Consequently, we are managing the business to maximize scale and long-term profit dollars rather than take rate or margin percentages. The implication of this means we intend to invest aggressively into the business to further our growth initiatives and expand our competitive advantages. As you likely saw, we intend to provide guidance for Marketplace GOV and adjusted EBITDA going forward. We do not plan on guiding to revenue as we do not directly manage the business to this metric. In our model, revenues and output reflecting in part dynamic decisions we make around consumer pricing, the ideal mix of advertising to promotions, our relative success with DashPass, and the mix of Drive volume. We focus intently on inputs in each of these areas but will manage the business to Marketplace GOV and adjusted EBITDA dollars. We provided our guidance for Q1 and 2021 in our investor letter, but I'd like to provide a little more detail behind that. Underlying our 2021 guidance is an assumption of accelerated market reopening and a return to in-store dining. While we have seen many positive signals from consumers and markets that have temporarily reopened during the pandemic, we acknowledge that vaccination and full reopenings could drive sharper changes in consumer behavior than current data would predict. Consequently, our 2021 full-year guidance reflects this uncertainty. We are deeply hopeful that markets will reopen soon, and we'll manage our business to provide exceptional experiences to merchants, consumers, and Dashers in any scenario. With that, I'll open it up to questions.
Doug Anmuth, Analyst
Thanks for taking the questions. I have two. First, just on trends a little bit in 1Q. We've seen some signs of accelerating growth in the quarter from some of your peers. Can you just talk about what you're seeing in the first quarter and how that ties into your guidance for 1Q in terms of GOV? And then secondly, can you just talk more broadly about how you're thinking about the marketing in competition in the category in the U.S. now that we've seen a degree of consolidation over the last year and reopening happening and how you view rationality in the space going forward? Thanks.
Prabir Adarkar, CFO
Doug, maybe I'll take that question. So first, in terms of the first quarter, we are seeing acceleration in January relative to our order growth in December as well as in Q4. So that answers that question. Our findings are consistent with what others have communicated. With respect to marketing and competition around that, we continue to acquire more of the new customers joining the industry in any given period. And part of what's driving that is the consistent gains we drive in our unit economics and the retention and engagement of our consumer base, which then allows us to pay higher and higher amounts in terms of CPAs to acquire customers. And so we believe it's a competitive advantage where our increasing unit economics help drive an LTV increase that then translates into an ability to acquire more customers than others.
Ross Sandler, Analyst
Hey, guys. Thanks for the chart in the letter about the marketplace versus the Drive partner store growth rate; a question about the latter. So on Drive, I think order growth was growing around 700% in mid-2020. And looking at the take rate in the fourth quarter, might have slowed down a little bit. So just is that true? And what percent of orders are coming from Drive at this point? And just any thoughts on the long-term outlook for that business? That's it.
Prabir Adarkar, CFO
Ross, let me take the second part of the question first, which is I think you were talking about take rate changes going from the third quarter into the fourth quarter. Third quarter take rate was 12.1%, which reduced to 11.9% in the fourth quarter. And really the two things driving that were incremental Prop 22 costs. Remember Prop 22 passed in November, and so we have a portion of the quarter during which we had incurred those costs as well as the impact of commission caps or price controls in certain jurisdictions in Q4. So those price controls, I believe we disclosed in the letter. The net impact of revenue from the price controls was $36 million or 44 basis points. So if you add that back, you get a cleaner picture of what the actual underlying increase in the take rate was inclusive of the Prop 22 cost. On Drive, we continue to be excited by that business. Drive continues to grow strongly, faster than the core marketplace, and Drive orders grew both quarter on quarter as well as on a year-on-year basis. The thing that's interesting about Drive is about a year ago, we were largely concentrated in the restaurant vertical. But since then, we've diversified beyond restaurants and have now brought on to the Drive platform merchants and local businesses in other verticals, such as retail. We signed Michael's and Macy's. In pet supplies, we signed PetSmart and Petco. Within pharma delivery, the Sam's Club as well as flowers. So we continue to be excited about the growth here. We haven't disclosed exactly what percentage of Drive orders to place in this past quarter, but suffice to say, Drive continues to grow strongly both quarter on quarter and year on year and faster than the core business.
Ron Josey, Analyst
Great. Thanks for taking the question, guys. I wanted to ask a little bit more about usage. In the letter, I think you talked about improved retention from DashPass subs. And DashPass subs grew, I think, a bigger, larger part of the mix of orders. So can you talk about retention a little bit more, particularly as we think about January and trends going forward in terms of consumer behavior trends? And then any sort of insights on DashPass usage and just the frequency of views would be helpful. Thank you.
Prabir Adarkar, CFO
Ron, yes, in terms of DashPass, we haven't disclosed the number of subs, but I will say that they have grown sequentially since our disclosure in the S-1. We continue to invest behind this because as we had explained in our S-1, DashPass drives increased engagement among its subscribers due to the zero delivery fees. So certainly an avenue for growth that's exciting to us. In terms of retention as well as engagement, we continue to see retention and engagement remain at COVID highs. In fact, engagement continues to improve, both within the DashPass product as well as among non-DashPass users of the platform. So we're seeing positive trends there. In terms of the long term, in our experience, consumer behavior tends to be sticky. So once the consumer discovered DoorDash and they've ordered from their favorite restaurants and enjoyed the benefits of on-demand convenience, new habits get formed, and we believe this situation will persist over the long run. And so even when you look at markets like Texas and Georgia and Florida that reopened, that was partially open. Even though the pandemic in the U.S. continues, against that backdrop, we continue to see our weekly order volumes in these markets continue to grow. So that's a promising sign. I suspect your question is sort of heading into a guidance question. So maybe I'll address that right now, which is embedded in our guidance, we're assuming that as the vaccine gets fully rolled out, consumer behavior will start reverting back to pre-COVID levels. And so that's what is embedded in the guidance, along with standard Q2, Q3 summer seasonality when people generally tend to go out versus ordering. And so you're seeing that embedded in our guidance. There's a certain amount of uncertainty with respect to what consumer behavior does post-pandemic, and we're trying to reflect that in the guidance we've provided.
Heath Terry, Analyst
Great. I was wondering if you could give us a bit of an update on your experiments. It's probably more than an experiment, but the work that you're doing in general merchandise, the relationship with Macy's, Bloomingdale's and others, what kind of progress you're seeing so far. And to the extent that we just came out of the holiday season where companies like Nike were being told by third-party delivery networks that they could ship through them, how you see the size of that opportunity and the pace that you're going to, to try and address it.
Tony Xu, CEO
Heath, it's Tony. I'll take that question. If you can think of any silver linings of this pandemic, I think it is that every brick-and-mortar store, whether they are a restaurant or a retailer, is participating in e-commerce, sometimes exclusively in e-commerce, given some of the restrictions that we saw during the past year. For us, we are really seeing that on both sides of our business as a marketplace as well as a platform. On the marketplace front, we launched our second category of convenience item deliveries about a year ago when we announced partnerships with 7-Eleven, CVS, Walgreens, and many others. And already, that has picked up quite a lot of momentum in the early progress. Again, it's very early, but according to third-party estimates, DoorDash is already the largest delivery platform for convenience goods in the U.S. And I think you're seeing some of the extensibility of starting with the highest frequency category of restaurants, building the biggest audience there and covering the most number of stores there, just given the nature of how many restaurants there are relative to how many other types of stores there are. That have made us be able to accelerate very, very quickly into some of these other categories. On the platform front, we've actually been delivering from a lot of these partners for a while. DoorDash Drive launched in Q1 2017, so it's about four years old now. Prabir mentioned some of the categories that really came into fruition in the past year, whether that be in retail as we partnered with the likes of Macy's and Michael's, pet supplies with PetSmart and Petco, or pharmacy with Sam's Club. I think what you're seeing is every business recognizes that omnichannel is a great thing. Every business is trying to figure out how to redo their supply chains to really meet a post-pandemic omnichannel presence, which they expect to grow. And we'll be there with them, both with our marketplace as well as our platform.
Eric Sheridan, Analyst
Thank you so much for taking the question. I want to come back to the counter investments against the longer-term opportunities. You've talked before about geographic expansion. Can you just give us a bigger sense of the way you're thinking now post the IPO about the process of either building businesses globally or acquiring businesses globally and sort of puts and takes of both organic and inorganic growth outside your core markets?
Tony Xu, CEO
Yes, Eric, I'll address that. The aim is to advance our investment portfolio, particularly in our core restaurant category, which we believe has significant growth potential. We are expanding into multiple categories to develop a multi-category marketplace and introducing new products on our platform alongside Drive and Storefront. Additionally, we are focusing on international growth. Our approach to international opportunities is centered on a long-term perspective, as we aim to evolve into a global company. From what we've observed, particularly in Australia and Canada, we believe we have gained market share in 2020 and experienced enhancements in our unit economics, which reinforces our strategy. We are also optimistic about various geographical opportunities beyond our current operations due to their substantial size and under-penetration, particularly as we introduce a multi-product portfolio in these regions. In terms of our entry strategy, we will assess any opportunities against our organic efforts. We remain confident in our strategy and aim to enter markets in a unique way that caters to all audiences.
Prabir Adarkar, CFO
Just to add to Tony's point, I want to make sure we don't lose sight that even within the core food delivery business, the runway for growth is massive. If you compare just our GOV compared to the overall restaurant spend, we're a tiny fraction of that. So there's a lot of runway for growth just in food delivery alone. Now you tack onto the new verticals such as convenience and grocery, and that further adds to our addressable market where we're a tiny, tiny fraction of that. So, international is definitely an important priority as an area where we aspire to grow into, but even the core U.S. business has many avenues for growth, and we're relatively early in those opportunities.
Alex Potter, Analyst
Thanks, guys. Just a question, maybe follow-on the previous discussion we were just having there. But if you were to maybe, I guess, divide management bandwidth, like the amount of brain power you're spending on these different growth opportunities right now, the various different verticals within Drive, international, I know it's easy to just say they're all important, but you go to bed at night, what are the things that you're thinking about most versus less?
Tony Xu, CEO
Yes, I will address that. We have a lot on our plate and it's a broad area of focus. Our long-term goal has always been to create a marketplace and a platform that can transform every brick-and-mortar business. We had a wide scope even 7.5 years ago when the company was founded. I tend to approach this by considering whether we have the right leader in place and if they are supported by a capable cross-functional team. As Prabir noted in his opening remarks, the projects we are discussing are at various stages of development. Our investments are measured based on achieving product-market fit and the maturity of the market opportunity. It’s essential that we maintain a diverse portfolio of investments and ensure we have the right team focused on execution in each area without distractions.
Alex Potter, Analyst
Okay. I have another question regarding the regulatory front. There have been some rumors in the press about potential discussions with unions nationally to avoid a state-by-state legal battle similar to Prop 22. Engaging with unions at a national level could lead to a single labor agreement, simplifying the process. Is that correct? Are you currently having those discussions? What are the chances this actually occurs?
Tony Xu, CEO
Well, I think it's important to start with what it is that we want to achieve with respect to anything policy regarding Dashers. And for us, that always starts with what Dashers want. What you saw in Proposition 22 was that both politics and policies sided with the Dasher. Both sides of the aisle in California came together to support Dashers' desire to keep the flexibility that, frankly, doesn't exist in any other type of work opportunity, and then paired that flexibility with greater security. Wherever there are opportunities to have discussions about how we can maintain this flexibility and really create a set of standards around it that give portable and proportional benefits tied to this flexibility, we're happy to have those conversations. If you just look at some outcomes that have been achieved with Prop 22, you see a 50% increase in Net Promoter Scores for Dashers post Prop 22 in the State of California. This is where I think business and policy actually achieve the outcomes that they set out to accomplish.
Lloyd Walmsley, Analyst
Thanks. Two questions, if I can. First, can you just give us an update on how you're approaching the incremental Prop 22 costs? How are they coming in versus your estimates? How are you passing along or not passing those along to consumers? And what are you seeing in the competitive environment that may inform what you do? The second would just be on active efficiency. You talked about in the letter continuing to improve. Is there an opportunity, do you feel like there's multiple years left? Or are there regions where you have strong density or other factors that might serve as a leading indicator or you could give us a sense of more mature contribution margins or regional EBITDA margins? Anything you could share there would be great.
Prabir Adarkar, CFO
Lloyd, maybe I'll take that. So first, in terms of the Prop 22 costs, we're absorbing the vast majority of the Prop 22 costs. We are passing them along in certain instances. But for the vast majority of the cost in California, we're absorbing it in our P&L. If you think about why we're doing it, it's first and foremost to benefit merchants because if we keep prices low to consumers, consumers tend to order more. Those orders ultimately benefit our merchants. As much as we can continue doing so, we will. It also aligns with our overall philosophy to manage the business to maximize scale and top-line growth while maintaining discipline in EBITDA. What's embedded in our guidance for Q1 and 2021 as a whole is an assumption that we're going to continue absorbing Prop 22 costs to the degree that we currently have. On your second question around active efficiency, I remember we had this discussion even at the time of the IPO. Our active efficiencies continue to grow both year-on-year and quarter-on-quarter. The reason for that is because active efficiency is not simply a product of traffic on the streets or the waiting time at restaurants. There's a lot of product work that goes into dispatching a Dasher appropriately, ensuring batches are prepared well, ensuring wasted time at the restaurant is eliminated, and so on. We've not found the ceiling yet, and I feel good about the fact that there's continued improvements in active efficiency possible, but we don't have at least a view in terms of where it will saturate at this point.
Jason Helfstein, Analyst
I have two questions. First, how are you planning to increase the number of doctors in the storefront? There are many options available for small and medium businesses, but yours is integrated with your entire backend. Could you discuss your strategies for encouraging adoption? Are there specific pricing strategies or other methods you’re employing to promote this? Secondly, could you provide more insight regarding cash flow and the feedback you've received? Specifically, what can you share about how non-chain restaurants are raising their online prices to counterbalance fees, and is there an awareness that this approach is effective? Lastly, do you foresee any possibility of permanent jurisdictional price caps being legal? Thank you.
Tony Xu, CEO
Yes. Jason, I'll address the first part of your question. Storefront is still in its early stages, being just over six months old as a product, but it has experienced rapid growth since its launch. For merchants, it's an obvious choice since it integrates seamlessly with their existing back-end systems that we have implemented on our marketplace. However, there remains significant work to ensure its compatibility with a diverse range of merchants. We are fortunate to serve hundreds of thousands of businesses, which introduces considerable complexity in their operations, protocols, and reporting needs. Currently, Storefront is focused on achieving product market fit. Our goal is to enhance its features so that it can offer merchants the same advantages we experience in our marketplace to their digital channels.
Prabir Adarkar, CFO
And Jason, just on your question regarding price caps. As of the end of Q4, we were subject to price controls in 73 jurisdictions, which is up from 32 at the end of the third quarter. Based on all the conversations we've had with city officials, these price caps are temporary in nature, and they're all tied to emergency orders related to in-store dining. Our expectation is that when in-store dining resumes, these price caps will fall away. In the interim, we've begun implementing incremental consumer fees to recoup some of the costs related to price controls. Remember, in the long term, our mantra is to continue reducing consumer fees. We'll do this as long as price caps are temporary, and the fee increases will go away once the price caps drop away. In Q4, those price caps had an impact of $36 million in terms of revenue, about 44 basis points on our take rate. We're planning to manage to that similar dollar impact over time. Regarding the regulatory permanent price caps, I don't want to comment on a hypothetical, based on all conversations that we've had so far, all indications are that it's temporary in nature.
Jason Helfstein, Analyst
And just if there's anything you want to share about maybe the proportion of restaurants that are using separate pricing for online versus in-store to try to recoup fees?
Prabir Adarkar, CFO
Yes. Some restaurants are using menu inflation and price inflation to recoup fees. Thus far, this may be a function of the fact that in-store dining shut down, and consumer price elasticity, the impact in price loss is relatively minimal. We're hopeful that as in-store dining resumes, merchants will recognize that keeping prices consistent with their in-store offers is the right path forward because it boosts the amount of demand that's possible to that delivery channel.
Ralph Schackart, Analyst
Good afternoon. Thanks for taking the question. First, just on the annual EBITDA guidance, Prabir, that contemplates a fairly wide range between zero and $200 million or so. I know you talked about price controls as well as Prop 22, but can you give us a sense of what would drive either outcome on the low end or the high end, especially after coming off some strong tailwinds with COVID, but off a strong 2020? Then just maybe a follow-up on the competitive side. You talked about CAC being a little bit more expensive but within your normal range. Maybe just give a sense of how the supply side looks for drivers and your ability to continue to add merchants, particularly on the restaurant side. Thank you.
Prabir Adarkar, CFO
Sure. Ralph, on your first question regarding the guidance, the objective here is to ensure some level of discipline on the EBITDA line. To the extent that we're outperforming on the top line, either due to the core food business or outperformance in products such as Drive or new verticals, such as convenience, we would be toward the high end. Conversely, we've got some interesting opportunities ahead of us, particularly as it pertains to convenience. Third-party data shows us as being the leader in the online convenience space since launching that particular vertical about a year or less than a year ago. If we start seeing incremental progress and positive signals from some of these new projects, including Storefront and Drive and other things, we'll likely end up toward the low end of that range. We're managing the business to maximize scale and top-line growth, with an intent to try to land inside the range in EBITDA rather than trying to beat EBITDA. Regarding the supply side, let me talk about merchants first. With COVID and the recent pandemic, it became clear to merchants that they need a delivery channel. Merchants that weren't participating in delivery before began needing that quickly. We saw a massive influx of merchants, which led to selection growth, and you can see that in the chart included in the shareholder letter where the selections available on the platform continued to grow. Our cost to acquire merchants has been relatively stable, as has been on the Dasher side, where you had a tale of two cities. On the one hand, you would have expected a large influx of Dashers as a result of heightened unemployment, but that was offset to some degree by stimulus checks. Regardless of all that, our cost to acquire Dashers has remained stable within the realm of where we were expecting.
James Lee, Analyst
Thanks for taking my questions. On the shareholder letter, you guys mentioned that consumer acquisition costs increased in 4Q. Is that the trend we expect going forward? And second thing, how should we think about maybe contract revenue going forward into FY '21? Is that a rising trend as well? And specifically, on advertising, can you talk about maybe what channel is working very well for you, what channel you'd like to improve? Any particular regions that you want to go after a little bit more aggressively? Thanks.
Prabir Adarkar, CFO
Maybe I'll start with your first question on customer acquisition cost. To be clear, we manage our business to payback thresholds. So the customer acquisition cost, the CPA we pay to acquire customers is simply an output resulting from the payback period we're trying to hit. To the extent that we continue increasing the LTV of our customer base through improved profitability, improved engagement, and levers such as DashPass, it gives us more flexibility to increase our CPA. I view our increasing CAC as a feature where we're able to fund higher amounts of customer acquisition to acquire a larger share of new customers joining the industry, which then, when you couple that with our industry-leading attention, needs to continue market share gains in the future. The increase in customer acquisition costs is a choice we're making to reinvest the profitability in our business. Regarding counter revenue, just looking at 2020 versus 2021, again, we don't guide to revenue, but I would point to the fact that we have an incremental cost resulting from Prop 22 that didn't exist in 2020 for the most part. So you will see a decrement to our take rate in 2021 as a result of that incremental Prop 22 cost, the vast majority of which we're choosing to absorb. Lastly, on the advertising front, we don't reference one channel over another necessarily. We're managing the business to payback periods, and we will flexibly deploy capital across regions and channels as long as it hits our payback thresholds.
Michael McGovern, Analyst
Thanks for taking my question. I was just wondering if you could provide a little bit more color on maybe the trajectory of AOV versus total orders for the 2021 guidance. With AOV down five points in the fourth quarter, do you expect AOV to stay in the negative territory throughout 2021? If you could also talk a little bit about the cadence on a quarterly basis, do you kind of expect seasonality to return to what might look like a pre-COVID level in 2021 with a normal bump in Q4?
Prabir Adarkar, CFO
Sure. So on the first question with respect to AOV, the first thing I should clarify is if you take our GOV and divide it by total orders, AOV compression is in part driven by the fact that our total orders include Drive orders, but the value associated with the Drive order is not contained in our GOV. When you see deceleration in AOV, some portion of that deceleration is being caused by an increasing mix of Drive orders. I want to clarify that. Secondly, having said that, if I just look at our marketplace orders alone, AOVs remain above pre-COVID levels, but not massively above pre-COVID levels. They were at a high in Q2 and continued to normalize since then, but are still modestly above pre-COVID levels. We expect continued moderation over the course of 2021. Regarding seasonality, what's embedded into our guidance is an assumption that the vaccine will be broadly available soon, and in-store dining will resume relatively soon. Starting from Q2 onwards, we're going to see a reversion toward pre-COVID behavior within the customer base. That includes a reversion in terms of AOVs as well as order frequency, compounded by the traditional seasonality you see in summer when people tend to go out versus ordering. To the extent consumer behavior remains propped up as a result of a delay in the vaccine or other factors, we will perform to the upside.
Youssef Squali, Analyst
Thank you very much. I have two quick questions. First, while I understand you're not providing specific revenue guidance, I am curious about your take rate as you look towards the future, particularly over the next five years. Do you foresee any thresholds where exceeding a certain take rate may create challenges with clients, consumers, and restaurants, and could potentially attract scrutiny regarding the unit economics of your business? Secondly, regarding international expansion, I know your current focus is mainly on the U.S., Australia, and Canada. However, with reports mentioning interest in Japan, could you elaborate on what factors you consider when evaluating the attractiveness of a new market? It seems your main competitor aims to be a leader in their markets, but it appears that not many markets can accommodate that level of competition. Could you provide some insight into your strategy for international expansion beyond the markets you currently operate in? Thank you.
Prabir Adarkar, CFO
Great. Youssef, on your take rate first, our strategy long term is to lower commissions and fees for merchants, reduce fees for consumers, and increase Dasher earnings. That's the simple equation we're trying to solve. On the merchant side, as we unlock greater efficiency in the P&L, whether it's through active efficiency or eliminating waste stage that help our customer support costs and so on, we'll invest that on both the merchant side and the consumer side. As an example, on the consumer side, as we keep increasing the adoption of DashPass, that has a natural deflationary impact on take rate. Although unit take rates may decline, they are more than made up for by the increase in engagement among DashPass consumers. If you look at total revenue per MAU for DashPass users versus those who do not use DashPass, the total dollars of revenue or gross profit for DashPass consumers tend to be higher. We're actively choosing to make that trade-off. So over time, as we unlock these efficiencies in the P&L and provide merchants with additional products and services, the idea is to continuously reinvest those dollars into reducing merchant commissions, reducing consumer fees, and increasing Dasher earnings. We believe that as we continue doing so, it will enable more adoption and we'll have access to more of the TAM, which will ultimately translate into growth over the long run. Not only growth but sustained growth.
Tony Xu, CEO
Youssef, on your second question regarding international, I touched upon this a little earlier. For us, it's really taking a long-term view. Otherwise, candidly, we wouldn't have launched in the United States either as we were not the first player in 2013 when we founded the company. For us, it's really looking for areas of opportunity where we can bring something of unique difference and taking a long-term view on what we can do for all of the audiences: consumers, merchants, and Dashers. If you look at some markets, even in the U.S., it's early days. The penetration levels are low in these large geographies, including those with existing players. For us, it's always about obsessing over the consumer, merchant, and Dasher. If we do that, our products will speak for themselves.
Samuel Lourensz, Analyst
Hi, thank you for taking the question. Firstly, could you maybe talk about your testing in DashMart, how you're thinking about the business model here, and if it can bring attractive returns to exceed your thresholds? Secondly, could you talk about your progression with order batching? As you add new verticals, how do you envision this becoming more material in the longer term? Thanks.
Tony Xu, CEO
Yes. I'll take the first question on DashMart. We're super excited about the DashMart business. What turned into an experiment at the end of 2019 has been something we've invested into in 2020. We're seeing the right input metrics to cross our investment thresholds and stage this for further capital allocation. If you think about the thesis behind DashMart, it's really about bringing selection to places it has not existed before. For merchants, it gives them an opportunity to bridge into certain geographies that they may want to be but aren't currently in to the degree that they wish. For consumers, it's getting selection that they've never had before. For example, restaurateurs also sell a lot of retail items, as an example, where in places like Chicago, we carry the sauces of chefs who we serve on DoorDash and Caviar. We're also serving some of their other products through DashMart. This is also happening in other categories where, for merchants, this is an extension to bring them beyond their four walls wherever they are. For consumers, it's giving them selection they've never had access to before.
Prabir Adarkar, CFO
Yes, Samuel, regarding your question about batching, batch rates have been relatively consistent since Q2. Active efficiency is not just influenced by street traffic or waiting time at restaurants. There is significant product work involved in dispatching a Dasher effectively, making sure batches are well-prepared, and reducing wasted time at the restaurant. While batching is a key source of active efficiency, we are also continually making improvements in other areas.
Operator, Operator
And there are no further questions in queue.
Tony Xu, CEO
Great. Thanks, everyone.
Prabir Adarkar, CFO
Thank you.
Operator, Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.