Earnings Call Transcript - DASH Q1 2023

Operator, Operator

Hello. My name is Jean Louis. Welcome to the DoorDash Q1 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I will now turn the conference over to Andy Hargreaves. Please go ahead.

Andy Hargreaves, Co-Founder, Chair and CEO

Thanks, Jean Louis. Good afternoon, everyone. And thanks for joining us for our first 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-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 will discuss certain non-GAAP financial measures. Information regarding our non-GAAP financial measures, including a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures may be found in our letters to shareholders, 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 webcasted on our IR website. A replay of the call will be available on our website shortly after the call ends. Jean Louis, I will pass it back to you and we can take our first question.

Ross Sandler, Analyst

Hey, guys. Thanks for all the color. I guess I had two questions. The cohort data for new verticals looks great. Just a clarification, so that shows subsequent purchase frequency, just in grocery and convenience and these folks are also purchasing for restaurant as well, is that correct? And are we at a point where we can maybe put a flag in the ground and talk about how much GOV or how many users are in things like grocery and convenience? And then the second question is, some of your peers have talked about linearity in the quarter getting a little stronger exiting the quarter compared to January because of pandemic effects? Is that also what you guys saw, just trying to reconcile that with the 2Q GOV guide? Thanks a lot.

Tony Xu, CEO

I will begin with your first question about the performance and strength of the cohorts in our new categories. The answer is yes. The new cohorts are indeed stronger than the previous ones, largely due to enhancements in product quality. By adding selection players like ALDI, we now serve over 20 of the top grocers in the U.S. Additionally, we are enhancing the overall experience by improving accuracy in filling carts and refining the substitution process for items not available in store. We're also offering greater convenience, allowing customers to choose between delivery in 30 minutes or later in the day. These factors contribute to the improved performance of the cohorts in our new categories.

Ravi Inukonda, CFO

Hey, Ross. Regarding the second question, consumer engagement and spending on the platform remain very strong. Our strong Q1 results demonstrate this, along with the consistent double-digit growth rate we've achieved for the last two years. While I won't comment on the month-to-month specifics, order frequency remains very good, reaching an all-time high. Retention is also strong, with this past quarter showing higher retention than the previous quarter. We are confident in the input metrics we are observing, and I feel optimistic about our guidance for Q2.

Deepak Mathivanan, Analyst

All right. Thanks for taking the question. Tony, I wanted to ask about your efforts on groceries verticals. It’s still in early stages for you, but do you feel like you have the operating model sort of nailed down at this point, and perhaps, maybe talk about strategically what are the next steps in scaling this huge opportunity? And then second one maybe for Ravi, it was nice to see the outperformance on EBITDA, but Prabir has always talked about profitability being the output metric based on the level of investments that you could make. Were there any sort of strategic changes in your approach to investment areas in 1Q or for thinking for 2023? Maybe touch on areas where you are seeing nice returns on investment areas currently as well? Thanks so much.

Tony Xu, CEO

Yeah. I will start with the first question, which really was around grocery and the performance there. I mean, you are exactly right. I think both in terms of the numbers that we saw as a business collectively at the top and the bottom line, you are seeing continued growth, certainly, in the core restaurants business, even faster growth in businesses like grocery and you are seeing improvements in the unit economics of all of our business lines, altogether, including things happening overseas as well, and so I think that’s really what’s reflected in the performance of the quarter. And specifically on grocery, while I think that we have made tremendous strides, we continue to grow faster than others and continue to gain share. I think there’s still a long way to go from the perspective of building the product. If you look at grocery penetration in terms of online delivery in the U.S. relative to online delivery of restaurant food, it’s substantially lower by multiples. And I think that’s because the offline experience is still superior to the online experience, which means we have a long way to go to making sure that we can make the quality of the experience perfect, meaning you get exactly what you order that you can get it from all the places that you want to delivery from and that the prices are affordable or what you expect to pay in store. And I think there’s a long way to go between where we are today and where we will be in the future, but I am very, very proud of the progress that the team has made.

Ravi Inukonda, CFO

And Deepak to your second question, nothing has changed in terms of how we think about our investment philosophy. What you are seeing in Q1 is a combination of a few factors. Obviously, as you commented, we had GOV upside in the business, which drove some of the EBITDA upside in the business. When I look at the various lines of business, our core restaurant business is growing even at its scale is continuing to grow quite nicely, strong and stable growth for the last several quarters in a row. The profitability of that line of business is continuing to improve. Our investment areas, both new verticals and international had a very strong first quarter. Growth has been strong, we continue to gain share in both areas, as well as margins have improved both sequentially, as well as annually. Now if you combine that with the discipline we have had on our operating expenses where OpEx was flat for the last three quarters in a row, that’s giving rise to some of the EBITDA upside that you are seeing in the business. That said, we are constantly looking to reinvest back in the business, but there’s going to be times when there’s not going to be any efficient investment and it’s okay for us to have that drop to the bottom line. In general, our philosophy is to continue to drive efficient growth while being disciplined with our investments and one of the disciplined parameters that we use is the EBITDA guidance that we have given.

Bernie McTernan, Analyst

Great. Thank you. Maybe just a general question, how you guys are thinking about the opportunity for generative AI for DoorDash? I know AI has probably been integrated into the marketplace for quite some time, but any new opportunities that are being opened up? And then second, restaurant-specific partnerships like the recently announced partnership with Starbucks, how important are those for driving both GOV and contribution profit per order and just any way to frame the benefit there? Thank you.

Tony Xu, CEO

Sure. Bernie, maybe I can take both. It’s Tony. On the first piece around generative AI, I mean, certainly, this is a coming out movement, right? And I think it’s super exciting, both as a technologist, as well as a user of the product. But also in terms of just seeing how fast developers are candidly making changes every day. And so, I think for us, it’s important to remind ourselves our purpose; our purpose is really to build the defining local commerce company, which means that when you have two battles going on the battle for bits and digital attention in the battle for atoms, we very much are in the camp of the second category of making sure that we can win that battle. So very much the focus still remains to make sure that we are the highest quality last-mile logistics network and making sure that that asset is the most useful and most attractive as we think about how it interfaces with digital assistance in the future. But that said, we are absolutely already running different experiments internally with some of the latest models that have been published when it comes to generative AI. I mean I think it has great promise for achieving productivity gains and doing especially a lot of the manual work that we have to do when we try to digitize the physical world and build the catalog for every city. I think it has a lot of promise for making the consumer experience, shopping experience, a lot easier as well by reducing friction. So I think you should expect a lot of fun things to come in the future and will be a big part of that. I think your second question really was around adding restaurant selection and especially with companies like Starbucks joining the platform. I mean, certainly, this has always been a big part of building our product, right? I mean for us, it’s always about improving selection and adding to what customers want. It’s about certainly increasing the quality of the delivery experience, improving the affordability of our service, as well as the customer support. And so selection has always been key to making sure that we can give customers what they want. Bringing on Starbucks is something that we are super excited to do and we look forward to even more partnerships.

Michael McGovern, Analyst

Thank you for taking my question. I have two inquiries. First, I've noticed a lot of advertising for the new service that picks up UPS and FedEx packages for customers. I'm curious about the overall strategy for that service, as it seems distinct from your other offerings. Is it a significant new feature? Secondly, I observed a recent redesign of the app's interface, which I really like because it enhances the process of reordering previous items. Was that the goal of the redesign? Thank you.

Tony Xu, CEO

Sure. Hey, Michael. It’s Tony. I will take both of those questions. So on the first around package pickup and delivery, Yeah, it’s certainly something that we are very excited about. But I think at DoorDash, it’s really important to, again, recognize what we are trying to do. What we are trying to do is to make sure that we can help any physical business grow and connect as many possible physical businesses with as many possible consumers. And it doesn’t matter necessarily which direction in which travel is occurring, in terms of those connections. And so for us by having achieved, for instance, in the United States the greatest order density, we just have a lot more flexibility in terms of the choice of problems that we can solve for a lot of these customers and one of those problems that we heard about was this notion of solving returns in some of these package orders that you are alluding to. And so it’s really something that’s very early stage, like, we run many new things at DoorDash all the time in the hope of solving increasingly higher customer expectations. This is one of them and we are excited about where things are right now, but there’s a lot of these things happening always at DoorDash. On the second question on some of the improvements with respect to reordering. We are always trying to reduce friction when it comes to the ordering experience. Certainly, reorders are very popular amongst, in particular, our most engaged consumers. But there are a lot of things that we are trying to do to the app. We are trying to make it faster. We are trying to reduce the number of bugs. We are trying to make sure that you can find exactly what it is that you want that you can discover new things that might be enticing. So there are a lot of things that we are trying to do to always improve the experience and it’s always with the mission of reducing friction.

Michael Morton, Analyst

Thank you. I had a quick question on advertising. I was wondering if you could speak to the adoption rate you are seeing. It sounds to us like the SMBs are the early adopters. I would love to hear some details about the larger QSRs and their interest in the advertising platform? And then just a last question is if you would be interested, any additional details maybe around bookings growth in new verticals or just help us think about how that business is progressing? Thank you.

Tony Xu, CEO

I will begin with the first question regarding advertising, and then I will pass it to Ravi for the second. Concerning advertising, we have indeed made a strong start, particularly given the high standards we set for ourselves. We need to meet our goals and deliver an exceptional return on ad spend for both advertisers and merchants, while also ensuring the best possible consumer experience with minimal impact on their expectations. This is a challenging balance because, in any marketplace, especially when developing an advertising business, the key factor is marketplace engagement. I am proud that our teams have managed this balance well, keeping up with advertiser demands for more ads, all in a consumer-friendly manner. We are seeing strong demand for advertising from a wide variety of merchants, including both consumer packaged goods companies and restaurants. We are particularly excited that small and medium-sized businesses find this a cost-effective way to grow, serving as their marketing department in some instances, alongside larger global brands with significant budgets, who discover substantial new opportunities when partnering with the largest local commerce platform.

Ravi Inukonda, CFO

And Michael, just to add to what Tony talked about it, your specific question on the second one. Our ad business is growing; it’s growing quite nicely. It’s actually having an impact on our net revenue margin as well and our view for what that business is going to be is included in our EBITDA guidance for the rest of the year.

Ian Peterson, Analyst

Hi, guys. This is Ian Peterson on for Mark. It would be great if you could just provide us an update on DashPass and any engagement trends you can share there, both in the U.S. and also the subscription business in international as well with those? Thanks.

Ravi Inukonda, CFO

Ian, thanks for the question. DashPass came off of another great quarter, both in terms of sign-ups, as well as subscribers. For us the way we think about DashPass is, anything that you want in your city, you could get it for $10 a month, whether it’s pet food, whether it’s retail, whether it’s grocery, whether it’s convenience and that’s a very compelling value proposition for us. And what we are seeing is, as we are continuing to drive the overall product quality up, as we are making the product more affordable, as we are driving the selection up, that’s driving to more and more consumers graduate to DashPass and that’s driving the strength in the business, both domestically, as well as internationally. We are very comfortable with the progress we have made and Q1 was a very strong quarter for DashPass for us.

Andrew Boone, Analyst

Hi, guys. Thanks for taking my question. I wanted to ask about Europe. It feels like you guys took share in international. Can you talk about what you are seeing competitively and what’s leading to greater traction? And then, Ravi, I wanted to follow up on an earlier answer that you gave about contribution margin improving. It sounds like you are now willing to drop more to the bottom line. Can you just talk about the piece of investments as it relates to new verticals? Is it just that the new verticals maturing or are you guys slowing down on any initial growth initiatives that may be more loss making? Thanks so much.

Tony Xu, CEO

Yeah. I will start on the first question, which was around Europe and the competitive position. This is a great place to remind ourselves of a lot of the investment thesis we had behind teaming up with Wolt, where they run the majority of the markets outside of the U.S. for DoorDash. And really, the first thesis was that when you have the highest retention and frequency of engagement that is what will really allow the most capital efficient growth, especially in a category that has very, very long runways left. And that’s really what we have seen in terms of the execution of the Wolt business. I mean, even against difficult comps with Omicron of Q1 of last year, you see Wolt growing tremendously quickly year-on-year and certainly outpacing the rest of the class. And so I think a lot of that, again, happens to do with the strength of the engagement of the consumer that Wolt has been able to build and it’s a reflection of the product quality and so especially as Wolt now introduces some of their newer products with Wolt+, which is its DashPass equivalent, as well as some other products that it’s borrowed from learning from DoorDash U.S., I think we are only going to see more growth in years to come.

Ravi Inukonda, CFO

And Andrew, to your second question, when I think about the contribution margin improving, I think of it in terms of two dimensions. One is the core restaurant business that’s growing; it’s growing quite nicely, as well as improving in terms of profitability. And when I look at the investment areas, when I think about the capital allocation, I look at it across two vectors. One is does the product and investment have strong product market fit in terms of consumer demand, as well as the second one is, are they progressing in terms of unit economics? What you are seeing in Q1 is both new verticals as well as international. They are growing quite nicely. They are gaining share in both of the areas, as well as the margins are improving both sequentially as well as annually. Now if you combine that with the fact, especially on the new vertical side, we have a structural advantage where we have a network of consumers and Dashers already built out, that’s giving rise to some of the efficiency gains that you are seeing in the business, which is naturally translating into margin improvement. When you put both of those businesses together, you have these businesses that are growing, they are growing nicely, the margins are improving, as well as the core underlying fundamentals are improving. It has all the similarities of what we saw in the restaurant business very early on and we have strong conviction that if we continue to execute well, these two areas are going to be drivers of strong free cash flow generation for us.

Tony Xu, CEO

And put a different way, we are not slowing down any investments. It’s the businesses are just growing top and bottom line, and that’s what you are seeing in terms of the flow through towards the results.

Brian Nowak, Analyst

Great. Thanks for taking my questions. I have two. The first one, I wanted to ask about how you think about the runway for new user growth in the U.S. and sort of what type of user growth are you thinking about in the full year guide to grow new people to come to the platform in the U.S. and how do you do that at this point, kind of where we are on penetration? Then the second one on Wolt. You had the asset now for quite a while. It’s been executing at a pretty high clip. Tony, what have been one or two of the biggest surprises to you about Wolt that maybe you didn’t even appreciate when you acquired the asset?

Tony Xu, CEO

Sure, I’ll address both questions. First, regarding user adoption, it’s essential to recognize that acquiring new users is similar to encouraging existing users to engage more frequently. We need to enhance the product, which might involve ensuring we have the right selection, pricing, speed, delivery quality, and customer support. These elements are crucial in winning over customers. The fact that people eat out 20 to 25 times a week indicates significant growth potential. It's not solely about serving users today; it’s also about maximizing the frequency of their usage. This applies whether we are attracting new users or encouraging repeat use in those 20 to 25 weekly occasions, which we know happens regularly. Now, on to Wolt, which was your second question. I want to highlight a few things I’ve come to appreciate even more. Firstly, their ability to compete in a highly capital-efficient manner has been fascinating and unique. It's easy to forget the tighter constraints and smaller budgets we faced in the past, especially now that DoorDash is generating more positive cash flow. It’s impressive to see what Wolt can accomplish under those conditions, showcasing the team's focus on product improvement to enhance retention and user experience. Secondly, it’s worth noting the market dynamics in various European countries. In contrast to the U.S., many of these markets are just now seeing physical stores going online for the first time, including restaurants. Wolt's rapid growth reflects its capability to serve multiple categories and align with our goal at DoorDash to become the local commerce leader. Wolt shares this mission in its regions, which fosters a collaborative and effective partnership between us.

Ravi Inukonda, CFO

And Brian, just to the specific question on the guidance point itself, we do expect to grow both users, as well as order frequency and that’s baked into our guidance that we have given.

Youssef Squali, Analyst

Thank you. I have two questions. Regarding the guidance, Ravi, if I examine the total market growth at the midpoint, it appears to be in the low 20s, whereas over the past nine months, specifically in the last three quarters, it was closer to 29% or 30%. Could this decline be related to Wolt annualizing, or is it simply a matter of reduced visibility due to macroeconomic factors? Any insights on this would be helpful. Additionally, considering your impressive execution, how should we anticipate the timeline for achieving positive free cash flow for the non-restaurant business, especially given the stronger revenue? Has that timeline changed? Thank you.

Ravi Inukonda, CFO

Yeah. Youssef, let me start with the first one. On the GOV itself, a couple of points here. I mentioned earlier that consumer engagement continues to be strong. When I look at both retention, as well as order frequency, I feel very optimistic about the signals that we are seeing in the business. That’s what’s giving us confidence to bump up the GOV guide for the rest of the year. To your specific point on the growth rate comp itself, we do lap the Wolt acquisition in June, so you are seeing an impact of that in the second half of the year. In terms of your second question on free cash flow, in terms of when I look at the new verticals business in Q1, it had a very strong first quarter, both in terms of growth, as well as improvements in margin. And underlying what you are seeing in the business is, as we continue to improve the quality, as we are continuing to make the product more affordable, that’s driving not just topline growth, but also we are seeing efficiency in the business and that efficiency is contributing to the improvement in margin. On the absolute dollar basis, we are not going to comment on it, but I feel good about the investment levels and that’s included in our EBITDA guidance for the rest of the year.

Ron Josey, Analyst

Great. Thanks for taking the question. I have two. Tony, in the letter, you talked about double-digit improvements in grocery quality and efficiency metrics. Can you just help us understand what these improvements were to drive the improvements in overall quality and efficiency, any insights would be helpful? And then, Ravi, just a quick clarification on contribution margins, last year, I think we saw convenience as a vertical become variable contribution positive. And so I am wondering if other newer verticals are contributing here, given the structural advantage that you talked about or do you expect perhaps grocery or alcohol or others to start delivering at least variable contribution margins by the end of this year? Thank you.

Tony Xu, CEO

Yeah. Hey, Ron. On the first question around the improvement in the product quality and grocery. A big part of this stems from the fact that today physical stores, grocery stores, that is, don’t always know exactly what’s on their shelves. And that’s quite a hard problem to solve for a variety of reasons; we can literally go on for hours to talk about all of the different reasons. But that’s the problem that we have gotten better at in terms of making sure that we can get you exactly what you ordered. I am not saying we are perfect, and I mentioned, I think, to an earlier question that we are still a long ways to go in terms of where I want to see this product experience. But I think with tremendous strides in the two years that we have been doing this and I think as a result of that, you are seeing increases in the cohort engagement that we talked about in the letter and that’s showing, therefore, both basically a capital-efficient way to grow. Because to me, the best way to achieve capital efficiency is through improvements in product quality and I think that was a very nice one-to-one correlation that we saw and that really stemmed from many quarters of work that showed up in some of the results in this quarter.

Ravi Inukonda, CFO

And Ron, to your second point, right, like, just to add on to what Tony said, some of the quality improvements that we are driving in the business is also resulting in the efficiency gains. Our third-party convenience that you talked about is variable profit positive and it’s continuing to improve. All categories within our new verticals umbrella, whether it’s grocery, our DashMart business, our third-party convenience are improving. We feel good about the progress and we talked about in the letter, overall on a margin basis, our new verticals is improving both sequentially, as well as annually.

Rohit Kulkarni, Analyst

Okay. Thanks for taking my question. One on AI, I know generative AI is on top of every investor’s mind. But I guess just internally speaking, maybe talk about longer-term, how are you thinking about using AI to improve productivity of engineers and marketing salespeople. And structurally, do you feel kind of DoorDash and all Silicon Valley companies are going to be much more profitable as they start to figure out applying AI to all the internal processes, maybe they become the first wave of adopters of these productivity tools? And then second question is on just new vertical margins, it’s been a couple of years since you have had these deemed verticals and it feels that they are starting to pull ahead of the overall margin profile. So maybe just structurally, can you talk about the various puts and takes between the core restaurant most profitable business versus all the new verticals as you start layering on the incremental profits from them? How should we think about the overall profitability steady state as such?

Tony Xu, CEO

Yeah. I will take the first question and maybe Ravi can take the second. With respect to AI and its ability to change the trajectory of some of these functions that you asked about in the question. Look, I mean, I think it certainly represents the promise for a lot of productivity gains. In terms of how those productivity gains will be expressed in terms of financial results for a company, I think that’s very hard to estimate because on the one hand, you are going to have the same number of people who can hopefully do more with what they have with now more advanced tooling. But then on the other hand, you have to not forget the customer; the customer’s expectations are always going to go higher and higher and higher. Take coding, for instance, the number of engineers almost never seems to be enough in terms of what the demand for engineering talent is, as well as just frankly, like the number of things to build. And so I think that you are going to have kind of two forces competing for this; one is the productivity gains, which I certainly would expect to see, but then on the other hand, I also believe that customer expectations always go in one direction, which is higher and higher and higher, and so I think the balance of the two will be what all of us will be going through.

Ravi Inukonda, CFO

Hey, Rohit. On your second question on margins. The way it is I think about it is our core restaurant business is growing, as well as improving in terms of overall profitability. But we still are a small portion of the overall sales for the restaurant industry. So we continue to invest behind that business. It’s important that we continue to invest behind quality, invest behind making the product more affordable, because that’s going to drive long-term growth in that business. Secondly, on new verticals, what we are seeing is some of the quality improvements that Tony touched on earlier in the previous question, that’s driving efficiency in the business. That business as a whole is improving in terms of margin, both sequentially as well as annually. But the market there is very large, we are still underpenetrated and I think if we continue to improve the overall product, that’s going to drive long-term free cash flow generation for us. It’s a business that we are going to continue to invest in and continue to improve the product experience for our consumers, merchants, as well as Dashers.

Eric Sheridan, Analyst

Thanks so much for taking the question. Maybe two quick ones, if I can squeeze in. First, when you look out over the landscape in 2023 and beyond, what do you continue to see as some of the key investments you need to make on the merchant side of your platform that will continue to drive more merchant growth, more merchant adoption and where you can gain deeper relationships and market share on the merchant side? That would be number one. And then number two, when you look further out, how should we be thinking about you making the app more shoppable for lack of a better term? We talked on the last call about increasing velocity and order volume among your user base, and I am just curious, given all the direct traffic you have to the app, how do you think about overlaying all the SKU diversification you have built on possibly driving greater levels of frequency and app across all those SKUs? Thank you.

Tony Xu, CEO

Sure. On the first question regarding merchants, the short answer is that we need to address more of their challenges to build deeper relationships with them, ultimately helping them enhance their same-store sales and profitability. Sometimes these trends can fluctuate. For instance, during 2021 and 2022, as consumers returned to stores, merchants focused on staffing to meet in-store demand, which meant they had to temporarily reduce their digital efforts. We are starting to see a return to digital investment as merchants adjust to these changes after those periods of growth. These fluctuations highlight our commitment to providing tools and products that help merchants better understand and engage with their customers and foster long-term relationships through various channels. We need to continue addressing the evolving expectations of merchants, as they juggle many priorities while always considering growth and profitability. Regarding your second question about making the app more shoppable, this is indeed a crucial initiative for us. We aim to position ourselves as a multi-category destination, which is reflected in our growth in new customers in the grocery and convenience sectors. Customers now expect DoorDash to deliver diverse experiences, whether shopping for a baseball bat or a pound of lettuce. We are actively working to enhance our catalog, improve search functionality, and create a more item-based shopping experience. It's vital that we digitally catalog the physical world in a way that aligns with our merchants and meets consumer needs. This responsibility is essential for ensuring DoorDash works effectively for everyone, and we believe that achieving this will yield proud results.

Lloyd Walmsley, Analyst

Thank you. I have two questions regarding some of the numbers. First, when we look at sales and marketing, it seems that growth has increased from the fourth quarter to the first quarter. Is this a new standard we should expect? Additionally, we noticed a significant improvement in gross profit margins. Should we consider this as a new benchmark or is it likely to continue increasing? Thank you.

Ravi Inukonda, CFO

I will address the gross margin question first. In the previous call, I stated that the gross margin for 2023 would exceed Q4 levels, and that is exactly what we are witnessing in the business. Several factors are influencing this; over the past year and a half, we have implemented numerous enhancements on the product front, making our logistics operations more efficient. This efficiency is reflected in the Dasher cost per order. Quality has been a significant focus for us, and our ongoing improvements in quality are leading to higher retention rates. We are benefiting from both growth and reduced costs related to credits and refunds. Additionally, our growing ads business is also positively impacting our margin. However, we do not operate with a set margin target. Our goal is to invest flexibly across the profit and loss statement to facilitate efficient growth. Regarding your second question on sales and marketing, Q1 was a robust quarter for us in terms of top-line volume, which necessitated the acquisition of more Dashers. This has resulted in an increase in your Dasher acquisition costs, consequently pushing sales and marketing expenses higher. However, I would advise not to read too much into the fluctuations. Over the past year, we have achieved significant leverage in sales and marketing due to the product improvements we have made. I anticipate further leverage on the sales and marketing front, and this expectation is reflected in our EBITDA guidance.

John Colantuoni, Analyst

Thanks for taking my question. I'm interested in exploring DashPass member adoption in new areas like grocery, retail, and convenience, and how that compares to non-members. We know DashPass members tend to order more frequently after becoming members and more than non-members, but I'm curious if you can share any insights on how these increases in ordering frequency differ across categories. Do grocery or retail orders see a bigger boost compared to restaurant orders once users become members? Thank you.

Tony Xu, CEO

Hey, John. It’s Tony. I will try to answer your questions. I don’t think we run the business that way in the sense that we are trying to necessarily steer a customer into one category or the other. Instead, what we are trying to do is we are trying to build the best-in-class experience within each category and then allow the customer to choose which one of those experiences make the most sense for them for that particular shopping occasion. And then DashPass, to your point, is something that we can stitch across to provide the greatest possible value, because we are going to give you everything inside your city within that DashPass membership. So I don’t think that we are trying to necessarily steer people one way or the other. I think it’s probably intuitive that prepared meal, something like restaurant food is going to have the highest frequency. But that makes sense, because we 20 times to 25 times a week, which is the highest possible shopping category that we have relative to other categories. But that said, I mentioned earlier or to an earlier question that we now are attracting more new customers into the industry outside of restaurant foods than anyone else. And so people are now coming to DoorDash for the first time, not shopping from restaurant food, but also shopping for their grocery items, their liquor needs, their retail items, etc. and so forth. So I think this is just one of those things where as long as we continue to build the best possible shopping experience within each category and then stitch across the categories and then overlay that with the value of DashPass, we will be in a good position.

Operator, Operator

Thank you. There are no further questions at this time. This concludes today’s conference. You may now disconnect.