The gig economy business sees opportunity in the sector’s demise

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The demise of delivery start-ups helps the prospects of incumbents. Companies like 1520 promised to get orders at the customer’s doorstep within minutes. DoorDash CEO Tony Xu took advantage of the opportunity for growth.

Acquisitions such as the $45mn purchase of Volt, a Finnish delivery start-up, lift order volumes. DoorDash has expanded overseas, adding convenience and grocery items and advertising to its core U.S. restaurant delivery business. Speaking to investors on Wednesday, Xu said the company now has five businesses, up from one in 2019.

But expansion comes at the cost of constant losses. DoorDash was founded in 2003. It was listed in late 2020. It delivers more than half a billion orders per quarter. However it reported a net loss of $75mn in the three months to 30 September. At what level does it break?

A major cost-cutting shift is unlikely in the near future. Four years ago DoorDash partnered with autonomous vehicle maker Cruise Automation. In the future it can avoid dealing with drivers and regulators trying to reform the market. But with the suspension of cruise vehicles in San Francisco last month, driverless deliveries are on the way. To compete with competitors like Amazon, Uber and Grubhub, marketing spend must be high. Share-based pay also drags down net income.

But look at DoorDash’s tag rate and the trajectory looks positive. Total order value – including all items ordered through DoorDash, including restaurant food, groceries and convenience items – reached $16.75bn last quarter. From this, DoorDash’s revenue is $2.2bn. This is 12.9 percent from 12.6 percent in the previous year. The rising figure reflects volume growth rather than growth in operating costs. If it continues to move in the right direction it will support future expansion plans.