Thank you for standing by. My name is Heather, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2022 DoorDash Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star and then the number one. Thank you. Andy Hargreaves, you may begin your conference.
Thanks, Heather. Good afternoon, everyone, and thanks for joining us for our third quarter 2022 earnings call. I'm pleased to be joined today by Co-founder, Chair, and CEO Tony Xu, and CFO Prabir Adarkar. We'll be making forward-looking statements during today's call, including our expectations of our business, the macroeconomic environment, financial position, and operating performance, our market and local commerce opportunities, future financial results and guidance, our strategies, and our investment approach. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described, and some such risks are described in our risk factors included in our SEC filings, including our 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 results, including a reconciliation of such non-GAAP results to the most directly comparable GAAP financial measures, may be found in our letter 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 in its entirety is being audio webcast on our investor relations website. An audio replay of this call will be available on our website shortly after the call ends. As in previous quarters, we'll go straight to questions. With that, Heather, please open the line to the first question.
At this time, I would like to remind everyone, in order to ask a question, please press star then one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Okay, your first question comes from the line of Ross Sandler with Barclays.
Hey, guys. Congrats on the quarter. Maybe just starting with macro, any color on what you're seeing across either the U.S. or international markets thus far in 4Q, like where are trends holding up pretty well versus possibly slowing down a bit? Then the second question is, thanks for the chart on contribution margin for the U.S. restaurant. That's very helpful. In the letter you mentioned that the last few quarters you've been above that 7% level. Could you just talk about what are the biggest drivers of that? Is that, you know, higher percent of repeats and getting some marketing efficiency out of that? Or is that driver efficiencies? Any color on what's taking that north of 7%?
Are there markets that are in the double digits or is there like a natural limit to how high that could get? Thanks a lot.
Hey, Ross. It's Tony. I'll start with the first one and you know, answer briefly the second one and hand it off to Prabir. You know, on the first question, obviously, we've seen tremendous resilience in the business. You know, the U.S. business, you've seen continued growth north of 25% GOV on the marketplace revenues you know, north of 30% growth each you know, for each of the last five quarters now. You know, on the flip side you know, this is in the face of an energy crisis, pretty sticky inflation, and a war in Europe.
It's sometimes hard to try to square the two, but I think the way that we've been thinking about things is really looking at it from a historical, current day, and future perspective. Historically in the last 60 years, in that timeframe, only two of the last 60 years have we seen a decline in food spend in the US, and that's specifically in the restaurant and grocery industries. I think even though all of us are wondering how to quantify the macro headwinds, food is the most resilient category. I think historically that's shown to be true. Current day, what we see in our own business is something largely the same.
You know, we also, you know, disclosed in the results that we saw, you know, our monthly active consumers grow to all-time highs in our DashPass membership program. What you're seeing is order rates of those who joined after the pandemic have largely resembled those who joined during the pandemic. Certainly, you see some softness and impact on the non-DashPass cohorts on a relative basis. By and large, we're talking about extraordinarily similar types of ordering behavior. That's what we see kinda currently. On a go-forward basis, you know, when I kind of square everything, I mean, even as the market leader, sometimes it's, you know, hard to remember, but we're still less than 10% of the U.S. restaurant industry sales. When you look overseas, we're a much lower percentage than that.
When I square, I think the fundamentals, both in terms of the leading industry retention and order frequency in the U.S. business, the industry-leading retention order frequency in the European business, particularly with Wolt, you know, who grew at 60% on a Euro basis, you know, significantly faster than its peers. I square that, you know, strong fundamentals with the future potential and runway in these categories. I think that's why you're seeing, you know, the resilience as well as, you know, what was reflected in our, in our guidance. On the second question, I think one of the things that I'll let Prabir kinda talk about, you know, some of the details and specifics with respect to the, to the contribution margin disclosure.
I think when I take a step back from what has happened in the last 2.5 years, obviously there was a pandemic, there was you know a lot of you know changes in the macro climate as we've seen particularly 2022 versus 2021. We've seen you know regulatory pressures with the likes of Proposition 22. In spite of I think all of those ups, downs you know sideways twists and turns you know our business has grown fourfold, the U.S. marketplace business. We've gained an extra 14 points of category share, even as the market leader you know heading into the pandemic, and we've kind of extended that you know that lead.
I'm really proud of the team for being able to operate in such, you know, volatility. How did that happen? I wish there was a silver bullet, but there really isn't. You know, this is a business where you really have to be in the details. Every line item counts, every line item matters, every line item compounds. There are interaction effects and dynamics in between the line items, and it's really measuring and managing all of these inches that I think has given us the compound interest and advantage that you've seen now accrue over the last two and a half years.
Hey, Ross. It's Prabir. Just to add on to Tony's points. Look, in comparison to other areas of e-commerce, you know, and frankly, other consumer tech companies, we've been fairly resilient, and I think that's a function of a couple of things. You know, it's the stickiness of the category we operate in, as well as the best-in-class retention with our product. You know, logically, there is some impact from macro, but, you know, that impact seems to be much more limited to less habituated, more occasional customers. DashPass, on the other hand, has higher retentions, we've talked about in the past, and the user behavior for DashPass continues to remain strong.
All that to say that, you know, when you look at our consumer metrics in Q3, as well as now, you know, in October, consumer metrics continue to remain strong. Tony pointed to our monthly active users that have grown both year-on-year and quarter-on-quarter. Order frequency has grown year-on-year. You know, pace of customer acquisition continues to remain strong. And all of that basically, you know, establishes a foundation for solid growth, you know, not just in Q4, but into 2023. And that's what you're really seeing in the results. That's a color and add on macro. On your question on the contribution margin, I think your specific question was why are 2022 incrementals higher than the average of 7%.
2021 was impacted by higher Dasher costs, you know, due to a more expensive labor market. You know, today, the labor market has normalized, but in addition, we've actually made certain product improvements that have enhanced the retention of our existing fleet of Dashers and also obtained incremental supply hours from each Dasher. A combination of these two things has actually led to a benefit in terms of Dasher all-in costs. That includes cost per order, as well as Dasher acquisition costs. This benefit in Dasher costs in 2022 has led to higher incrementals this year compared to the general average. Those product improvements will continue benefiting our cost structure, and so you'll see the impact of that, by the way, in our Q4 EBITDA guidance.
On your question about, you know, other markets above 7% and so on and so forth, I just want to remind everyone you know on what we've said historically, which is, you know, we don't operate our business to a target margin, but rather we aim to maximize total profit dollars. The objective we had in providing the incremental percentages as well as the progression in contribution profit, you know, through all, you know, through COVID, through COVID reopening, through Proposition 22, through inflation, and all these factors, was really to provide proof points on our execution and to provide visibility into our margin trajectory going forward. Practically what that means is we will flex margins, you know, that increases total profit dollars.
Your next question comes from the line of Bernie McTernan. Your line is now open.
Great. Thank you for taking the question. On the non-restaurant piece and the drag on profitability, can you rank order, maybe put some percentages around the largest drags on total company profitability, whether it's grocery, convenience or international? Just thinking through, maybe what needs to happen to unlock those to be profitable, whether it's scale or technology advancements.
Yeah. Maybe I can start, Tony, and then I'll hand it to Prabir on, I think, some of the numbers. You know, I think it's important to understand, you know, why we're investing in some of these categories. I mean, the goal of DoorDash was always to build the largest local commerce marketplace and the largest local commerce platform in an effort to make sure that every physical business can be successful as they move into the digital economy. You know, our investments into both our non-restaurants category as well as our non-US operations, I think are really, you know, bearing fruits.
If you've looked at what has transpired the last couple of years, I mean, we effectively have grown a business that was largely zero in the non-restaurants category into several businesses of billions of dollars of GOV run rates with improving margin economics. You know, the third-party convenience business is a category leader as well as, you know, at variable profit breakeven. As one example, for instance, of the earliest business, you know, that we started outside the restaurants category. Today, we have over 75,000 partners outside of restaurants, which is more than any other platform in North America, again, you know, from almost a standing start, you know, a couple of years ago.
The way we think about investing, again, is, you know, similar to what Prabir said to the last question around maximizing total long-term cash flow. You know, as we see projects, we invest according to, you know, what stage they're at. As long as we're seeing product market fit signals, we'll continue to invest. If we don't, we'll pull back.
Yeah. Just to add to Tony's comments there, Bernie, you know, let me share a couple of data points that give us you know, excitement and conviction around these investments. You know, the first point which we've made in the past is these markets that we're attempting to expand into, whether they're new categories or international, these are large trillion-dollar markets. Even a few points of penetration in these large markets could add massive scale to our business. Second, we're seeing very strong signs of progress, and in some cases you know, we've been operating in these areas for less than a couple of years. Our new verticals, our convenience and grocery business is growing over 80% year-on-year.
Our US third party grocery business is growing over 100% year-on-year, and that's significantly faster than other companies that operate in this space. Our international business is growing over 50% year-on-year on a constant currency basis. You compare that to other European, you know, food delivery players that are showing single-digit year-on-year growth rates. You know, our performance is a function of the fact that we've built a product that people like and keep coming back to, i.e., better retention and growing order frequency. We like what we see in terms of product market fit. This is exactly the thesis that we had laid out when we made these investments, whether they were investments in Wolt or investments in our new categories, and they're playing out just as we had originally thought they would.
Now, in terms of profitability, we wouldn't do any of these things unless we believed there was a path to attractive unit economics. As Tony alluded earlier, we measure these things regularly to ensure that there's steady progress being made towards steady-state economics. You know, we're beginning to see early proof points, some of which we cited in the letter. In third-party convenience, we expect to get to a variable profit breakeven by the end of this year. We had committed to this earlier on in the year, and we're on track to deliver on that commitment. Our third-party grocery business will continue to improve margins. Q3 margins are better than Q2. These are exciting proof points along the way.
If you look at what we've done in the US restaurant business, which we laid out in great detail in the shareholder letter, you know, it's about repeating those playbooks in these other areas. It's not. There's no single silver bullet. It's the exact same factors around improving the efficiency of deliveries, optimizing defect rates that ultimately will help these areas get to profitability just like the US business did. We have a long way to go, but if we continue to improve products, if we continue to get more efficient, we believe we can drive outsized growth along with margin improvement.
Great. Thank you. Thanks for all the data in the release. It's really helpful.
Your next question comes from the line of Deepak Mathivanan. Your line is now open.
Great. Thanks for taking the question. Tony, a question on investing for the long term. You know, your philosophy is very clear, and it makes a lot of sense. Interest rates have gone up a lot in the last, like, three to six months. Clearly, that's made the cost of capital for many businesses higher, you know. As you kind of think about internally for, you know, prioritizing projects for higher ROIs or maybe faster payback periods, kind of for this new capital environment, how are you sort of approaching this, you know, in the context of your investing philosophy? Second question maybe for Prabir. You know, the disclosure on U.S. restaurant contribution margin is very helpful.
maybe given that it's one of your oldest business, how should we think about the growth of it right now? There's a lot of concern that core U.S. restaurant marketplace is maturing. You know, maybe you can help address that, at least qualitatively. That would be great. Thank you so much.
Sure. Hey, Deepak. I'll take the first one. You know, with respect to investing, frankly, in any environment, whether we're talking about a low interest rate environment or a high interest rate environment, we're obviously, you know, taking that as one input into how we make investments. The primary input is always gonna be, you know, are we investing appropriate to the stage of the project? You know, I think it's just as easy to overinvest when, quote-unquote, times are good, even though you're not seeing the signal that you want to see. We've been very disciplined about that, whether it's been, you know, our entry into other countries or our foray into other categories beyond the restaurant category, our build-out of the advertising business.
On the flip side, I think, you know, sometimes you can not take enough risk, especially when you have a strong, robust, resilient business that gives you know, the cash flows to invest in some of these other categories. You know, you know, from where I sit, certainly we're taking that, you know, into account, in terms of the cost of capital and making sure that we're operating with, you know, discipline, making sure that as we've grown tremendously, you know, the company over the last couple of years, that we're as efficient as we were heading into, you know, the last couple of years.
That takes a lot of discipline, but it also takes a lot of intentional focus to make sure that you know, we're not just investing in people, but we're investing in the systems to allow us to see operating leverage into the future. Those are the things that we're doing to make sure that we're investing with discipline. I would still say the primary input, especially as we look into some of these investments into newer areas, whether it's overseas or into other categories or into new business areas. It's really, are we investing appropriately to the stage of the project?
Just I'll add one more comment to that, Deepak, which is, you know, I'll go back to my comment about the size of these markets, right? These are large trillion-dollar markets where money can be made, and even a small amount of penetration in these markets is a lot of GMV that can convert ultimately to free cash flow. If you just pencil out the math given the scale of these opportunities and, you know, our success with execution historically, the ROI math will work. You know, these aren't. What makes the math work is essentially the scale of these opportunities combined with our execution. On your question regarding, you know, so the U.S. business and growth.
You know, I'll point you to a couple of things, which is it's easy to get stuck in the quarter-to-quarter sort of dynamic. You know, you've got third-party data providers that sometimes provide data with very little basis. What I will say is the following, which is our level of penetration, even in the U.S., is remains small, whether it's a percentage of overall restaurant sales or a percentage of the population that are actually using DoorDash. We're a small portion of the overall opportunity, and we continue to grow. MAUs have continued to grow, which is a good sign, even despite the fact that you've had restaurants reopening, cities reopening, people going back into the store.
Despite that and through that, our business has continued to grow, whereas in other areas of e-commerce, we've actually seen the growth expectations been taken down. What that points to is the fact that this is an enduring category. People eat. People eat regardless of what's happening to inflationary pressures or other things. They may modulate their behavior and adjust from which restaurants they're eating at or the number of items in their basket and so on, but they still eat, and you're seeing the resilience of that habit in our numbers. You know, the opportunity as we look forward in order to continue increasing the size of the scale of the business is for us to make progress on the fundamentals, which is selection, quality, and affordability. We talked about new categories. We're
The reason, part of the reason we're bringing on new categories is because it's a new use case for those people that perhaps don't want to use DoorDash for restaurants. They can now use it to get their flowers or get their convenience items or get their grocery items or get their liquor delivered. A growing number of our new customers now are actually coming to DoorDash to try these new categories, and this is going to unlock the next leg of growth as we continue increasing our penetration of the U.S. population. Hopefully that provides some perspective on how I think about growth on a go-forward basis.
No, very helpful. Thank you so much.
Your next question comes from the line of Eric Sheridan. Your line is open.
Thank you so much for taking the question. Maybe two, if I can. First, maybe taking a step back in a bigger picture question. You know, understand the change in consumer behavior you're seeing and the long runway on penetration. What impact has lower competitive intensity played in the industry over the last six to eight months? And how do you think that potentially informs elements of some of the more mature markets seeing only two or three players, in some instances, going after some of the market opportunities where it was just a couple of quarters ago that there was a lot of private capital in the sector looking at all different aspects of delivery and some of that has been more rationalized over the last couple of quarters? That'd be number one.
In markets where you're more of a challenger brand than a market leader, as a result of some of the markets you acquired through the Wolt acquisition, can you help us better understand how you see moving the needle from where your market share position is today to more of a market-leading position in the next couple of years? What are some of the levers you're most focused on executing against? Thanks.
Yeah, maybe I can start, Eric, and I'll let you know, Prabir chime in here. You know, I think the answer to both of those questions is that it's a very competitive industry out there, and I'm not sure that there's ever been a quote-unquote letdown in terms of competitive intensity. That's because, at least from where I sit, I believe the highest form of competition is always growing, and that's really consumer expectations. You know, I think to me, whether we are the market leader or where we are not yet the market leader, it's really about an investment in product quality. You know, consumers are always gonna expect more selection of stores they can order from, greater affordability, better quality of service and superior customer support.
To me, you know, that really at the end of the day is what's going to, you know, rate limit our ability to penetrate, you know, the large runways that both Prabir and I have discussed, whether it's the restaurant industry, the grocery industry, the retail categories. That's really, you know, what we see. I wouldn't, you know, you know, there's been lower competitive intensity in one form or another. I still think that the biggest challenge is making sure that we can get consumers to actually try the product.
I also, you know, would say that, you know, with respect to maybe the premise in the second question, I think there's a common myth out there that Wolt is not a market leader in the majority of its markets when it actually is. I do think that, you know, some of this might just be where there's some unreliable third-party reporting. What I would say is, both the instruction I give to, you know, our US teams or our teams overseas, it's making sure that we continue making sure to invest in the product quality so that we see gains in our retention and order frequency, which only leads us to compound that advantage over time, whether that's as the market leader or whether that's as someone just entering a market.
Yeah. Just to add one data point to that, Eric. I mean, if you just look at Wolt's performance, we're super proud of the team and what they've built. In Q3, they grew 60% year-on-year in Euro terms. Now, I can't think of an example of another European food delivery company that's growing at those rates. From what I've seen, they're growing single digits year-on-year. It's hard to sit here and say that Wolt's not gaining shares given the disparity in growth rates versus relying on third-party data and you know, issues with their approaches and so on.
I rely on the absolute growth rate, which is, in my mind, a pretty reliable proof point around the fact that the whole team has created a product and experience that has high retention, enables growing order frequency, and that's what's allowed them to produce the growth rates that they're posting.
Great. Thanks for the color.
Your next question comes to the line of James Lee. Your line is now open.
Great. Thanks for taking my questions. Two here, please. First off, DashPass. I was wondering, is there any flexibility or room to increase your fees given your expanded offering and value proposition to customers? And also on DashMart, can you guys talk about the pace of investments in there in terms of new stores and geographic expansion? Any change in the consumer behavior or unit economics that help you to kind of affirm your long-term thinking there? Thanks.
Thanks for the question, James. I'll take the first one, and then Tony can talk about the second. You know, just as a general philosophy, we're trying to improve selection, quality, and affordability. Particularly in the third dimension, affordability means to us reducing friction that's caused by consumer fees, whether it's through DashPass or the non-DashPass product. It's trying to reduce fees or commissions on merchants and increase Dasher earnings. You know, in our case, we don't need to increase Dasher, you know, DashPass rates as a way of making the unit economics work, because even at the current rates, DashPass unit economics work fine, even without taking a cut on the subscription fee.
You know, I view an increase in subscription fee at DashPass as being something that would actually slow down the pace of DashPass adoption, which we've been very happy with so far. It continues to remain, you know, the largest paid membership program in the food category. We hit record highs in terms of our DashPass subscribers, and the pace of growth in this program has frankly been consistent despite some of the partnerships that other competitors may have entered into or despite the bundled offerings that other competitors may be providing. I mean, despite all of those things, we're seeing DashPass grow. You know, we like the way it's set up.
We like the way it's positioned us for growth and at least right now, there's no intent to change anything in terms of the fee structure.
Yeah, James, if I could, I'll just add a bit to this before heading into the DashMart question. You know, which is I think one of the things I'm most proud of the team for accomplishing is that in the last 2.5 years, even though, you know, we stated in the shareholder letter, all of the growth that we've seen, both top and bottom line, in our business, what I'm really proud of is that in achieving all of that for the platform, we've been able to increase earnings for Dashers, increase sales for merchants, and reduce fees on a continued basis, you know, over the last 2.5 years for consumers.
DashPass certainly has been a big part of that on the consumer front, but, you know, we've really done this while improving the offerings for each of the audiences that we're lucky to serve. On the DashMart question, you know, I think it's important to start with, like, what we're doing and why we're doing it. You know, with DashMarts, one of the things that we've been studying, you know, very closely, is, you know, why do certain industries get penetrated or why do they move from offline to online?
Obviously, the restaurant delivery industry, even though, again, it has a large runway for growth, it has reached a certain level of penetration that, you know, something, say, grocery delivery or retail delivery or delivery from other types of stores has only reached a fraction of. One of the things that we've, you know, seen so far is that the setup for third-party delivery in a lot of these non-restaurant categories isn't really optimized for delivery. It's, you know, really optimized for going inside the store for browsing. As a result, you know, some of these stores don't even know exactly what's on the shelf. As a result, what you see in some third-party, you know, delivery is a product that is more expensive than what someone would pay inside the store.
They don't always get exactly what they want when they actually buy it. It doesn't always show up, you know, faster than a consumer can shop on their own. As a result, you haven't seen that penetration. Our belief is, in addition to working with, you know, all of these fantastic partners who we're really, really privileged to work with, whether it's, you know, Sprouts Farmers Market, or Giant Eagle, or Loblaws or, you know, in retail categories, people like DICK'S Sporting Goods or Sephora, that we want to start by working with them to really understand how can we bring incremental demand right out of the gate, but we also want to invent the future of the industry.
We believe the future in the industry has to offer a product that is going to give customers exactly what they expect when they order at around the same prices of what they pay in store, and certainly with greater convenience than they could do it on their own. DashMart is really a part of that, and we're doing that in concert with all of these partners that we've been lucky to team up with. We're doing that here in the United States, we're doing that overseas. That's really, you know, what DashMart is. It's gonna be a very important infrastructural component, you know, for the future.
Now, that said, just like with all investments at DoorDash, it's not just about the long-term strategy of how can we maximize, you know, long-term profit dollars. It's about how can we also invest with discipline according to the stage of the projects. That's what we're doing with DashMart too. It's not just what we're doing with the third party business, we're doing that with DashMart as well, making sure that we can achieve product market fit. Once we see that, we continue investing, and if we keep, you know, seeing that grow, we will continue to make those investments. So far we like what we see. You know, there's a long road ahead, right?
We've just started the DashMart business really a couple of years ago, so we're learning very, very quickly, and we have to keep improving our product quality.
All right. Thank you.
Your next question comes from the line of Youssef Squali. Your line is now open.
Great. Thank you very much. Two questions, please. First, maybe just looking at the P&L, your marketing efficiency has gone up tremendously. I think in the last year, I think your sales and marketing as a percentage of revenue dropped by something like 1000 basis points. It's down not only on percentage basis, but even on an absolute basis. I was wondering if you can kind of unpack that a little bit for us in terms of where is the efficiency coming from. Is it better ad rates? Is it, you know, maybe less spend on the U.S. restaurant category where you obviously dominate? Maybe just, you know, kind of help us understand the drivers of that and is that the primary driver for the higher EBITDA expectation for Q4?
Second, on the Wolt, maybe just help us understand the acceleration in GOVs there. I think in the letter you talked about customer acquisition at an all-time high, which is really impressive, just all things considered. Maybe just help us understand, again, the sustainability of that as we go forward and maybe specific countries where you're seeing such a huge performance. Thank you.
Hey, Youssef. Maybe I'll take both of those questions, and Tony, chime in if you have anything else to add. First, on the marketing efficiency point, I just wanna go back to some of the comments that we had shared when we went public back at the S-1, which is, you know, once you acquire a cohort and the cohort sort of gets into its second, third, fourth year of life, the marketing spend associated with that cohort declines materially, right? Because there is no what's called quote-unquote, "marketing maintenance spend" that's required. What that means is, as our business gets larger and our base of existing consumers gets larger, that provides leverage in sales and marketing.
Now, more specifically, if you were to tear apart the sales and marketing line and look at CAC versus Dasher acquisition costs versus merchant acquisition costs, there is leverage on CAC, but particularly in 2022 compared to 2021, there's been a lot of leverage in terms of our Dasher acquisition costs, and that's been driven by product improvements that we've made. We're making it easier to dash. You know, Dashers are putting more hours into our platform. The retention of our fleet has gone up, and as a result, that means we need to acquire fewer Dashers to actually fulfill the deliveries that are happening on our platform.
That's provided leverage in addition to the point I made about an increase in the existing base of consumers. That's the response to your marketing efficiency question. When I on the Wolt question, it comes down to a couple of factors. I mean, Wolt operates in markets that are 300 million people, right? These markets have low levels of penetration. In fact, even in the oldest markets, Wolt adoption levels are less than 10%. There's a lot of room for growth just to expand customer acquisition in the markets in which they operate, as well as expand to new cities in those countries in which they operate.
That, coupled with the fact that the retention in the Wolt app is super high and order frequency continues to increase 'cause the macro point that people like eating, people like the convenience of food delivery, and therefore they only end up increasing their utilization of the product. The combination of these two things has helped them drive the results that you're seeing.
Super helpful. Thank you.
Your next question comes from the line of Doug Anmuth. Your line is now open.
Thanks for taking the questions. I just wanna ask you if you have any update to your commentary from last quarter, just suggesting a modest increase in 2023 EBITDA. And then, secondly, two things that come up a lot with investors, higher insurance costs and then also the regulatory environment, just given the DOL ruling and Proposition 22 status still outstanding. Hoping you could comment on those. Thanks.
Sure. Maybe I'll start, and Tony, you can chime in wherever you want. On the EBITDA point, I think we said in our letter we expect that the U.S. restaurant business will continue to grow in 2023 and will increase its contribution profit both in dollar and margin terms, right? Historically, what's happened is we've taken the majority of those profits and we've reinvested them in these investment areas. We're at a point where these investment areas are exhibiting margin improvement, and so the investment dollars don't perfectly offset the increase in the contribution profits in the restaurant business, and that's gonna create some flow-through impact to EBITDA.
The combination of these two things, which is increasing restaurant profits coupled with margin improvement in the investment areas, will help us increase annual EBITDA, both in dollar and margin terms in 2023. The only caveat I'll make is we continue to remain in investment mode. You know, I'll change this approach if we identify attractive growth opportunities. Today, at current trajectory and current pace and speed, we expect to increase annual EBITDA. On your question on insurance, you know, actually, when you look at our insurance costs in Q3 versus Q2, as a percentage of our GOV, our insurance costs were flat. You know, good progress in Q3. I won't declare it a win as yet.
We've got to watch this closely, but there's been no increase, at least as a percentage in Q3 relative to Q2.
Yeah, Doug, you know, on the question regarding regulatory and what we're seeing, you know, we're largely seeing pretty much exactly what we would expect. You know, I mean, I think just to make sure we're on the same fact basis with respect to say the DOL announcement that was made recently, it doesn't change our business model or reclassify drivers. It and in many ways just is an affirmation of President Obama's administration's determination that there are independent contractor workers out there and that it, more broadly, they're largely quite supportive of this line of work.
What we've seen is outside of a handful of cities, and it's been the same count of cities that have, you know, I would say, you know, frankly, perhaps abused their power and are trying to overregulate the industry. By and large, I think lawmakers, regulators, anyone in policy that we've spoken to has been very productive in terms of, you know, making sure that we can serve Dashers together. I mean, again, let's remind everyone that what Dashers want, you know, in terms of their activity, the average Dasher, and we're talking about 3 million Dashers, you know, every quarter, Dashers are working fewer than four hours a week on average. 90% of Dashers work fewer than 10 hours a week. This is in the United States.
What they're saying with their feedback is the number one thing they value about the DoorDash platform is really the flexibility that it offers. Then when you look at what they say, take Proposition 22 as an example, you know, 87% of Dashers preferred staying as independent contractors. The vast majority of voters in California supported Proposition 22. You know, I'm optimistic that regulators and policymakers will take this into account and actually, you know, reflect what Dashers want, which is that they'd like to see labor laws catch up candidly to the modern-day realities of, you know, what the future of work really is, which is people ought to be able to control where they work, when they work.
That's really what we see. We don't really expect, you know, any new changes versus what we've said before.
Doug, just to add-
Thank you, Doug Anmuth.
To just add to Tony's comments there, you know, obviously in some cases, this regulation introduces new costs into the system. Our goal in such situations is try to execute as efficiently as we can and try to optimize away that cost. In some situations, the cost might be onerous and cannot be entirely optimized away. You know, we have a right and an expectation to be able to generate a profit in the markets we operate in, and if those costs are overly onerous, we will act to protect our EBITDA guidance. I want to make sure that that's clear.
Thank you.
Your next question comes from the line of Brian Nowak. Your line is now open.
Great. Thanks for taking my question. I have one for Tony, just on business philosophy and sort of risk management through different macro scenarios. You know, the business is holding on great so far. If we sort of walk into a scenario where in 2023 you potentially have a weaker consumer in the US or Europe and maybe your more cash flow generative US business decelerates or has some impact from macro, can you just sort of put us in that world and talk to us about sort of your investment philosophy in both your more developed businesses as well as the earlier, more developing products, just to ensure you're best positioned to drive these industries post recovery, while also doing the best you can to sort of maintain and improve employee morale, which in part probably matters around the stock?
Hey, Brian. Yeah, I mean, I think the investment philosophy has been largely consistent with what we've done. I mean, I think even when I think about the last 10 quarters, you know, basically from when we've become public to where we are now, what we outlined in the S-1, you know, we've kind of just continued marching towards that drumbeat of you know, telling the narrative and of how we wanna you know, be the local commerce company, both building the largest local commerce marketplace, the largest local commerce platform, and how we're making investments in towards doing that. I mean, I think it's important to take note of you know, what has happened in the last 2.5 years.
I mean, we went from a one business line company into now, you know, five businesses with investments into operations overseas outside of the restaurants category, an ads business, a platform business with products like DoorDash Drive and Storefront. So when I think about, you know, what we are today, you know, the biggest thing that I've been thinking a lot about is how do we actually make sure we continue to stay disciplined about investing, you know, commensurate to the stage of those projects. Now, obviously, there's a lot of macro headwinds, as you mentioned, and that have changed in the past year. You know, for me, all that suggests is just it's gonna put pressure on our execution.
Obviously, if it puts pressure on the consumer, which is, I think, the point that you're going towards, and we're not seeing signal in some of these investment areas, then we certainly would, you know, pull back and invest accordingly. For me, it's really again about keeping that discipline, even though we've gone from one business, you know, now to five businesses. Just to also put things in perspective just for everyone on the line, you know, a lot of the investment dollars are going into our non-US and our non-restaurants category businesses. You know, the size of those in investments now have built a business that's larger than all of DoorDash just a few years ago.
We certainly like what we see, but obviously, if we're seeing behavior, you know, come down because of macro pressures, we will invest accordingly.
Just to add to Tony's comments, Brian, I mean, remember our core US restaurant business is growing and generates significant cash flow, right? Historically, we've invested the vast majority of this to grow scale in our in these other areas, including new categories international. These investments are discretionary, and that means that if for one reason or another, we're better served by pulling back on the investment because we're not seeing the right signal in terms of consumer demand, because we're not seeing the right improvement in terms of unit economics or whatever, we can alter the pace of the investment. So far, we've been pretty disciplined with capital allocation. You can see that in how in the results in terms of the US restaurant business, and the plan is to continue being equally disciplined going forward.
Great. Thank you both.
Your final question comes from the line of Mark Mahaney. Your line is now open.
Okay, thanks. 2 questions, please. I know somebody already asked you about macro impact on the demand side. Anything you'd call out on the supply side? Anything about the need for extra side hustle that's maybe led you to bring in more dashers? And then secondly, Prabir, your comments about 2023, you know, we always parse your words very carefully. That last quarter you'd said increase annual EBITDA by a modest amount, and this time when finishing your answer to the question, just said you would increase annual EBITDA, but you didn't use the modest word. Is there anything to read into that? Sorry to ask you such a precise question, but just wanna make sure we're not missing any nuances. Thank you.
Yeah. Maybe I'll take both. Mark, on the Dasher supply question, this is the point I made through today's conversation around the labor market being more normalized this year than it was last year. That's having an impact on, obviously to some degree, advertising rates, but also in terms of supply that's available to become Dashers. That benefit has been turbocharged by product improvements that have now improved the retention of the fleet and is actually generating incremental supply hours from existing Dashers. Both of those things means you just don't need to acquire as many new Dashers. Long story short, the labor environment has resulted in all-in Dasher costs being better today.
Because of the product improvement that we've made, we expect that to continue benefiting our cost structure in Q4 as well as in 2023, provided there's no you know shocks to the labor environment. On the question around 2023, you know, I'd urge you not to overextrapolate on a word or two. Really, we're not providing quantitative guidance, but what I am trying to share with you is, you know, when you think about the underlying dynamics of the business, the reason you didn't see a lot of EBITDA expansion going from 2021 into 2022 was because the pickup in terms of contribution profit from the US restaurant business was largely soaked up by the investments.
We're at a point right now where the investments are getting better from a margin perspective, while the U.S. business continues to grow and therefore throws off more dollars and has continuing improvements in the margins. It's not a perfect offset anymore. It used to be, not anymore. That's going to generate incremental EBITDA both in dollar terms and in margin terms. We'll come back to you with specific guidance on 2023, in Q4, and which is in line with our normal cadence.
Okay. Thank you, Prabir.
There are no further questions at this time. Mr. Andy Hargreaves, I now turn the call back over to you.
Great. Thank you, everybody, for joining us today. We appreciate both your time today and the support and look forward to talking with many of you soon. Have a good evening.
This does conclude today's conference call. You may now disconnect.