Ladies and gentlemen, thank you for standing by. Welcome to the DoorDash Q2 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Andy Hargreaves. Please go ahead.
Thank you very much, Grace. Hello, everyone, and thanks for joining us for our Second Quarter 2021 Earnings Call. I'm pleased to be joined today by our co-founder, chair, and CEO, Tony Xu, and our CFO, Prabir Adarkar . I would like to remind everyone that we'll be making forward-looking statements during this call, including statements regarding our expectations of our business, future financial results, and guidance and strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements, and some such risks are described in our risk factors included in our SEC filings, including Form 10-K. 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 investor letter, 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 the call will be available on our website shortly after the call ends. Grace, we'll go straight into questions today. Please go ahead and take the first question.
Your first question comes from the line of Ross Sandler from Barclays. Your line is open.
Hey, guys. What's happening? Two questions, Tony. Your non-restaurant delivery business has several strategies in place, both in marketplace and in Drive. What are you most excited about thus far? What's adding the most to your financial performance? Second question is, in the letter, you mentioned that same-store sales for your merchants is up about 35%. I assume that's dramatically higher than anybody in the peer set, but if overall GOV starts to decelerate and normalize next year, how does that work as far as continuing to add merchants while growing same-store sales? Any thought on how you balance out that and what that might mean for merchant retention? Thanks a lot, guys. Nice quarter.
Great. Hey, Ross. I'll take the first question, then I'll let Prabir start the second. On the first question, with respect to new categories, you're right. We're super excited about our progress. In Q1, we announced that about 7% of our business was coming from orders outside of restaurants, and that has grown sequentially, and it's grown certainly faster than our restaurants business. It does touch upon the strategy of creating both a marketplace where we're generating incremental demand and really building best-in-class point solutions category by category, where we're bringing everything inside the neighborhood to consumers in minutes, not hours or days. On the other side, we are also building a first-party capability on behalf of retailers and merchants so that they can create their own digital businesses.
The goal of DoorDash has always been to create the largest local commerce marketplace, as well as the largest local commerce platform, and we think that this strategy is certainly playing out, not just in our core and original category of restaurants, but now also heading into other categories.
Ross, just to add on to Tony's point, the reason we're excited about these new categories, both on our marketplace and primarily on the marketplace in addition to Drive, is what the early data suggests is that when consumers buy from other categories in our marketplace, in addition to the food category, they subsequently now then increase their retention and engagement with the marketplace as a whole, compared to customers who do not buy across categories. We're seeing this behavior. It's super exciting. It's improving the value proposition of DashPass, which is why we're investing behind it, both on the marketplace as well as for Drive. For Drive, it's a slightly different strategy because we don't own the customer relationship with Drive.
As we add more orders from other categories to the ecosystem, we're just creating node density, an order density that actually lowers our cost structure and then the rest of the flywheel. That's on the first part of your question. On the second question, I think I understand what you're getting at, but the way I view it is, first, if you think about it from a merchant standpoint, the marketplace GOV is just one portion of the sales that they generate. It doesn't capture the value of Drive orders, right? Remember that. The true sales from a merchant perspective is very different than what's implied by the GOV growth. The second is, if you look at what's happened to our order frequency over time, we're currently at all-time highs.
The order frequency is high both for our DashPass subscribers as well as for non-DashPass users. Both cohorts of users have actually achieved not just year-over-year, but lifetime high order frequency. That will continue to increase over time as our selection improves, as affordability improves, and as quality improves. That will then continue to drive GOV growth for our merchants.
Okay. Your next question comes from the line of Brian FitzGerald from Wells Fargo. Your line is open, sir.
Thanks, guys. I had two questions. One was around the beat and the guidance, how much of that was driven by international versus new categories, if you could parse that out or give us some color on that. Could you talk to the kind of different take rates or pricing points you rolled out last quarter? Can you talk to us about the adoption rates? Is there a tendency to move up or down versus cohorts of somebody who started at a certain percentage and then started moving up to 25%-35%? Thanks.
Sure. Brian, on the first question, we basically saw strength across the board on just core consumer metrics, right? It wasn't that one part of our business beat and another didn't, but across the board, we started to see, as I alluded to earlier, strong order frequency development. We saw pickup on DashPass subs, not just in the U.S., but also growth in our international regions. As a matter of fact, our international business actually grew faster both quarter-over-quarter and year-over-year compared to our U.S. business. We continue to see strength on retention and order frequency for our consumer cohorts, both those cohorts that were acquired this year compared to new cohorts behaved pre-COVID, and retention order frequency benefits for existing cohorts that were acquired prior to the pandemic.
Across both new cohorts and existing cohorts, retention and order frequency continues to be above pre-COVID levels. Long way of saying we're seeing strength across all these fundamental consumer metrics that then ultimately led to order volume beats that then translated to GOV and the rest of the P&L. On your question around the pricing packages, what I will say is the majority of restaurants have chosen either the premium or the Plus package, and the premium mix actually has outperformed our expectations. On the whole, it's performing in line with or slightly better than expectations. If it's a take rate question, I don't think the impact on our take rate will be noticeable because there's other factors like DashPass mix and fundamental efficiency improvements that usually are much larger in magnitude than the shifts that are created by the pricing packages.
Got it. No, very clear. Thanks, guys.
Thank you. Next up we have Youssef Squali from Truist Securities. Your line is open, sir.
Thanks. Two questions for me. When I read the letter, I noticed that it's really peppered by language, mostly about the need for higher level investment. Can you maybe quantify the higher level investment in Dasher supply, in new categories, in international, kind of that you qualified? How long do you think, or do you anticipate this investment cycle to last and just kind of what's the primary driver? You've obviously been aggressively investing to date, but it seems like this is a step up from what you've been doing so far. Thank you.
Hi, Youssef. Maybe just to take a step back, I just want to reiterate and remind people of how we manage the business and the philosophy, which is we're super early in terms of the opportunity, not just in food, but also when you add in these other categories that we're now recently entered into, such as convenience, grocery, pet food, alcohol and others. We're a tiny fraction of the potential of these categories, and that's why we're investing. If you take a look at where we're investing, it's largely driven by new categories and to build our international business.
We're not going to break out the quantum of the investment. I will say that we're fortunate in that we've got a U.S. business that is firstly large, second growing, and third has improving margins, which then creates a larger profit pool that we can then use to invest in these other opportunities that are ahead of us.
Thank you. Next up, we have Douglas Anmuth from JP Morgan. Your line is open, sir.
Thanks for taking the questions. Was hoping you could just talk a little bit more about the Japan market launch. I know it's fairly new. Just curious what some of the nuances are in that market relative to the U.S. If you could also talk about how you're thinking about Europe as well. Thank you.
Yeah. I mean, the Japan, we launched the market. I don't even think it's been two months. It's too early to draw any conclusions. Whenever we launch these markets in the beginning, I mean, we're super focused on, I'm going to call it product market fit parameters more so than actual financial parameters. Let me describe what I mean. We're looking for retention improvements. We're looking for order frequency improvements. We're looking to ensure that customers aren't retaining simply for discounts versus creating a habit with us. Again, it's been two months. It's too early to declare victory or anything like that, but we're encouraged by what we see. We're currently in one market, which is Sendai, and what we're noticing is that the opportunity is available because these markets are relatively under-penetrated compared to core open city centers.
Lots more work to do, and we'll keep people stood on the progress. I mean, in terms of just other geographies, I mean, I'll just remind you of our priorities, one of which is to become an international company. We operate in Canada and Australia and Japan today. Over time, as these other markets get bigger and start generating profit pools and we can afford to do so, we will expand obviously in an economically efficient manner in other geographies.
Thank you.
Thank you. Next up we have Brad Erickson from RBC Capital Markets. Your line is open, sir.
Thanks. I guess two for me. One, just within the guidance, it seems like you're looking for Q4 maybe a little bit less than seasonally normal. Is that just a reflection of your comments in the letter around uncertainty, or is there something else instructing that view? Feel free to recharacterize that view if you want. Then second, follow-up from an earlier question. You've had a ton of gross profit upside here over the past few quarters, and I guess in the letter, obviously talking towards reinvestment in a few areas. Can you just remind investors as to how the team views those choices philosophically as you trade off growth versus profitability? Thanks.
Sure. Brad, on the first question with respect to the guidance, let me start by saying, Q1 was elevated a little bit because of a couple of things. These markets had just begun to reopen. Vaccination rates were lower, to compound all of that, you had let's call it the inorganic impact of stimulus checks that was driving consumer demand. That led to an elevated Q1. As we look into the second half of the year and what's embedded in our guidance, there's really two things. The first is what I call ordinary course summer seasonality. In general, in Q3, the pace of consumer acquisition slows a little bit, and you have lower order rates simply because consumers are going out during the summer because the weather improves. That's one aspect.
The second is we are baking in a level of conservatism because there is uncertainty in terms of what the world looks like in the second half of the year as markets continue reopening. It's unclear whether we're even out of the pandemic at this point, and if so, what the long-term effects are. There's plenty of unknowns here, as a result of which we wanted to make sure we embed that uncertainty into our second half outlook. On your gross profit upside question, the way to think about it is we invest flexibly across the P&L. One of the reasons we do not provide revenue guidance, but instead provide GOV guidance and EBITDA guidance is because depending on the opportunities that are available to us, we can pick one of several actions in order to drive growth.
We can invest through sales and marketing in terms of customer acquisition or Dasher acquisition. We can invest in pricing through lower prices that would then impact take rate, or we can invest in incentives to drive up quality, which should then have further downstream impacts on the take rate as well as on our cost of sales. We retain that flexibility because, depending on the environment we're in and depending on the exact challenges, we want to be able to deploy the right strategy without having to worry about a revenue guide. Now as you look to the future, the factors that will continue to improve take rate, and I'll go through those just as a reminder for people, is first, as we improve the efficiency of the logistics network, that'll have a positive impact on take rate.
As we improve the quality of the consumer experience, that will lower our refunds and credits and have a positive impact on take rate. As we drive more drive orders, no pun intended, as we do more drive orders, they'll have a positive impact on take rate. In terms of headwinds to take rate, it's really three things. As we drive increased mix of DashPass orders, I'll remind folks that with our DashPass orders, we have lower unit revenue but significantly higher engagement as a result of which that's a trade-off we're happy to make. Second, as we increase our investment in new categories, third, as we increase our investment in international. Because of the early stages of the evolution of these investments, usually they come with a low take rate, you're seeing the blending effect in our take rate as a result of these investments.
That's great. Thanks.
Thank you. Next up, we have Steven Fox from Fox Advisors LLC. Your line is open, sir.
Hi, good afternoon. Just two questions from the letter I was curious if you could expand on. You mentioned three points of category share in the quarter, and then you also mentioned gaining more DashPass subscribers. Can you give us a little bit of color around what you're seeing that's driving that? What's behind the numbers, basically. Thanks.
Yeah. I think it comes down to a superior product, which is the thing we aim to deliver is the best combination of selection, affordability, and quality. What those three things translate into is category-leading spend retention. Our category-leading spend retention ultimately then translates into these market share gains that you're seeing. DashPass is one component of that because DashPass is how we solve the affordability lever, and we've continued to increase DashPass subscribers who have higher order frequency compared to non-DashPass subscribers. That's then now leading to increasing order frequency over time, as well as improved retention, which then drives market share growth.
Great. Thank you.
Thank you. Next one we have Ron Josey from JMP Securities. Your line is open.
Great. Thanks for taking the question. I wanted to maybe, Tony, ask a little bit more about the demand you're seeing for newer categories and also just the power of convenience. Can you just talk about these dynamics of newer category orders? We know they're growing faster, do most of these orders come from restaurant orders to begin with as an add-on? How are you marketing them? How are people being aware that you offer pet goods and alcohol and everything else? Just maybe some insights on strategy and awareness of these new categories would be helpful. Thank you.
Sure. I would say that we're still pretty early in that process. If you think about it, the greatest privilege we have is that our consumers eat 20 to 25x a week, so in terms of shots on goal or their willingness to come back to the app daily, we have the luxury to have a wide surface area and a large number of opportunities to actually engage with them. Most of what we're trying to do is we're trying to offer a best-in-class solution for them, whether that's shopping across multiple categories or whether that's shopping within one category. For us, it's not coming from one type of use case or one type of occasion. We're still in that learning process. I think we have a long ways to go. I think the industry has a long ways to go.
Even within our core category, I want to remind folks that of restaurants, we are single-digit percentages of the restaurant industry. When you add in some of these other categories, we're a much, much smaller fraction. So I think there's a long ways to go before we can start truly inventing technologies that will continue to change consumer preferences. The one thing that we do know is that consumers always lean towards the direction of greater and greater convenience, and so that you should expect from future products to come.
Tony, that should be helpful.
Ron, to add to that, if you will. Just to remind you, in Q1, we had said that less than 10% of our MAUs actually use other categories. Tony's point about the surface area and shots on goal, there's a lot of opportunity just to increase awareness and drive conversion just within our existing MAUs itself, without having to actually acquire customers specific to these new categories. Does that make sense?
That does. Thank you. That's super helpful. Maybe, you talked in the letter as well, just a long list of complexities across these categories. You're up for the challenge, but maybe help us understand what are the complexities. That's all I got. Thank you.
Yeah. Ron, I know what you're referring to. The environment's competitive and each inch is going to be hard-fought, and so we need to stay vigilant and laser-focused on building the best products for our merchants, dashers, and consumers.
Got it. Thank you, guys.
I think your next call line is open.
Hey, guys. Thanks for taking the question. two quick one from us. First, your sales and marketing was up nicely in 2Q. Can you give some color on where these incremental spend was going? Is it related to new category efforts? Because, we thought those were primarily driven through order discounts. On the second question on the non-food categories, there's a number of different models that we have seen out there, between marketplace, dry warehouses, and even more hands-on model using in-store shoppers. With all the new partnerships you have announced, can you.
Maybe I'll take the first one, Deepak, on your sales marketing question, and Tony can take your second. On the first, by our Dasher acquisition costs. Remember, we spoke last at Q1, we were talking about being under supplied, and so we made significant investments in acquiring Dashers. We, in fact, acquired more Dashers this quarter than we have ever in the history of DoorDash. We also experienced higher advertising rates, likely because the rideshare industry and others were competing for Dashers in our pool. Those two things led to higher Dasher costs this quarter than we had planned for, if you think about our guidance.
Then to the future, remember, I will say I expect those elevated advertising rates to come down, maybe not over the balance of this year, we're being somewhat conservative, but in the long term, simply because it's a different pool of people. We've discussed this in the past. It's a different pool of people that act as Dashers versus those that are interested in rideshare. Over 75% of our Dashers are students or have other part-time or full-time jobs. I think I mentioned to you that over 90% do less than 10 active hours per week, the nature of the job is fundamentally different because you don't need a car or have to have a car, frankly, in order to dash. Given the size of this TAM opportunity for Dashers, we do believe those advertising rates will normalize over the long term.
Yeah, with respect to your second question, what I would say is that, at the end of the day, we take a look at this from the consumer's perspective of what's going to offer the best product experience in terms of selection, quality, and price. We do that in concert and partnership with all of our retail partners, because much of this actually requires invention. If you think about fundamentally what we're trying to do, regardless of the model in which we operate, we're trying to take the physical world of physical businesses and all of the activities that they're doing and being able to give those merchant partners digital businesses.
Every activity has to be reimagined, and there isn't one point solution, I would say, that's going to ultimately work for every single merchant, nor is there one that's going to ultimately be consistent enough to actually solve all of the unique challenges within each respective category. We both aspire to build the best-in-class category-specific solution, as well as the best-in-class experience across categories. We will continuously work with our merchant partners to invent these-
Thanks, guys.
I think your next question comes from the line of Stephen Kim from Evercore ISI. Your line is open.
Hey, thank you. Just had two questions. Around the commission caps that could be potentially permanent in New York City and San Francisco, I guess, if you could provide us just an update on where those stand today and how you view the overall impact to your business. Secondly, in Grubhub and Just Eat Takeaway strongholds like New York City or Chicago, how are you seeing the competitive environment in Q2 and maybe quarter to date? Thanks.
Yeah. I'll start with the first question, and I'll let Prabir take the second question. With respect to these commission caps, we're actually largely seeing city officials allow capitalism to take its course, as most of these commission caps are actually being lifted, especially as more and more of the country is reopening and getting back into a sense of normalcy. I think with respect to the limited situations in San Francisco and in New York City, our point of view is that any approach or ordinance towards a permanent cap is frankly, A, unnecessary, because if you actually read some of these commission caps, platforms like DoorDash's already offer plans well below the commission cap that is proposed. Second, they're very harmful in the sense that they're hurting the audience that they're trying to help, which are these restaurants.
Commission caps, what they do is they'll ultimately result in increased prices for consumers, lowered sales for these restaurants, and reduced work opportunities for Dashers. Finally, because of the arbitrary nature of these commission caps, they're violently unconstitutional. I think the best synthesis of the situation might actually come from Mayor London Breed from San Francisco, who believed that this ordinance really unnecessarily outweighs any public good. So that's our take, and that's why you see us take litigation action in San Francisco.
Stephen , on your question, really the two markets you mentioned, Chicago and New York City, were comparative strongholds for one of our competitors. We are there not just in the second quarter, but also in the first quarter of this year. In New York City, we're not number one, but it's a clear priority for us. To be clear, we have continued to gain share, including in the second quarter. Most of the other competitive share shifts we've seen have occurred between the other two players in that market.
Got it. Thank you both, and congrats on the quarter.
Thank you once again. In order to ask a question, please press star then one.
Grace, it looks like we don't have any more questions in the queue, so if it's okay, we can pass it to Tony for a quick closing remark and wrap it up.
Okay.
Thanks, Andy. Was there another? Thanks everyone. I just wanted to take a moment and celebrate the fact that we fulfilled our 2 billionth order in the second quarter. As someone who has seen this journey from the very beginning, I can tell you that it took us over seven years to achieve our 1 billionth order, and only nine months later, we were able to see our 2 billionth order. Just want to take a moment to reflect on that milestone and thank all of our audiences, the team at DoorDash, and all of our shareholders in what is a great achievement. Thank you very much, and we'll see you soon.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.