We focus on both growth and profitability: DoorDash co-founder Andy Fang
DoorDash Inc. is laying off about 1,250 people in an effort to rein in expenses, according to a company memo from Chief Executive Officer Tony Xu viewed by Bloomberg.
“While our business continues to grow fast, given how quickly we hired, our operating expenses - if left unabated - would continue to outgrow our revenue,” Xu wrote in a letter to staff on Wednesday.
The cuts will affect about 6 per cent of the company’s workforce, a mix of U.S. and non-U.S. based staff, according to people familiar with the matter asking not to be identified as the matter was not yet public. By scaling back headcount, DoorDash aims to curb operating expenses, which topped US$2 billion in the third quarter, largely due to stock-based compensation and the absorption of Wolt, the Finnish food-delivery company it acquired last year.
The San Francisco-based company is the latest technology firm to cut staff amid an uncertain economic outlook; but in contrast to other companies seeing a slowdown in consumer demand due to rising inflation, DoorDash’s order volumes have remained resilient, growing 27 per cent in the third quarter compared with last year and boosting revenue to $1.7 billion.
Xu said DoorDash “will continue to reduce our non-headcount operating expenses, but that alone wouldn’t close the gap. This hard reality ultimately led me to make this painful decision to reduce our team size.”
DoorDash shares jumped as much as 2.5 per cent in premarket trading after news of the cuts.
The pandemic supercharged consumers’ affinity for takeout when coronavirus lockdowns shuttered indoor dining. DoorDash increased its share of the meal delivery market in the U.S. and garnered 56 per cent of food delivery sales as of September, according to YipitData. But that growth has also come at a cost. Competition in the sector has only intensified and the company has spent heavily to sustain growth by expanding its footprint in non-restaurant categories like convenience store items, groceries and alcohol. Last year, DoorDash spent $8 billion to acquire Wolt to increase its international presence.
DoorDash reported adjusted earnings before interest, taxes, depreciation and amortization of $87 million in the period ending Sept. 30. The adjusted Ebitda metric strips out expenses like stock-based compensation or non-recurring costs that executives deem to be outside the scope of operations. Under generally accepted accounting principles, however, DoorDash is unprofitable. The company reported a loss of $296 million compared with $101 million a year earlier during the third quarter.
“We must keep this level of discipline moving forward and act with the hunger, efficiency and creativity of the younger startup we once were while leading with the responsibility of the market leader we’ve become,” Xu wrote.
Rising interest rates and the prospect of an economic recession has contributed to a rout in tech stocks, as investors punish companies that have historically prioritized growth over profits. Shares of DoorDash and food-delivery rival Uber Technologies Inc. have fallen 64 per cent and 34 per cent, respectively, so far this year.