In late 2022, Facebook parent company Meta Platforms was forced to rein in its excessive spending following a 76% peak-to-trough plunge in its stock price. CEO Mark Zuckerberg vowed to make 2023 a "year of efficiency" and subsequently slashed over 21,000 jobs, cut costs across the board, and prioritized profitability.
It worked, and Meta stock has soared 533% from that low point to trade at an all-time high.
Food delivery giant DoorDash (DASH -0.72%) was in a similar situation in 2022. The company is still losing money, but it made substantial progress toward profitability in 2023, and investors have sent its shares 182% higher from their 2022 low point. DoorDash is still down 50% from its all-time high, though, and it might be time to buy the stock.
DoorDash is no longer just a food delivery platform
DoorDash is America's most popular food delivery platform. It has a 66% market share, according to Bloomberg, with second place (Uber Technologies) way down at 23%. DoorDash took off during the pandemic, and it was common for the company to deliver triple-digit revenue growth rates each quarter during 2020 to 2021.
The company's growth has moderated significantly over the last couple of years, which is why its stock price remains so far below its peak. However, despite carefully managing costs in 2023, DoorDash continued to expand its addressable market by offering new services.
To celebrate its 10th anniversary last year, the company released the largest set of platform updates so far. Now, users can build multiple separate carts in-app; for example, they can have one for restaurants, one for groceries, and one for retail products. For retailers, signing up to DoorDash means they can deliver products to consumers on the same day, which helps even the smallest business compete with e-commerce behemoths like Amazon.
Over 100,000 retailers have joined DoorDash so far, but CEO Tony Xu says penetration is still shallow. That means the DoorDash platform as a whole still has plenty of room to grow.
DoorDash had its own "year of efficiency" in 2023
DoorDash closed 2022 by laying off 1,250 employees. A year later, Xu's recent 2023 letter to shareholders highlighted the further efforts the company has made since then to drive scale efficiently in all aspects of the business. Expanding its addressable market is helping to improve unit economics (retail orders tend to be larger in size than food delivery, for example), but costs were also a major point of focus.
The company's financial results showed an increase in operating expenses of just 19.5% in 2023, which was less than half the rate of increase from 2022. Sales and marketing -- DoorDash's single largest expense -- saw an increase of just 11.5%.
Considering DoorDash grew revenue 31% in 2023 to $8.6 billion, the slower growth in costs allowed more money to flow to the bottom line. As a result, its net loss shrank 59% to $558 million.
It also reported $1.2 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which more than tripled from 2022. Adjusted EBITDA is a non-GAAP measure that excludes one-off and noncash expenses like stock-based compensation to give investors a better idea of how much money a company's actual operations are generating.
In short, 2023 was an important stepping stone toward true profitability for DoorDash.
Image source: Getty Images.
Why DoorDash stock is a buy now
In the past, DoorDash bears have been skeptical of its ability to continue growing while also making strides toward profitability. The company's historical reluctance to manage costs meant it was burning large amounts of cash, so despite its rapid revenue growth, DoorDash simply wasn't on a sustainable trajectory in the long run.
But 2023 was a milestone year, highlighted by the explosive growth in adjusted EBITDA. In fact, DoorDash thinks it can deliver as much as $1.9 billion in adjusted EBITDA in 2024, which would be a further 60% increase over its impressive result last year.
DoorDash ended 2023 with a record-high 37 million monthly active users, and customers continued to increase their order frequency. As the platform continues to expand, it will cater to more users who will find more products that appeal to their needs. The DoorDash flywheel could pick up speed this year and carry the company to more record results across the board.
With DoorDash stock still trading 50% below its all-time high, this might be a great opportunity to buy in for the long term.
