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DoorDash (DASH) Lays Off Staff Amid Economic Volatility

DoorDash DASH has finally joined a long list of U.S. tech companies that have cut jobs amidst rising economic volatility like inflation and recession.

On Wednesday, Tony Xu, CEO of DoorDash, announced that the company is reducing its corporate headcount by approximately 1250 people, reversing the pandemic-fueled hiring spree.

DoorDash rapidly expanded its headcount during the pandemic, stretching its business from a local food delivery logistics platform to providing groceries and alcohol through its online ordering portal.

It had more than 8,600 employees at the start of 2022, and its headcount increased to around 20,000 after it acquired European food delivery company Wolt Enterprises in the first half of the year.

DoorDash, Inc. Price and Consensus

DoorDash, Inc. Price and Consensus
DoorDash, Inc. Price and Consensus

DoorDash, Inc. price-consensus-chart | DoorDash, Inc. Quote

DoorDash Cuts Jobs to Reduce Operating Expenses

DoorDash revenues have been growing rapidly in the past four years. However, the pace of growth has slowed drastically, and the company’s net losses are increasing.

In fiscal year 2021 DoorDash revenues grew 69% in comparison to 226% in 2020, reflecting the massive slowdown over the years. In the last reported third quarter of 2022, DoorDash posted revenues of $4.76 billion, which increased 32.8% on a year-over-year.

DoorDash incurred a net loss of $461 million and $468 million in the years ended Dec 31, 2020 and 2021, respectively. As of Sep 30, 2022, the company had an accumulated deficit of $2.82 billion.

The acquisition of Wolt contributed to surging operating expenses, which pushed the company toward further loss in the last reported quarter. In the third quarter, adjusted research & development and general and administrative expenses increased drastically by 97% and 59%, respectively, year over year, driven by growth in headcount and the addition of Wolt.

Rising input costs due to the raging inflation have also been acting as a major headwind for a while. Rising expenses reduced the company’s ability to maintain profitability in the previous quarters, and the trend is expected to continue.

These have impacted the share price movement of the company drastically. The stock has slumped 64% year to date compared with the Zacks Internet - Services industry’s decline of 35.8%.

However, the recent layoff does not come as a surprise, as the macro-economic condition has been relaying signs of recession and massive job cuts since the first half of 2022. The surging inflation triggered all-time-high interest rate hikes. These relayed signs of probable recessions through the year.

Tech giants like Meta Platforms META, Amazon AMZN, and Snap SNAP have also laid off thousands of employees.

Meta Platforms went on a hiring spree during the pandemic period, boosted by revenue growth from its ad business to help achieve its metaverse prospects. However, as the company is facing falling revenues due to lower ad-spending and challenging microenvironment, Meta announced laying off more than 11,000 workers or 13% of staff.

Amazon also plans to lay off approximately 10,000 employees after hiring more than 800,000 during the pandemic.

SNAP is also parting ways with 20% of its employees to reduce operating expenses, which have been hurting the company's profitability.

Though the layoff of DoorDash employees comes as grim news reflecting the poor health of the economy, it would reduce operating expenses and help limit the net losses of the company, which is still enjoying double-digit top-line growth.

This Zacks Rank #3 (Hold) company has been investing strategically in acquisitions of companies like Wolt and Bbot and forming partnerships with companies like Big Lots to spread operations in United States and globally. This would help the company to win market share against stiff competition from companies like Uber Eats and Amazon in the ecommerce space.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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