Food delivery services have been immensely convenient during the pandemic with so many people confined to their homes and hesitant to dine in at restaurants, even as indoor seating restrictions loosened. Companies like DoorDash (DASH 0.29%) have been big beneficiaries, growing gross order volumes and revenue materially. However, amid rising costs and narrow margins, it has also been a struggle to get that extra cash flowing through to the bottom line. 

DoorDash released its first-quarter report on May 13, and while order growth has continued, the problem still lies in delivering earnings to investors. It's not alone, though, with a key competitor suffering the same issues in its own report. Despite a positive initial reaction, DoorDash stock is still down nearly 50% from the all-time high it reached in January -- and a continued lack of profits won't help to arrest the decline. 

Six hands holding glasses outstretched above a table covered with many different dishes of food

Image source: Getty Images.

Consumers are out and about but still ordering in

Earlier this year, DoorDash issued some bullish guidance for the first quarter with $8.6 billion to $9.1 billion in gross order value (the amount of money consumers spend on food on its platform). It beat even the high end of that range, delivering $9.9 billion, representing 222% growth year over year. For the full year, it expects total gross orders to land somewhere between $35 billion and $38 billion, compared to $24.7 billion in 2020. After this latest showing and second-quarter guidance for gross order value of $9.4 billion to $9.9 billion, this looks achievable.

Revenue was also up big year over year, tripling to $1.1 billion, but despite these blowout performances, the company still lost $110 million, just a $19 million improvement from the prior-year period. Gross order volume and revenue growth also decelerated from the previous quarter, highlighting the benefits delivered by the stay-at-home economy.

Uber Technologies (UBER 0.22%) -- the parent company of food delivery service UberEats -- reported its first-quarter earnings earlier this month, and its results offered many similarities to DoorDash.

The delivery segment grew its gross bookings 157% year over year and 24% sequentially to $12.5 billion, further supporting the idea there is still growth in the tank for this industry. However, this included contributions from newer ventures such as grocery and alcohol delivery that were on a $3 billion annual run rate as of March.

Revenue was also up big -- 230% year over year -- but the key issue was the negative $200 million in EBITDA, accompanied by a negative EBITDA margin of 11.5%.

In short, the demand for food delivery is still growing in the face of economies reopening, but even major providers are still having a hard time actually profiting from this business. 

Branching into new territory

Like UberEats, DoorDash is tackling new markets to leverage its driver network and expand its revenue opportunities. It currently has 12 DashMart locations, which are basically physical convenience stores that provide the company with small distribution hubs to deliver everyday items and some exclusive products to consumers.

However, in March, the company announced it would use these locations as part of a greater purpose. It signed partnerships with Vault Health and Everlywell to provide consumers with rapid COVID-19 tests, facilitating a 48-hour turnaround between delivery and final results.

This adds to DoorDash's growing healthcare segment, which already provides consumers with prescription medicine delivery services. The company hasn't offered revenue guidance for the new COVID-19 test services. However, any benefit is likely to be short term in nature as the pandemic subsides.

Converting growth into earnings

DoorDash delivered on its adjusted EBITDA projection for the quarter, generating $43 million. While that's a great result compared to the negative $70 million in the year-ago period, it represents a more-than-50% decline versus the fourth quarter when the company posted $94 million in adjusted EBITDA. 

Still, positive EBITDA is just one part of the equation. Despite consecutive reports with positive numbers, the company continues to report overall net losses, and the total addressable market for this company is not infinite. Eventually, it's going to run out of opportunities to scale. Like UberEats, DoorDash has an anemic EBITDA margin -- just 4% -- which clearly isn't enough to deliver consistent net income.

The question remains: can DoorDash replicate the growth it enjoyed last year in the remainder of 2021? It appears unlikely -- based on the company's guidance so far -- that it'll grow the top line over 225% this year as it did in 2020 (despite the strong first-quarter result). Ultimately, it may never capture a set of tailwinds as powerful as what the pandemic offered for its business.

If peak growth was achieved last year, and DoorDash still failed to deliver positive earnings, it could be a sign that the business model needs a major overhaul. Going forward, watch for whether the company's continued growth in gross order value translates to earnings, because without that, the stock will face steeper declines long term.