DoorDash (DASH 3.12%) has been thriving since the onset of the pandemic. The speedy delivery provider benefited as millions of people became more cautious about visiting potentially crowded places.
As a result, DoorDash is experiencing a surge of new customers and engagement. It's no surprise that many investors consider buying shares of DoorDash, but don't overlook this factor when making your decision.
Image source: Getty Images.
Revenue is surging, but it's not helping the bottom line
DoorDash is having no trouble with revenue growth. Until recently, there was a palpable concern in the market that once economies and restaurants started reopening, demand for DoorDash's services would fall off dramatically. So far, that hasn't been the case. Economic reopening gained momentum throughout 2021, helping DoorDash increase revenue from $2.9 billion in 2020 to $4.9 billion in 2021.
Customers continue to show a preference for the convenience DoorDash provides. For just a few dollars, people can get meals from their favorite restaurants delivered to their doorsteps. Both restaurants and consumers are willing to use DoorDash because its fees are low enough so the benefits outweigh the costs.
Therein lies a potential problem for DoorDash. The prices DoorDash is charging are nowhere near enough to cover its costs. Indeed, in 2021 DoorDash lost $468 million on the bottom line -- and that was worse than its $461 million loss in the previous year despite a $2 billion revenue increase.
That said, DoorDash is growing cash flow from operations; the metric increased from $252 million in 2020 to $692 million in 2021. Here's the factor that investors considering DoorDash shouldn't overlook: Its strong cash flow growth is, in part, because it's paying an increasing amount of employee compensation in stock awards.
In fiscal 2020, DoorDash paid $322 million in stock-based compensation. That figure increased to $486 million in 2021. Compensation of this type makes cash flow look better in aggregate, but it has the effect of diluting other shareholders.
This is evident when looking at DoorDash's weighted average share count, which increased from 62.4 million shares in 2020 to 336.8 million in 2021. In other words, the share count increased more than fivefold. Because DoorDash is generating losses on the bottom line, it's reducing the loss per share as that gets spread out over more shares. However, investors expect DoorDash to become profitable eventually; when it does, those profits will also have to be split among more shares, reducing the earnings per share.
Investor takeaway
The critical point to remember is that DoorDash's increasing cash flow from operations should be taken with a grain of salt. A significant non-cash expense that creates the difference between net losses on the bottom line and positive cash flow is stock-based compensation, which can dilute existing shareholders.
Should this change your mind about investing in DoorDash? Absolutely not. A single metric should rarely be relied on for any investment decision. Instead, it's yet another item to consider in your decision-making process.
