DoorDash (DASH -1.11%) share prices continue to slide as the company struggles to adapt to the new normal following the lifting of COVID-19 restrictions. The loss of the tailwinds that coincided with its IPO and much of its growth during the pandemic seems compounded by the labor shortages and supply chain disruptions that followed. 

Low share prices may seem inviting, but risks remain high. The company's most recent announcements of the layoffs of approximately 1,250 people at the end of 2022 likely came as a surprise ahead of a potentially lucrative holiday season, but it showcases the volatility that continues to define DoorDash.

Challenges following DoorDash's pandemic IPO

The stay-at-home requests delivered nationwide during 2020 led to much speculation about the company's December IPO. Shares originally expected to price at $90 to $95 doubled to $180 when they went live before receding to a more reasonable $102 apiece. Since then, prices have soared to almost $230 before falling to recent lows closer to $40. Volatility remains the name of the game for DoorDash, and it leaves investors on edge.

Expecting growth to continue, the company continued to hire apace, and DoorDash CEO Tony Xu noted that this ambitious hiring drove up operating expenses. Those expenses bit heavily into company revenue, preventing profitability in the first year of operations and likely contributing to the share price volatility going into 2022.

Further, the company has proven reliant on stock-based compensation, instead of direct payouts, to employees. This allows it to limit its cash expenditures while giving employees a way to build their investments in a potentially lucrative organization. When done by a company that has not yet attained profitability, however, it is a highly speculative move that could leave former employees with little to show for their work. Stock buybacks from DoorDash reinforce this uncertainty, which plays directly back into the overall volatility of its stock offerings.

Mounting losses year after year

Operating costs continue to outgrow revenue at DoorDash. As of the company's November quarterly report, losses from operations ballooned to $308 million, up from $100 million in the same quarter of the previous year. Similarly, net losses per share went from $0.30 to $0.77, more than doubling year over year. As these losses show no sign of slowing, moves at the executive level apparently became necessary.

Other headwinds mounting against DoorDash include rising fuel costs, supply chain disruptions resulting in restaurant outages, and labor shortages across the service industry. All of these, compounded with a weak 2022 market and higher interest rates from banks, may have contributed to the continued decline in the company's value in the eyes of shareholders and potential investors.

Potential hope for DoorDash profitability

Many of the top competitors in the food delivery space face similar challenges. The early years of the pandemic bolstered sales with stay-at-home orders and gave such companies plenty of room for growth, and Xu blames overhiring during this expansion period for much of the current situation with layoffs. Grubhub requested delisting from the markets after its shares fell to around $7 per share this year, and other competitors also seem to feel the squeeze.

Its position as a market leader gives DoorDash some leverage, and these trials could well help the company regain lost market share. Xu notes that non-labor costs also contributed to operating expenses growing significantly following the company's move to public ownership, and his letter to employees addresses these concerns. Current cash and equivalent holdings, over $2.8 billion, provide some space for continued improvement without worrying about added debt or financial default.

The company acknowledges the challenges, and this offers a heartening note to investors currently holding DoorDash stock. Armed with the knowledge of where potential improvement lies, DoorDash must now create a plan of action to right the ship before it ends up in a similar situation to Grubhub. Strategic partnerships, like the one Grubhub made with Amazon earlier this year, may well play into this plan. Other avenues, such as hedging against supply chain and labor woes, also offer lines of consideration.

Dangers of the falling knife

Conventional wisdom warns investors not to try to catch a falling knife, and the precipitous drop of more than 66% of DoorDash share prices over the last year definitely qualifies as such. Hope itself does not secure the future of investments made in a risky bet, and DoorDash will need to deliver on its plan of action in the near future to inspire confidence as it once did during the early days of the pandemic.

While swings in the markets and even some volatility may seem profitable for some in the short-term, Foolish investors with a stake in DoorDash should likely consider riding this period of transition out or even moving from a holding position to divesting some shares to reduce risk in 2023. Buying the stock at this time would be like trying to catch that proverbial knife, and it doesn't seem worth the risk.