DoorDash (DASH 0.20%) stock began to struggle after the height of the pandemic, when the company's food delivery service surged in popularity. It's currently down 74% from its all-time high -- and based on at least one key valuation metric, it's still more expensive than its key competitor. 

DoorDash grappled with slowing sales growth and blowout net losses in 2022, but it saw an improvement on both fronts in the first quarter of 2023. Here are three things investors learned from its Q1 report released on May 4. 

A delivery rider delivering food in a bright yellow jacket.

Image source: Getty Images.

1. Revenue growth has reaccelerated

DoorDash's revenue growth peaked in 2020, when it routinely delivered triple-digit percentage increases each quarter. The pandemic drove a surge in demand for food delivery services because consumers were under pandemic-related social restrictions and lockdown orders.

The company's quarterly growth (year over year) has since slowed to as little as 30%. But in Q1 2023, DoorDash delivered a 40% revenue increase for the second consecutive quarter. 

The result came despite a slower 29% growth rate in its gross order volume (GOV), which is the dollar value of all products purchased on DoorDash for the quarter. 

DoorDash said it paid customers fewer refunds and credits as a percentage of GOV, and the company also benefited from the acquisition of European retail delivery giant Wolt. Those tailwinds drove an uptick in the company's revenue margin to 12.8% from 11.8% in the year-ago period, which was the reason revenue growth outperformed. 

2. Losses persisted, but they improved in Q1

This is perhaps the most worrying part of DoorDash's business. For all of its growth and success throughout the pandemic, it still isn't profitable. The reality is that food delivery is highly competitive with low barriers to entry, so DoorDash has to invest heavily in marketing and operate on thin profit margins to maintain its dominant market share of 65% in the U.S. 

DoorDash's net losses climbed in every single quarter of 2022, reaching a peak of $642 million in Q4 (though that was negatively impacted by a $312 million charge on one of the company's investments). Its net loss moderated to $162 million in Q1 2023. 

Marketing accounted for more than one-fifth of DoorDash's operating expenses in Q1, and it's consistently the company's largest single cost. As I mentioned, reducing it would almost surely result in a loss of market share, which would slow revenue growth. As a result, the pathway to profitability remains uncertain. 

3. DoorDash continues to repurchase its own stock

Highly profitable companies typically return money to their shareholders in two ways: paying a dividend that puts cash in the investors' pockets, or launching a share buyback program. That involves the company buying its own shares on the open market just like any other investor would, with the aim of reducing the total number of shares in circulation and organically increasing the stock price. 

But why would a company like DoorDash -- which is losing money hand over fist -- buy back its own stock? That's because each quarter, DoorDash remunerates many of its employees with stock-based compensation. In other words, it gives them shares in the company in addition to their typical cash salaries or wages. This is great for employees because it gives them a vested interest in the work they do each day; however, issuing new stock dilutes existing shareholders.

In 2022, DoorDash paid out $889 million in stock-based compensation. To offset some of that dilution, it bought back $400 million worth of its own stock throughout the year. In Q1 2023 it paid out a further $230 million in stock-based comp, and back in February it earmarked $750 million to fund another stock buyback program. It has already repurchased $500 million worth of shares, and $250 million remained available at the end of the quarter. 

Overall, DoorDash thinks net dilution to shareholders in 2023 will be a modest 1%. Last year, the company's outstanding shares ballooned by 10%. 

What these three things mean for DoorDash stock

It's great that the company's revenue growth is accelerating. But DoorDash still hasn't proven its ability to turn a profit, so burning through cash by repurchasing stock doesn't seem like a prudent move. 

Based on its $7.1 billion in trailing-12-month revenue and current valuation of $24.6 billion, DoorDash stock trades at a price-to-sales ratio of 3.4. That's 57% more expensive than its competitor Uber Technologies, which owns Uber Eats. Yet that company has a host of other businesses like ride-hailing and commercial freight delivery to bolster its growth. 

Based on some of the challenges DoorDash faces, combined with its relatively high valuation, it might be best for investors to sit on the sidelines for now. The tough economic climate might expose DoorDash stock to even further downside.