DoorDash has said that they would be laying off roughly 1,250 people in an effort to reduce costs after fast growth during the pandemic spike.
Impact
CEO Tony Xu said in a message to employees on Wednesday, Nov. 30, that although the company continues to expand swiftly, given how quickly they recruit, operational expenditures will surpass the firm's income if left uninterrupted.
The layoffs will affect about 6% of the company's workforce, impacting domestic and international employees. This is according to Bloomberg's sources familiar with the subject, who asked not to be named since the news had not yet been made public.
DoorDash, apparently, wants to reduce operational expenditures, which reached $2 billion in the third quarter owing to stock-based compensation and the acquisition of Wolt.
Rationale
Over the past year, DoorDash's net losses have more than doubled, growing every quarter to $296 million by the end of September. This was a big change from a year ago when the company lost $101 million.
In the third quarter, the firm posted $87 million in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization).
Stock-based compensation and other non-recurring expenditures that top management considers unnecessary are eliminated from this statistic.
According to Bloomberg, the opening of the New York Stock Exchange saw a 4.4% increase in DoorDash shares.
In response to rising interest rates and sluggish economic growth, the San Francisco-based corporation has joined the list of other technology companies that have announced layoffs.
However, DoorDash's order numbers have remained stable, increasing 27% in the third quarter compared with last year and driving revenue to $1.7 billion. Meanwhile, other businesses reportedly have seen decreased customer demand as prices have increased.
Pandemic lockdowns boosted customers' preference for takeaway while indoor eating was closed. YipitData says DoorDash had 56% of US food delivery sales in September.
Growth, however, has a price.
The corporation has invested substantially to continue development by expanding into non-restaurant areas such as convenience store products, groceries, and alcohol.
DoorDash bought Wolt for $8 billion last year to expand internationally.
Xu claimed DoorDash would lower non-headcount operational expenditures, but that will not cover the gap, hence the layoffs.
Tech Sector
Reports indicate that tech businesses cutting budgets discover alternative methods to slash payroll.
Lyft, which cut 13% of workers earlier this year, said it would move employment to overseas markets, including Canada and Eastern Europe, where ownership is less or nonexistent.
DoorDash will provide impacted workers recruitment help, honor stock that vests in February, and extend medical benefits and termination deadlines until March to give those on temporary visas time to find another employment.
Xu said DoorDash is not immune to external problems, and its growth has slowed compared to pandemic statistics.
Higher interest rates and the risk of a recession have led to a tech sector collapse as investors target growth-focused corporations. DoorDash and Uber slumped 64% and 34% this year.
