A large proportion, if not the majority of my doordash orders include some sort of promotion. They're everywhere and at this point I almost have an expectation that doordash will always have a promotion that lets me order at a discount.
I think that these effective consumer subsidies are included in their "sales and marketing" budget.
Safeway is sort of extreme. Many grocery chains do have some sort of loyalty card discount. But Safeway has huge discounts all over the place to the point where I make a point of slipping a loyalty card in my travel folder when I go somewhre that Safeways are common.
I refuse to shop at Safeway if I have any other choice. The Safeways I've seen display their discount as $1.00 off their (excessive) price, and then expect me to believe that I'm getting a discount instead of getting the real price that they artificially raised by $1? Feels pretty insulting and manipulative.
If you don't use a card at Safeway you are way overpaying. It isn't a "discount", the list price isn't competitive. But the phone number I give them is one that I had 20 years ago, so it's of limited use to them.
I actually think Safeway is getting exactly what they want from you. They don't care to know who you are, they just want to know the frequency and correlation between the items you buy.
That's not to say it's a bad thing that they are getting what they want. Not all data collection is an evil surveillance problem. Data can be useful for society too.
That's a valid and interesting point, but they are also swallowing the competition. If you believe their chart on page 3, uber actually lost marketshare over the last 22 months while DD grew 33%. I imagine at some point the industry matures and S&M budget subsides.
The core business model is they pick the food up in one place and put it down in a different place. "Market share" is not meaningful, there is about as low a barrier to entry for competition as it is possible to get.
It isn't an achievement to gain 100% market share if each transaction makes a loss. If they try to raise prices to neutral or profitable levels it is likely that the market will shrink and competitors will charge in.
It may be that the equilibrium market is restaurants and food outlets do their own delivery for free or at cost. Then there isn't much of a market for a service like DoorDash to make a profit in.
It is possible that there is a market there and DoorDash will one day, somehow, make more money than they spend. But having a high market share is not much compensation when it requires constant losses to maintain.
My understanding is sometimes companies fudge the numbers though. If a $40 order has a $5 discount, they might consider $40 as revenue and put the $5 discount under a marketing expense
This is absolutely incorrect. You cannot take a discount as marketing expense and claim the full revenue. That is basic accounting that is not up for interpretation. If done intentionally it’s fraudulent.
That’s only sort of true, depending on how they do it. They advertise “promotional credits” which I assume do fall under the category of marketing expenses. Yesterday, I saw an ad that gave me a code for a $100 delivery credit from DoorDash. If I use it, my receipt will show a charge for delivery, and then a promotional credit that offsets that. I believe those credits can be reported as marketing expenses, and revenue would be the gross amount of the charge.
If you sell something for $100 and give a future voucher for $80, you recognize $20 in revenue for this quarter and $80 liability on your balance sheet. In the next quarter when that voucher is used on another $100 purchase, you can claim $100 revenue this quarter and remove the $80 liability. But you already took the $80 hit to revenue from the voucher on the previous quarter.
If you sell something for $100 and immediately give a $80 refund then you only take a $20 revenue.
People think the SEC and accountants are dumb or blind but they aren’t. They have seen all of these tricks before and act very quickly if they see new ways to mislead.
What if you flip the order and give someone $10 in credits, expiring XYZ, and they use it on a $40 order?
Here's from the S-1:
> >> Our marketing efforts currently include referrals, affiliate programs, free or discount trials, partnerships, display advertising, television, billboards, radio, video, direct mail, social media, email, podcasts, hiring and classified advertisement websites, mobile “push” communications, search engine optimization, and keyword search campaigns. Our marketing initiatives may become increasingly expensive and generating a meaningful return on these initiatives may be difficult.
This comment was downvoted, which seems to imply that it's false. Is it? I know nothing about the laws of accounting and I am curious if you can truly offload discounts into marketing expenses.
So there's two kinds of accounting, GAAP and non-GAAP.
A great example of non-GAAP accounting was WeWork's "community-adjusted EBITDA." When you use non-GAAP metrics to measure your business, you get to kind of define the standard by which you're measuring yourself. You get to do things exactly like the parent suggested, where you count 100% of the income as revenue and all your incentive spending as "marketing expenses."
Uber does this too, for instance (back when it was a thing) 100% of the sticker price of an Uber Pool ride was reported as revenue while only the 30% cut of an UberX or Uber Black was reported as revenue, and yes, they would list driver incentives as marketing expenses.
Out of curiosity, which part, the Pool vs. X, or the driver incentives are marketing? Also, always happy to do some more reading especially if you have some references.
To be clear, Uber does use non-GAAP accounting in the form of both EBITDA and "segment-adjusted EBITDA", the latter of which excludes stock comp, platform operating expenses, corporate expenses, accounting, lobbying, etc.
Regarding the SEC, they are actually quite upset about the use of non-GAAP accounting, and have begun taking enforcement action against companies which give prominence to non-GAAP numbers.
Non-GAAP numbers are allowed when it helps clarify financial numbers for investors. The SEC will not allow anything to be called non-GAAP if it’s misleading. Saying revenue is $100 and shoving a discount as a marketing expense is fraud and accounting 101. There’s literally no room for interpretation. What Uber does with non-GAAP ebitda numbers has no bearing on this conversation. We are talking about straight up revenue recognition and the example given in the original post is well understood.
In terms of X vs Pool, it depends on the risk that the company takes. If Uber advertises a fixed price for the customer but they pay their drivers a variable cost (time and distance) then there is risk that Uber takes less money than they predicted or even a loss. That is the Principal model and they take the gross. To be extremely clear, this is what they are supposed to do under GAAP. If you look at their 10K which I’m guessing you haven’t, they don’t call the driver payouts a “marketing expense.” They call it “Cost of revenue”.
If they charge a % on the ride and there is no risk of revenues changing, it’s an Agent model and they take the net. I don’t know what the current model is, but I believe in California it’s the Agent model now. Pool used to be Principal a few years ago but again I think things have changed in California. Other countries will have different models so it’s on Uber to make sure their accounting is correct in all jurisdictions.
The fact that there are different models and reporting options, and that those options vary across space and time, as well as that the average retail investor and news report lack any real insight in to what's going on plays in to the whole obfuscation, melodrama, and financial hype.
Whether one believes this is ok or nor, or a good to necessary is, I guess, an ideological persuasion.
The SEC steps in typically when they're certain of a ruling in their favour and when it is politically expedient to do so.
In order for regulators to proactively prevent all misbehaviour such organisations would need to be impractical huge and financially inconvenient to tax payers.
Rather, society generally tolerates some level of fraud / crime / misbehaviour, probably because the benefits out weigh the costs to liberty.
And we know with absolute certainly that fraud is occurring at scale and rarely prosecuted, so it doesn't follow that illegality results in absense of activity.
I think that these effective consumer subsidies are included in their "sales and marketing" budget.