Food delivery company DoorDash (NYSE:DASH) announced it will be laying off about 6% of its workforce, equivalent to roughly 1,250 employees. What do DoorDash layoffs mean for the company? As per a memo from Chief Executive Tony Xu, the delivery platform is attempting to lower costs following a surge in business during the pandemic:
“Our business has been more resilient than other ecommerce companies, but we too are not immune to the external challenges and growth has tapered vs our pandemic growth rates. While our business continues to grow fast, given how quickly we hired, our operating expenses – if left unabated – would continue to outgrow our revenue.”
DoorDash joins a host of tech companies forced to lay off employees in the face of rapidly rising interest rates and deteriorating economic conditions. Food delivery services in particular have felt a notable slowdown in growth as the pandemic-fueled demand begins to wane.
“We’re confident that we have reset the size and shape of our organization to match our strategic priorities. We must keep this level of discipline moving forward,” Xu said.
DoorDash Layoffs Spark Stock Surge
Despite the grim nature of the news, it seems investors can only find the bright side of DoorDash’s staffing cuts. DASH stock is up 8% today on an otherwise strong day for the markets. The Nasdaq is up more than 3% while the S&P 500 hovers close to 2% in the green, in no small part due to DASH stock.
DoorDash has generally only flirted with profitability since it went public in 2020. In November, DoorDash failed to meet earnings expectations, reporting a loss of $296 million in Q3, largely off the back of rising costs. The company reported costs jumped 46% to around $2 billion.
DASH’s jump today isn’t entirely unexplainable. Much of the company’s current margin pressure is due to its strong growth the past few years. A problem of growing too fast may in fact read as a bullish indicator to some investors who see DASH stock as being undervalued. Indeed, DoorDash stock is down 60% this year, currently trading around $58 per share. This is actually an improvement from October’s $43 per share reading, representing an 80% year-to-date decline.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.