Q1 2024 Earnings Summary
- Positive Consumer Response and Retailer Adoption of Caper Smart Carts Leading to Larger Basket Sizes and New Advertising Revenue Streams: Consumers are absolutely loving the Caper smart carts, leading to larger basket sizes compared to traditional carts, which encourages grocers to adopt them. Instacart expects to have thousands of carts deployed by the end of the year, with potential to scale significantly. This not only enhances customer experience but also introduces a new incremental line of business through in-store advertising on the carts' screens.
- Strong Long-Term Growth Driven by Leading Selection, Expansion into Restaurants, High Quality and Speed, and Focus on Affordability: Instacart is well-positioned due to its leading selection, now including hundreds of thousands of restaurants added through a partnership with Uber. With 45% of shoppers at or within a mile of the store, Instacart can deliver orders faster than competitors, and continuous improvements in affordability—such as increasing customer savings by 20% year-over-year to $4.75 on items per order—are expanding the total addressable market.
- Significant Potential for Growth in Advertising Business Through Partnerships and Leveraging First-Party Data: Instacart maintains high conviction in its long-term target of advertising reaching 4–5% of GTV over time. By partnering with platforms like NBC Universal, Instacart leverages its unique customer data to enhance advertisers' performance on other platforms, creating new revenue streams and increasing advertiser value in a world where cookies are going away.
- Instacart's advertising revenue growth is at risk due to high concentration among a few large brands, and pullbacks from these advertisers can have an outsized impact on revenue. The company mentioned that certain large alcohol brands have pulled back spend, significantly affecting their overall growth rate. This concentration risk could continue to negatively impact advertising growth.
- Contracts with major retailers are typically only 1 to 2 years and are not exclusive, increasing the risk of losing significant partners to competitors. When retailers go non-exclusive and work with other platforms, Instacart may face increased competition and potential loss of revenue. The non-exclusive nature of these contracts could lead to retailers decreasing investment in the Instacart platform.
- Despite reinvesting to support growth, Instacart may face challenges sustaining growth momentum, and there is uncertainty about the return on these investments. While the company is reinvesting profits into incentives to drive growth, some of these investments may not yield immediate returns and could impact margins. There is also concern about mature customer cohorts declining and whether reinvestment efforts are sufficient to offset growth headwinds.
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Reinvestment Strategies
Q: Why not reinvest excess profit to support growth?
A: The company did reinvest to support growth, focusing on targeted incentives and marketing to drive long-term value and habituation. They overhauled their incentive system to invest in areas that drive long-term retention and higher lifetime value, reinvesting heavily in the business even if it doesn't show immediately in the numbers. -
Advertising Revenue Outlook
Q: What's the roadmap for advertising revenue growth?
A: The company maintains high conviction that advertising will reach 4–5% of GTV over time, though growth won't be linear. They continue enhancing measurement, targeting, and optimization capabilities, and are expanding their platform beyond the Instacart app through partnerships with Google, NBCUniversal, and The Trade Desk. They are also powering ads on retailers' websites and in-store via Caper Carts. -
Customer Cohorts & EBT SNAP
Q: Can you provide color on customer cohorts and EBT SNAP benefits?
A: Mature cohort declines continued to improve in the quarter, and new cohorts are bigger than pre-pandemic. The strong Q1 performance benefited all cohorts, but some acceleration may not repeat in Q2. The launch of EBT SNAP partnerships with Kroger and Costco helped mitigate headwinds, and as they lap the expiration of benefits in Q2, the overall impact is modest, offsetting about 1 percentage point of growth. -
Competition & Contract Length
Q: What's the defensibility of contracts and risks with Walmart and Amazon?
A: Contracts typically last 1–2 years and vary in timing, with no imminent cliff. Exclusivity is not the strategy; instead, they focus on being the partner of choice by driving growth for retailers. The company believes its competitive advantages in fulfillment, scale, and technology make it the smarter choice for retailers, even as they work with competitors like Walmart and Amazon. -
Uber Partnership Financials
Q: How will the Uber partnership impact financials and ramp up?
A: The company will receive an affiliate fee from Uber for orders sent to them, and the deal is positive unit economics from day one. They expect to invest to ensure the service's success and adoption, focusing on making Instacart a more engaging app with more Instacart Plus subscribers, and enhancing overall business rather than just driving restaurant orders. -
GTV Growth Drivers
Q: What are the building blocks of long-term GTV growth?
A: Key drivers include leading selection, improving quality, speed of delivery, and affordability. The company continues to expand selection, improve fulfillment rates, leverage a highly qualified shopper supply, and focus on affordability through savings and optimizing pricing. Mature cohorts improving and new cohorts growing bigger also contribute to long-term growth. -
Strategic Moats & Operating Data
Q: What strategic moats exist from your operating data?
A: The company has amassed over 10 years of operating data, providing significant advantages. This data enhances prediction models, enables better customer experiences with personalized recommendations, and improves operational efficiency with accurate inventory predictions and shopper guidance through planograms and receipt analysis, leveraging technologies like LLMs. -
Affordability & Consumer Outlook
Q: How are you addressing affordability and what's your consumer outlook?
A: The company obsesses over affordability, increasing savings per order by 20% year-over-year to $4.75 through loyalty programs, retailer-funded deals, digitizing weekly flyers, and offering more affordable delivery options like Pickup and No Rush. They see a resilient consumer but note that lower-income customers are stretching budgets, so they aim to help them meet their needs efficiently. -
Smart Carts Deployment
Q: What's the outlook for smart carts deployment and scaling?
A: Grocers are excited by consumer reactions to Caper Carts, noting larger baskets and enhanced experiences. The company expects to have thousands of carts deployed by year-end and believes scaling to more stores is feasible, with advertising revenue from carts helping justify deployment costs. -
Enterprise Segment Evolution
Q: How is the enterprise segment evolving and contributing to growth?
A: The company remains agnostic between marketplace and white-label services, deepening enterprise relationships by powering multiple solutions like storefronts, fulfillment, catering, and ads. This integrated approach strengthens partnerships with grocers, allowing them to benefit from a comprehensive product suite and driving growth in the enterprise segment. -
NBCUniversal Partnership
Q: What's the potential of off-platform advertising with NBCUniversal?
A: The company leverages its unique customer data to help advertisers identify target audiences, partnering with platforms like NBCUniversal to extend reach. While still a small part of the business, they see potential in offering high-quality third-party data to advertisers hungry for targeting capabilities, with plans to scale in 2025. -
Expansion to Pickup Services
Q: How does pickup service expansion benefit customers and competition?
A: Pickup is a key part of the affordability strategy, offering a cheaper option for price-sensitive customers. By making pickup free, the company provides time savings without delivery costs, and sees it as incremental business. Expanding pickup services helps better position them against competitors like Walmart. -
Leadership Goals
Q: Emily, what are your goals in your new role?
A: Emily plans to focus on finding attractive investment opportunities for growth, creating a strong portfolio of offerings, and deepening the company's leadership position. She aims to invest in opportunities while driving operating leverage and improving profitability, leveraging her experience in competitive markets to partner closely with the team.