With much market anticipation, Maplebear Inc., doing business as Instacart, a grocery technology company, filed for an IPO on August 25, 2023. Goldman Sachs is leading the IPO and Instacart plans to trade on the Nasdaq under the ticker “CART.”
Instacart’s vision is to “build the technology that powers every grocery transaction” and it operates in the largest retail category in the U.S. Instacart was co-founded by Apoorva Mehta, (current chairperson), Brandon Leonardo and Max Mullen in 2012 and created a new model for online grocery shopping by offering consumers on-demand delivery from the grocery retailers they know and trust. Today, Instacart is building a platform to enable retailers to digitize their businesses and consumers to have a modern shopping experience. This includes eCommerce solutions, fulfillment options, in-store technologies, advertising and data analytics. With more than 1,400 national, regional, and local retail banners across more than 80,000 stores that represent more than 85% of the U.S. grocery industry, Instacart is shaping the future of grocery.
In 2022, Instacart grew its gross transaction volume (GTV) to $28.8B, up 16% YoY, revenue to $2.6B, up 39% YoY, and orders to 261.5M, up 18% YoY. In the quarter ended Jun-23, the company recorded $716M of revenue, up 15% YoY and helped 7.7M customers place an order in the month of June, 2023. The company has also been profitable and cash flow positive generating $235M of Non-GAAP Operating Income and $242M of FCF in 1H-23. Instacart is headquartered in San Francisco, CA, has 3,486 employees (not including shoppers) worldwide and is led by CEO, Fidji Simo, who joined from Facebook in August 2021. The company was incorporated as Maplebear Inc. in 2012 and does business as Instacart.
Source: S-1
Product & Technology
Instacart has built a platform that aims to serve the entire grocery ecosystem including retailers (grocery stores), consumers, shoppers (shoppers + delivery drivers) and brands (CPGs). The key pillars of the technology are Instacart Marketplace, Instacart Enterprise Platform and Instacart Ads. By using shared technology, infrastructure and data, Instacart can continue to deliver benefits to all four of its constituents.
Instacart Marketplace
Instacart Marketplace launched in 2012 and quickly became the leader in online grocery shopping across North America. Through its marketplace, Instacart has built partnerships with more than 1,400 retail banners with more than 80,000 stores serving millions of households with same-day delivery. 1) Customers are able to search, discover, purchase and receive their grocery products from local retailers 2) retailers can serve their customers’ needs as to how and where they want to shop by supporting a wide array of fulfillment options, shopping occasions and categories and 3) shoppers leverage the marketplace to work where, when and how they want.
Instacart Enterprise Platform
Instacart Enterprise Platform is a technology solution that powers retailers across multiple aspects of their business. Key components of the platform include 1) the eCommerce storefront that is used by over 550 retail banners with tools like product discovery, merchandising, payment models and loyalty programs 2) fulfillment solutions that help retailers fulfill and deliver grocery orders directly from their stores through a community of dedicated shoppers. In most instances, Instacart shoppers pick, pack and deliver orders, but the solution can be used in a modular way. 3) Connect stores that create a unified, seamless and personalized experience across their online and in-store footprints. 4) Instacart Ads that open up new revenue streams for retailers to increase the profitability of online orders. Retail partners can also use Instacart’s suite of marketing solutions to grow their business and serve targeted promotions 5) Insights that give retailers visibility into their operations (e.g. item popularity, inventory/availability, order sizes, delivery times/ratings) leading to optimized operations and customer experiences.
Source: S-1
Instacart Ads
Instacart combines features of digital advertising with the ability to quickly and directly move products off store shelves. CPG brands and retailers are able to reach and influence customers at their point of purchase through ad forms like sponsored products, display ads, brand pages, and coupons while also gaining deeper understanding of consumer behavior.
Source: S-1
Platform Constituents
Instacart has a strong value proposition for its four key constituents.
Retailers
Instacart technology helps retailers navigate their digital transformations and succeed in the online grocery market through an end-to-end platform, advertising capabilities, customer communication, and shopping/fulfillment options. Instacart continues to increase product penetration within its top retail partners over time.
Source: S-1
As a result, Instacart helps retailers drive revenue at a faster growth rate as compared to the industry benchmarks for both offline and online grocery sales growth, while also realizing operational efficiency.
Source: S-1
Customers/Consumers
Instacart aims to provide customers a superior online grocery shopping experience with great selection (e.g. retailer, brands, personalization, fulfillment choice), value and convenience.
Source: S-1
The offering attracts a wide range of customers that tracks similarly to the economic and geographic composition of the U.S.
Source: S-1
Instacart also offers Instacart+, a subscription membership program that generally costs $99 per year or $9.99 per month. The membership saves customers money through waived/lower delivery and service fees. The average Instacart+ member saves more than $30 per month compared to customers without Instacart+. Instacart+ had 4.6M members in June, 2022 and has 5.1M members, up 11% YoY, as of June, 2023. Instacart+ members account for $8.5B of total 1H-23 GTV or 57% of total. On average, this translates to an Instacart+ member spending an aggregate of $461 over 4.0 orders per month, compared to an aggregate of $223 spent over 2.0 orders per month by a non-member. The greater engagement of Instacart+ members grows over time, with an Instacart+ member generating on average 6.2 times more GTV compared to a non-member in a five-year period.
For the remainder of the breakdown, customers, consumers and orderers refer to the same segment.
Brands
Instacart represents one of the largest and fastest growing eCommerce channels for CPG brands to reach millions of high-intent customers. The company provided discovery and attractive ROI, for 5,754 active brands in 2022, which was up 5.3% YoY, through advertising tools and insights purpose-built for the online grocery category. Instacart estimates that on average, ads on the platform deliver 15%-100% incremental sales lift.
Source: S-1
Shoppers
Instacart offers immediate and flexible earning opportunities for approximately 600k individuals. Shoppers are about two-thirds female, about half of them are parents, and they work on average about 9 hours per week, nearly half of which is spent shopping as opposed to driving. Since starting Instacart, shoppers have earned over $15B on the platform.
Business Model Summary
Instacart generates the majority of its revenue from fees (and subscriptions) paid on each order by retail partners and customers. Its second revenue line comes from advertising fees primarily paid by brand partners. In 2022, 71% of revenue came from transactions (up 43% YoY) and 29% from advertising and other (up 29% YoY). The revenue mix is consistent in the Jun-23 quarter.
The following chart illustrates the economics of a completed order on Instacart, based on the average order in 2022. The order represents a blended average of orders on Instacart Marketplace as well as retailers’ owned and operated online storefronts powered by Instacart Enterprise Platform. Instacart Marketplace and Instacart Enterprise Platform orders have comparable economics, which makes Instacart agnostic as to where orders happen.
Source: S-1
GTV is the value of the products sold based on prices shown on Instacart, in addition to applicable taxes, deposits and other local fees, customer tips (which go directly to shoppers), customer fees (which include flat membership fees related to Instacart+ that are charged monthly or annually) and other fees. Average order value (AOV) in 2022 was $110, which includes $16 in retailer and customer fees before netting shopper, customer incentives, coupons and refunds to arrive at transaction revenue. Total revenue averages $10 per order or 8.9% of GTV and cost of revenue ($3) includes payment processing fees, chargebacks, expenses hosting fees, insurance costs related to fulfillment and fulfillment employee costs resulting in $7 or 6.4% of GTV in gross profit.
GTM (Go-to-Market) and Summary Metrics
Instacart acquires retailers, consumers and shoppers through organic word of mouth and paid marketing. Instacart’s customer acquisition cost includes customer marketing expenses (77% of 2022 CAC) and customer incentives and promotions (23% of 2022 CAC). Instacart spent $625M on customer acquisition in 2022, up 60% YoY, and $353M in 1H-23, up 16% YoY. Notably Instacart does not report orderer trends so it is impossible to impute user acquisition cost, user retention or user churn.
Source: S-1
Instacart experiences seasonality in orders, GTV and advertising revenue on the platform. Spring and summer months exhibit lower usage, negatively impacting volumes in Q2, while 2H of the year volume grows during the back-to-school period and holiday season.
Instacart partners with more than 1,400 national, regional, and local retail banners across more than 80K stores that represent more than 85% of the U.S. grocery industry.
In the month of June, 2023, there were 7.7M monthly active orderers who spent approximately $317 per month, 5.1M Instacart members and ~600K shoppers.
In the quarter ended Jun-23, customers ordered over 1.2B items and discovered over 180M items through recommendations.
In 1H-23, GTV from new customers was 1.6 times higher than GTV from new customers in 1H-19.
In 2022, there were 5,754 active brand partners.
Since founding, Instacart has powered more than $100B of GTV and over 900M orders with approximately 20B items ordered. Shoppers have earned over $15B.
Instacart offers EBT SNAP payments from more than 120 retail banners across more than 10K stores in the U.S.
Instacart has approximately 350 patents in the U.S. that expire between 2023 and 2043, and approximately 400 patent applications globally.
COVID-19 Impact
Starting in March, 2020 and through the quarter ended Mar-22, Instacart’s growth was “significantly accelerated” by the COVID-19 pandemic. Growth rates have moderated since the subsiding effects of the COVID-19 pandemic. In addition, COVID-19 made seasonal fluctuations difficult to detect.
The COVID-19 pandemic and its variant outbreaks also resulted in a meaningful increase in spend across all cohorts due to increased consumer demand for grocery delivery and higher average order value, which was a large factor in annual GTV growth for cohorts during those years, including the growth trends highlighted in the Annual GTV by Cohort chart in the Cohort Metrics section. Not only is the 2020 cohort larger than other cohorts, it is also the only annual GTV cohort that has declining future GTV likely due to lessening health risks and government restrictions coming out of the COVID-19 pandemic.
Instacart provides an estimated COVID-influenced orders chart below and believes COVID-19 and its variant outbreaks had minimal impact on order volume from the Sep-22 quarter onward.
Source: S-1
Market Opportunity & Competition
The majority of Instacart’s revenue comes from the grocery market. Incisiv estimates the total U.S grocery market is $1.1T. Today, Instacart has a transaction revenue take rate of 8.9% of GTV implying a $69B addressable revenue opportunity. In 2022, online grocery represented 12% of the grocery market, up from 3% in 2019, and market research estimates 10-18% YoY growth rates through 2025. Overall, this implies Instacart had ~2.6% of the overall U.S. grocery market and the largest share of the online grocery market with 22% in 2022.
As grocery budgets shift online, advertising budgets will follow. CPG brands spend ~$200B a year in the US advertising their products, of which nearly 25% is through online channels implying Instacart had 1.5% of the total US CPG digital advertising spend market in 2022. Instacart had a 2.6% ad-revenue take rate on GTV implying a $28.6B advertising revenue market opportunity.
YipitData suggests from January 1st, 2020 to June, 30th 2023 that Instacart has the leading grocery market share among its online competitors (Amazon, Shipt, Gopuff, Uber Delivery and Doordash) for basket sizes of both $0-$75 and $75+.
Source: S-1
Ownership, Pre-Offering
The S-1 does not provide entity ownership amounts, but lists Sequoia Capital and D1 Capital Partners as the only two 5% pre-offering stockholders. Other listed institutional investors include Andreessen Horowitz.
Preferred Stock Prices by Series
According to Pitchbook, Instacart’s last round was a Series I raised in March, 2021 at an implied value of ~$39B and the Series H was raised in October, 2020 at an implied valuation of ~$17.7B.
Source: Pitchbook
Acquisitions
Since 2021, Instacart has completed four total acquisitions. Most notable given its scale was the purchase of SBOT Technologies, doing business as Caper, a technology enabled shopping cart and checkout platform unifying the online and in-store commerce experience for retailers. Caper was acquired for $287M of total consideration.
Source: S-1
Financials and Other Metrics Output
Instacart has impressive financial performance. Despite the volatility of transaction based business models, Instacart has grown revenue YoY for eight straight quarters and has been GAAP profitable for the last five quarters. Even as the COVID-19 surge subsided, Instacart has proven to have a strong economic model that can produce attractive growth, margins and cash flow.
Historical P&L & Metrics ($M)
Source: S-1
Quarterly Gross Transaction Volume (GTV) ($M)
Source: S-1
Quarterly Revenue Run-Rate ($M) & Implied Net New Revenue Run-Rate ($M)
Source: S-1
Revenue by Type (%)
Source: S-1
Quarterly Non-GAAP Gross Margin and Operating Expenses as a % of Revenue
Source: S-1
Quarterly GAAP and Non-GAAP Operating Margin and Adjusted EBITDA Margin
Source: S-1
Cash Flows ($M)
Instacart currently has $2.0B of cash, cash equivalents and marketable securities.
Source: S-1
Revenue Mix by Geography (%)
In 2022, the U.S. represented 97% of total revenue. No individual international country represented 10% or more of the international revenue implying at least 10 countries with insignificant existing Instacart revenue. Canada operations launched in December, 2017 and Instacart does not have plans to launch significant operations in any specific geographic areas currently.
Source: S-1
Quarterly Orders and AOV ($)
Source: S-1
Quarterly Revenue & Gross Profit per Order ($)
Source: S-1
Quarterly Income Statement ($M)
Source: S-1
Cohort Metrics
Instacart provides insight into customer cohorts across multiple analyses and charts. On a GTV and gross profit basis, Instacart appears to have sticky and consistent cohorts outside of the impact of COVID-19 as described above.
Annual GTV by Cohort
Outside of the 2020 COVID-19 impacted cohort, each annual cohort increases GTV in every subsequent year.
Source: S-1
Average Monthly Orders and GTV per Monthly Active Orderer
We know that Instacart experiences user churn with each cohort, but orderers who remain active increase monthly order volume and monthly GTV each subsequent year. This is likely a combination of churning of the least engaged customers as well as increasing engagement across customers who remain with the platform.
Source: S-1
Quarterly GTV by Annual Cohort
Quarterly GTV by annual cohort indexed to the quarters ended Mar-22 and Jun-22 depicts minimal cohort degradation in 1H-23. Though each annual cohort contracts with more recent annual cohorts performing worse than earlier cohorts.
Source: S-1
Gross Profit (Loss) by 1H Cohorts
Gross profit by 1H cohorts illustrate the steady improvement Instacart has driven on gross profit per GPV over time, with all cohorts achieving their highest gross profit as a percent of GTV in 1H-23.
Source: S-1
Valuation
Instacart will trade like other on-demand consumer marketplaces, on a multiple of forward EBITDA. For comparable multiples in the U.S. we can point to DoorDash in the restaurant delivery market and ride-sharing companies Uber and Lyft. Interestingly, DoorDash filed its S-1 at a similar GTV scale (~$7B per quarter) almost three years ago in November, 2020 (DoorDash S-1 Breakdown here). It is also helpful to look at international on-demand food marketplace comparables like Just Eat, Delivery Hero and Meituan.
Source: CIQ as of 29-Aug-2023
The output below uses NTM (next-twelve-months) EBITDA based on an illustrative range of growth rates and comparable EV (enterprise value) / NTM EBITDA multiples. As mentioned in other posts, companies do not release projections or guidance in S-1's and it is difficult to project top-line growth and margin given the stage of Instacart’s business. With that said, we expect Instacart to trade at ~20-25x NTM EBITDA, implying an EV of ~$15B.
Source: S-1 and CIQ as of 29-Aug-2023
Instacart is a unique company, the type of market leading business that is already garnering interesting demand. Pepsico has agreed to purchase $175 million of Series A stock at a conversion price equal to the IPO price. In addition, TCV, Sequoia Capital, D1 Capital Partners, and Valiant Capital Management have offered an indication of interest in purchasing shares of up to approximately $400 million in the IPO at the IPO price. Given timing, Instacart should be public by Thanksgiving and will be highly anticipated by all investors as it will act as a barometer for the market’s appetite for additional technology IPOs in 2023 and 2024.
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Special thanks to my partners Michael Springer and Dan Knight for their help on this post.
No investment advice.