Instacart reports Q3 revenues up 14% in 1st earnings call

In its first earnings report since going public in September, San Francisco-based delivery grocery company Instacart reported $764 million in revenue for the quarter, up 14% from the same quarter last year. 

Orders were up 4% year over year to 66.2 million, helping to drive Instacart’s gross transaction volume (GTV) of $7.49 billion, an increase of 6% from Q3 2022. 

The company experienced a GAAP net loss of $2 billion, driven mostly by Instacart’s decision to go public, which resulted in $2.6 billion in stock-based compensation expense “that was significantly elevated in the period of our initial public offering,” the company said.  

Instacart’s earnings before interest, taxes, depreciation and amortization, also known as EBITDA, were up 120% to $163 million compared to the same period last year.

The company's stock price dropped 4.32% to $27.24 during regular trading on Wednesday, down from its opening price of $42 a share and its initial public offering price of $30.    

Instacart currently partners with more than 1,400 retail banners at more than 80,000 locations—that collectively represents more than 85% of the U.S. grocery market, CEO Fidji Simo said during the earnings call.  

Along with expanding its retail partnerships, Instacart said it also is working with grocers on integrations to give customers greater access to its services, such as providing “access to ‘full store’ catalogues of more than 1 million unique products,” loyalty programs, service options like delivery or pickup and payment alternative such as SNAP (Supplemental Nutrition Assistance Program) benefits. 

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“We are confident in our position, even as several macroeconomic factors work against the online grocery industry: COVID is no longer a tailwind, consumers are receiving less government aid, interest rates remain high and inflation persists,” Simo wrote in a letter to investors. “Given our substantially larger scale, these headwinds impact us more than smaller, new entrants. While we expect these and other factors to continue to dampen our current and near-term growth, they do not change our long-term view on online grocery adoption or our competitive advantages.” 

Simo said in reporting the company's first public earnings that Instacart is the “clear leader among digital platforms in online grocery,” noting that company currently accounts for more than half of all small baskets under $75 and maintains a more than 70% share of large basket sales over $75. 

“These are all critical distinctions because approximately three-quarters of online grocery, and likely even more of the profits, hits in large baskets of $75 and above,” she said. “While our business continues to be impacted by several macro headwinds, our competitive advantages put us in a much better position to navigate this period and come up stronger.” 

The company’s ability to convert small-basket customers to large-basket customers is five times that of its competitors “especially new entrants coming more from the restaurant delivery side,” Simo said, adding that means greater fulfillment efficiencies and advertising opportunities for the company. 

The investor letter reported that Instacart has about 5,500 advertisers on the platform, which is not only building a major revenue driver for the company, but also enhancing its measuring capabilities, enabling brands to build “more customized, integrated ad experiences” on the Instacart’s online marketplace.  

Simo said the focus on advertising involves attracting new brands as well as deepening the investment rate of its existing advertisers “by continuing to show them the value of the platform.”  

While advertising revenue is helping to grow the company, economists and others in the industry have speculated that it could become a problem for Instacart, since those ad dollars are hitting the bottom line of its grocery partners. In a filing with the Securities and Exchange Commission prior to the IPO, Instacart reported that its $406 million in ad revenue made up more than a quarter (28%) of revenue for the first half of the year.  

Asked about how the company addresses the issue, Simo said the question assumes that the advertising budgets of Instacart’s retail partners are finite. "What we’re actually seeing is that because we are able to really demonstrate performance of advertising online, CPGs are starting to unlock more ad dollars,” Simo said.  

“If you look at the rest of the advertising industry, that’s certainly been the case in ecommerce,” she added. “And now that retail media platforms as measurable as ecommerce advertising, we’re starting to see similar trends in CPG advertising, which is really promising.” 

Another area of promise for the company moving forward is its ability to process SNAP benefits in all 50 states and its new partnerships with retailers accepting SNAP, such as BJ’s Wholesale Club, the delivery company’s first warehouse retailer to accept SNAP through its platform.  

“As you know, it has been more of a headwind this year with SNAP benefits being cut by 30%, but we expect that to go back to being a tailwind for the business as we onboard new partners,” she said in the earnings call.  

Simo said in the investor letter that in addition to growing adoption of its online services, Instacart continues to build its presence in-store through technologies such as its AI-powered Caper Carts. “This is important because even if online grocery penetration doubles or triples over the next several years as market studies expect, approximately two-thirds or more of grocery sales would still occur at brick-and-mortar stores,” she wrote.  

She noted that the carts also give customers access to their Instacart shopping lists and personalized promotions while they’re walking the aisles. "Building upon momentum with Bristol Farms, Kroger, Sobeys, Wakefern and others, our Caper Carts are coming to Geissler’s Supermarket, Gelson’s and Schnucks stores starting this year and throughout 2024,” she noted.