Instacart (Maplebear Inc.) (NASDAQ:CART) Q1 2024 Earnings Call Transcript

Instacart (Maplebear Inc.) (NASDAQ:CART) Q1 2024 Earnings Call Transcript May 8, 2024

Instacart (Maplebear Inc.) isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to Instacart’s First Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Rebecca Yoshiyama, VP of Investor Relations, Capital Markets and Treasury. Please go ahead.

Rebecca Yoshiyama: Thank you, Josh and welcome everyone to Instacart’s first quarter 2024 earnings call. On the call with me today are Fidji Simo, our Chief Executive Officer; Nick Giovanni, our current Chief Financial Officer; and Emily Reuter, our current Vice President of Finance and Incoming Chief Financial Officer. After brief prepared remarks, we will open up the call for live questions with Fidji and Emily. During today’s call, we will make forward-looking statements related to our business plans and strategy, future performance and prospects, including our expectations regarding financial results, partnerships, equity issuances and share repurchases. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated.

You can find more information about these risks and uncertainties, including those related to the classification of shoppers on our platform in our last Form 10-K filed with the SEC. We assume no obligation to update these statements after today’s call, except as required by law. In addition, we will also discuss certain non-GAAP financial measures, which have limitations and should not be considered in isolation from or a substitute for our GAAP results. A reconciliation between these GAAP and non-GAAP financial measures is included in our shareholder letter, which can be found on our Investor Relations website. Now I’ll turn the call over to Fidji for her opening remarks.

Fidji Simo: Thanks, Rebecca. Hi, everyone. I hope you had the chance to read our shareholder letter, which highlights our strong start to 2024 and how we are continuing to raise the bar across all the most important dimensions of groceries. As the largest online grocery marketplace in North America, we provide 98% of families with access to delivery and pickup from over 1,500 retail banners who represents more than 85% of U.S. grocery sales. On top of the best selection, 45% of our orders are accepted by shoppers who are already at or within a mile of the store, which means your first item is often being picked out faster than it might take you to get out of the front door. Our shoppers also have the advantages of experience and our technology.

A delivery truck filled with grocery items heading to a local school.

With shopper tenure on the platform at an all-time high, constant improvements to our models and in-store tools like planograms, shoppers can complete orders faster and with more accuracy. Simply put, no other marketplace offers a leading customer experience we provide at the scale and competitive cost we deliver it at. And now by partnering with Uber, we are giving people more of what they are looking for. By bringing on hundreds of thousands of restaurants to Instacart overnight, we are creating an unmatched combination of grocery and restaurant options for Instacart customers. The Instacart app can now serve more of our customers’ food needs and our Instacart Plus membership becomes twice as valuable with no delivery fee on grocery and restaurant orders over $35.

By giving our customers more reasons to turn to Instacart, we believe we’ll also be able to drive more sales and growth opportunities for our retail and brand partners, which remains our top priority. Overall, I am excited for what’s ahead for Instacart in 2024 and beyond. We have a strong operating foundation, a relentless focus on profitable growth, and we are executing well on our vision to build the technologies that are transforming the grocery industry. So it is with great confidence that we announced Emily Reuter as our next Chief Financial Officer. Nick will retire at the end of Q2 and Emily’s role is affected immediately after we file our Form 10-Q, which is expected later this week. As Nick and I discussed the best CFO profile for our future business, I wanted someone with a depth of operating experience in a complex marketplace business similar to our own.

We found out and more in Emily and she has been contributing enormously since she joined in January. Emily is undoubtedly the best CFO to help drive Instacart’s future. I want to thank Nick for his exceptional contributions over the past few years. By instituting a new level of financial rigor across the company, Nick helped transform our business into one that deliver strong profitable growth and was one of very few tech companies that could make a successful public market debut last year. Now I’ll turn the call over to Nick to provide a few remarks.

Nick Giovanni: Thank you, Fidji. It has been an incredible 3.5 years, and I’m very proud of what we have accomplished together at Instacart. The level of execution and teamwork required to create a sustainable, profitable and growing company and then to take it public after the longest tech IPO drought in history was one of the most satisfying experiences I’ve had in my career. Instacart is in a great position as the clear leader with strong operating fundamentals. And after working closely with Emily over these past several months, I am certain that our team, our partners and our shareholders cannot be at better hands. It has been a pleasure engaging with all of our investors and analysts over the past few years. Thank you all. And with that, I’ll step off the call and turn it over to Emily.

Emily Reuter: Thank you, Fidji and Nick. Since joining Instacart in January, I’ve become even more bullish on the company’s future. I joined Instacart because of its clear leadership position with an online grocery and its impressive vision for the future of grocery technology. I am now even more confident in our ability to capture our share of the massive market opportunity ahead. My confidence is driven by a few things: the depth of our technology integrations as well as the breadth of our longstanding retailer and brand partnerships, our ability to deliver a great customer experience. This means having the best selection combined with high-quality service, all at the price and speed customers want it, our cost-to-serve advantage underpinned by our ability to fulfill multiple big basket grocery orders from the same store at the same time.

This allows us to generate efficiencies from batching while also giving shoppers more earnings opportunities. And finally, we aren’t just focused on delivering results for the next few quarters or years. We are investing in technologies that will shape the future of grocery and grow the pie for all our stakeholders. I could not be more excited to work with our teams to drive even more profitable growth for Instacart as we work to further extend our lead across all of these dimensions. I also want to thank Nick for his support over these past few months and Fidji for her inspiring and collaborative partnership from day 1. Now, let me provide more color on our financial results and outlook. Q1 was an exceptionally strong quarter for us with both GTV and adjusted EBITDA beating the high end of our guidance ranges.

On one hand, our outperformance in GTV was driven by a continuation of trends we have been discussing. This includes improving cohort dynamics consistent with what we’ve said in the past, which is our mature cohort declines continued to improve and our new cohorts continue to be bigger than pre-pandemic cohorts. It also includes a lessening year-over-year EBT SNAP headwinds, which had the biggest impact in Q4 and a smaller impact in Q1, primarily because of the successful EBT SNAP launches with Kroger and Costco. On the other hand, our year-over-year GTV growth in Q1 also benefited from a number of one-time things. This included just over 1 percentage point of growth from Leap Day in addition to the stronger-than-expected seasonality as Q1 2024 was an exceptionally bad winter season, especially compared to the prior year quarter.

After taking all of these factors into consideration as well as what we’ve seen so far in this quarter, we arrived at our Q2 GTV guidance of $8 billion to $8.15 billion, representing 7% to 9% year-over-year growth. This growth output is a bit lower than Q1, primarily because we don’t expect the benefit of inclement weather. While Q2 growth will not have the benefit of Leap Day, we largely expect this to be offset by EBT SNAP moving from a modest year-over-year headwind to a tailwind from Q1 to Q2. Overall, our Q2 GTV outlook represents a sustained step-up versus the 5% year-over-year growth we delivered in 2023. We are also guiding to strong Q2 adjusted EBITDA of $180 million to $190 million and are well on track to delivering adjusted EBITDA expansion in full year 2024 on both an absolute and percentage GTV basis.

One important thing to note about our adjusted EBITDA outlook is it reflects our ability to manage multiple levers across our P&L to drive leverage. In Q2, we expect advertising and other revenues to grow largely in line with what we experienced over the past two quarters. This means our adjusted EBITDA as a percentage of GTV is expected to grow year-over-year, primarily driven by transaction revenue and adjusted OpEx leverage. We are also continuing to take a disciplined approach to equity management. We continue to expect net dilution to be in the low single-digits before any share repurchases. And in 2024, we are committed to making sure that the net value of equity we grant employees this year is less than the adjusted EBITDA we delivered in 2023.

We are confident in our ability to execute and generate more shareholder value over time. This is why we cumulatively repurchased approximately 27 million shares for $751 million by the end of Q1. As of March 31, we had $249 million of remaining share repurchase capacity and plan to continue opportunistically repurchasing shares. Overall, our business is performing well and our operating fundamentals are solid. We remain relentlessly focused on making our service better, deepening our leadership position and innovating with new technologies like [indiscernible] and our partnership with Uber. While we don’t expect these new growth initiatives to immaterially impact our financials in Q2, we believe that they have the potential to drive more value to consumers and growth to our retail and brand partners over time.

We also expect all of this will help us drive more profitable growth and progress towards our long-term financial targets over time. We’re excited about the future, and we appreciate your support as shareholders. With that, Fidji and I are here to take your questions. Operator, you may now begin.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Eric Sheridan with Goldman Sachs. You may proceed.

Eric Sheridan: Thanks for taking the question and Nick, thanks for all the assistance and help over the years and Emily best of luck in the role going forward. Maybe I’ll ask sort of a 2-parter. In terms of the building blocks of GTV growth, as you think medium to longer term, can you unpack how you’re thinking about the broader consumer demand on the platform, the input of sort of continued supply growth more broadly? And how to think about simulating rising utility amongst your user base as we think about sort of longer-term objectives around GTV against broader industry growth? Thank you so much.

Fidji Simo: Thanks, Eric, for the question. So we are still very excited about the long-term growth that we anticipate in a market that is still moving online and still deeply underpenetrated online. What we see as the building blocks of that long-term growth are kind of the same things that are making us succeed today and allowing us to have this leadership position. Number one is selection. We continue to have leading selection and we are, in fact, continuing to increase the selection, not just in grocery, but now also adding a new use case with restaurants who are able to add hundreds of thousands of restaurants overnight, which will create a new use case for the app. Quality, is absolutely critical. You can see in the latter more details on how we continue to improve that and be at an all-time high since the pandemic on fund rate and fuel rate.

And we have a real leadership position there with not only a very healthy shop of supply, but shoppers that are highly qualified and at the highest of their tenure right now. We also see speed being a critical advantage, which again, is tied to our shopper supply with 45% of shoppers being at the store within a mile of the store. And that means that we can deliver these orders faster than anyone, and we know that speed matters enormously in this market. The last one is affordability. That remains the thing that we need to keep working out to continue expanding the TAM, and we are hard at work on it through a multipronged approach, where we are adding a lot of different savings, whether that’s from retailers, from CPGs, loyalty programs, weekly flyers and really working with retailers on optimizing their pricing so that the customer that buys online field are getting maximum value.

And you’re seeing us make progress on that as well with $4.75 saved on items per order, which is up 20% year-over-year. So these components aren’t changing. They are what’s going to drive long-term growth. And every quarter, you’re going to see us talk about how we’re making progress on all of them to really activate the growth. Now at a macro level, we have also talked about the fact that mature cohorts improving quarter-after-quarter as we saw again this quarter is definitely a big driver of long-term growth as well as new cohorts continuing to get bigger which is certainly what we’ve seen in ‘23 and now in ‘24 compared to pre-pandemic. So we feel very well set up for the long-term.

Operator: Thank you. [Operator Instructions] Our next question comes from Nikhil Devnani with Bernstein. You may proceed.

Nikhil Devnani: Hi. Thanks for taking the questions. I wanted to ask about reinvestment, please. It looks like your transaction revenue stepped up a bit sequentially, and sales and marketing was sort of full flattish as a percent of GTV sequentially as well. Given you beat the guidance pretty comfortably on EBITDA, did you look at the possibility of reinvesting some of that excess profit to support growth for the rest of the year? I guess, why not go on the front foot more? Was it simply a lack of ROI on some of that investment? Or did other factors come into play as well? Thank you.

Fidji Simo: So I want to be clear that we actually did reinvest to support growth. And that’s not always seen in the Southern marketing line, sometimes it’s in the incentive line, which is contra-revenue. And the reason we have been able to reinvest to support growth while having high confidence that this will return is because we have really overhold our incentive system in the last year to be able to really target the right incentives to the right customers at the right time to drive long-term value, to drive habituation, to drive more engaged customers. And so what you’re seeing us do is actually reinvest heavily into the business to continue to support that growth. That may not appear in the numbers immediately because we take a long-term view to this reinvestment.

And so some of these incentives or marketing might be driven at long-term retention, like, for example, getting you to adopt one more retailer or one more category or buying from a club, all of which are predictors of long-term retention and higher health EV. And so you might see that play out over the longer term rather than in quarter, but we are very much investing in the business and don’t feel limited in our ability to invest.

Nikhil Devnani: Got it. Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from Ross Sandler with Barclays. You may proceed.

Ross Sandler: Hi, Fidji. Just a couple of questions on these partnerships. So I guess, first, maybe we can clear the air on the Amazon Alice in the room. You guys work with Whole Foods in Canada. It sounds like Amazon is going to go another push here with their new pricing mechanism for Prime in the U.S. I guess, what’s your view on that? And is there any reason why at some point in the future, not exclusive or whatever, you couldn’t go back to working with Whole Foods. That would be first question. And then the second one is on the Uber partnership. I guess just how big do you think this could be? And do you think that restaurant ordering will be just folks that are IC Plus members who kind of order a-la-carte from food delivery apps or do you think there’s like a high overlap of Dash pass subscribers that might come over and use Instacart now? Thanks a lot.

Fidji Simo: Thanks, Ross. So on Amazon specifically, I would say Amazon has experimented with many different pricing structures over the years. We have been testing this add-on subscription for some time. And within this contract, we remain very confident that we still have the winning customer value prop and some critical advantages. We have the best selection, 1,500 retail partners, reaching 98% of households. We know how much selection matters in this market. That’s a key advantage. We also have a key advantage on speed. As I said, 80% of our orders are on demand, half of which are priority whereas in case of Amazon, you have to schedule orders far in advance. And we know again that speed matters a lot in this market we really have the best value within Instacart Plus being $99 a year, now twice as valuable with the addition of restaurants and not requiring an extra subscription.

So we feel really good that under any construct from this competitor, we will be able to continue gaining share as we have in the past. We work with them in Canada. We are pleased with the results. There is no reason why we wouldn’t be able to expand to Whole Foods, but that’s their decision, not ours. We would be thrilled to work with them, but that’s for them to decide. Now on the Uber side, I’m really excited about the partnership. I think this is adding enormous selection overnight at positive unit economics, which as you know, is really hard to pull off when you enter a completely new category. So we think this is something that’s going to be incredibly accretive to the Instacart user. And on your more specific question on which type of usage do we see, we actually see that we have a lot of incremental audiences that Uber does not have especially in family, especially in the suburbs, which is a big part of why this partnership is also valuable to them and we are going to be aggressively wanting to convert these customers into restaurant customers.

We know that our customers already go to other apps to order restaurants. That’s why we decided to prioritize entering this category. And I think with the value proposition of Instacart Plus, which is not increasing in price despite adding all restaurants and free delivery above $35 from both grocery and restaurants. We have a very strong value proposition here with leading selection in grocery and leading selection in restaurants. So we’re really excited about our ability to try new users and convert our existing users to become restaurant customers as well and as a result, makes them more engaged.

Operator: Thank you. [Operator Instructions] Our next question comes from Jason Helfstein with Oppenheimer. You may proceed.

Jason Helfstein: Thanks for taking the questions. Just two questions. So you had some comments about expanding to pick up. Just how do you think about like what are the savings that a customer gets when you pick up? And do you think this better positions you to compete with Walmart, obviously predominantly grocery. And the second question, just to Uber, can the economics work to expand the partnership so that they would actually offer your grocery offering on their app. So, open-ended question on that. Thank you.

Fidji Simo: Thank you. So on pick up. Pick up is a big part of our affordability strategy because it is a cheaper option for people who value price over convenience. And so that’s why we’re focused on it. And that’s why we actually made it free this quarter to use pick up so to your point on the savings, it’s a great option for people who may not have the time to get inside the store and want to benefit from those time savings, but don’t want to pay the cost of delivery. And we see that it is, in fact, a different customer because 75% of pick up orders are incremental. Now pick up a smaller part of our overall business in big part because we started with grocery, but it support that continues to grow, and we continue to expand with large process, like Kroger, Albertsons, many more to continue to grow the pick up business.

So we’re excited about it, but it is a smaller part of our overall business. As for your question on Uber and grocery, to be clear, this partnership was very focused about us entering restaurants. We are still going to compete in grocery. And we continue to have leading category share in grocery. So this is something that we’re excited to continue to sell that.

Operator: Thank you. [Operator Instructions] Our next question comes from Colin Sebastian with Baird. You may proceed.

Colin Sebastian: Great, thanks. And Nick, all the best to you on your next steps and Emily, welcome and congrats. Looking at the advertising revenue opportunity, this seems like still an area that’s a significant opportunity as you engage with more CPG and brand advertisers. And so looking at that business, looking at the take rate, if you could perhaps maybe update us on the roadmap there any specific platform enhancements or products this year that we should pay attention to and ultimately, Fidji, your vision for advertising on the platform? Thank you.