Nick Giovanni: And Eric on your question around returning capital, we announced a $500 million share repurchase authorization in November. Through February 9th, while the lockup was still in place, we repurchased $70 million. And we talked on the last call about wanting to be balanced while the float was still very low in the aftermath of the IPO. Now, the float should increase when our lockup release comes off on the 15th. And so ahead of that, we received authorization to increase by an additional $500 million our share repurchase authorization, and we plan to be opportunistic in the market as volumes increase. That’s only part of how we manage dilution. It starts with managing headcount, managing the equity that we give out to employees.
We’ve introduced last year a cash equity choice program, which allows us to reduce the amount of equity that we give in exchange for more cash. And we care very deeply about making sure that we can reduce dilution over time. And so our share return program is not just about offsetting dilution. It’s about opportunistically repurchasing shares in addition to everything else that we do to manage dilution.
Eric Sheridan: Appreciate the color. Thank you.
Operator: Thank you. Our next question comes from the line of Nikhil Devnani of Bernstein. Your line is open.
Nikhil Devnani: Hi there. Thanks for taking the question. Just a couple, please. So given the breadth of selection you have already, it seems that user growth is increasingly important to the GTV equation going forward. So, what kind of user growth do you think is feasible over the medium term? And how would you characterize the contribution of new customers as well today versus in years prior? So, the extent to which new customers are still driving this GTV equation even after kind of the COVID influx that we saw? And then as a follow-up, when I look at the Q1 guide, what would cause that adjusted EBITDA to step down, given your topline is improving and you’ve taken some headcount costs out as well? Thank you.
Nick Giovanni: Thanks for the question. So, as it relates to user growth, we definitely think that user growth is important and that means acquiring new customers and also reengaging customers who have shopped less frequently. And both of those things are contributing to the improving growth that we’ve seen throughout 2023 and continuing with our guide for Q1 2024. So, we talked about in 2023 the new cohort of customers that we activated was larger than the pre-pandemic levels. And so that’s a very encouraging sign and something that confirms our belief that we’re very early in the online adoption of grocery. It was obviously interrupted by the pandemic, and now that the pandemic is behind us, the steady online adoption of groceries is something that will be a key driver of new customer growth.
We’re also getting better at engaging customers who — from our mature cohorts. And so mature cohorts shrank last year, but the size of the decline improved consistently from Q1 to Q2 to Q3 to Q4 and that’s because our product is getting a lot better. As Fidji mentioned in the letter and in her comments, the product has never been better. It’s never had more affordability choices, it’s never had better selection, it’s never had better speed, never had higher quality. And that really helps but in addition to that, we’ve revamped our incentive systems. So, we’re getting better at targeting customers to make sure that we can engage with them and convert them to becoming habituated loyal Instacart customers. And that’s one reason why you’ve seen transaction revenue tick down a bit.
It’s because incentives are going up. We don’t break down all of the components of transaction revenue, but it’s not because retailer and consumer fees are lower. It’s because we’re deciding to reinvest the efficiencies that we’re gaining into incentives. And you’ll also note in Q4 that sales and marketing expense was down year-over-year. It doesn’t mean we’re spending less on marketing, we’re just choosing to spend it in incentives rather than pay marketing, and we’ll continue to evolve those choices as we go forward based on where we’re seeing the best returns in the market. As it relates to the guide for $150 million to $160 million, year-over-year, you will see that transaction revenue was elevated in Q1 of last year. You can see over the course of the last three quarters, it has dropped back down.
That’s consistent with our strategy of how we want to reinvest in the business. Quarter over quarter, there’s a tough comp because of ad seasonality. This happens every Q4 to Q1.
Nikhil Devnani: Thanks. Appreciate it.
Operator: Thank you. Our next question comes from the line of Ross Sandler of Barclays. Your line is open.
Ross Sandler: One question on advertising and then one question on the Whole Foods. Nick, your advertising revenue line came in broadly with your expectations. The growth rates are coming down a bit, and we’ve heard different things from different companies that cater to CPG digital advertising in the fourth quarter. So, I guess, what are you guys seeing in that area both in 4Q and heading into 1Q? And then the Whole Foods partnership is pretty interesting, given we all know the reason why we had to break up many years back. But what was the rationale for bringing them back online from, I guess, the Whole Foods side? And could that potentially play out in the US at some point, any thoughts there? Thanks a lot.
Fidji Simo: Thanks Ross. So, on advertising, the drivers that you’re seeing are, one, we are lapping in Q4 the launch of shoppable gift and shoppable video a year ago, which was a big increase in advertising revenue. The second thing you’re seeing is that advertising revenue usually lags GTV growth. And what I mean by that is that advertisers make budget decisions today based on the sales growth that they saw in prior quarters. And so the slowdown that we’re seeing in advertising is really a result of the underwhelming GTV growth that we saw last year. The good news, though, is that we are seeing reacceleration of the GTV growth for 3 consecutive quarters and guiding to a fourth one and we fully expect that if GTV continues to reaccelerate, advertising will also reaccelerate.
You mentioned some weakness among some advertisers. We are seeing that in pockets, but it is not widespread. And even when advertisers are struggling in their business overall, we are not the first line to be cut because they know that our advertising is very high viewers [ph] and is highly performant, so we don’t tend to be the first thing that they cut. Now, moving to your second question on Whole Foods. We are very excited to bring them back. In Canada, Whole Foods did not offer delivery to consumers so we are an opportunity for them to launch the service and reach an incremental customer. They are very focused on the customer experience as we are and given all of the great experience that we’ve developed both in terms of quality, speed, ability to deliver at scale, they were excited to partner with us in Canada and vice versa.
Nothing to announce about US, but we always take a long-term view of this partnership, and our goal is to provide as much value to Whole Foods and their customers as possible as we do with every single one of our retail partners.
Ross Sandler: Thank you.
Operator: Thank you. Our next question comes from the line of Colin Sebastian of Baird. Your line is open.
Colin Sebastian: Thanks. Good afternoon. Appreciate the questions. Fidji, you talked about improvements in operating KPIs like found in fill rates and batch rates. And I think a lot of that is based on the data platform and the use of machine learning. If you could maybe talk about how much of additional improvement do you think is still embedded in the platform with those initiatives? And then related to that, how much of a competitive advantage or differentiator is that? I think you indicated you were doing things five years ago that some of your digital competitors are now trying to achieve in the market. Thank you.
Fidji Simo: Absolutely. So, we already have very high found rates and fill rates. And so they have been improving for the sixth consecutive quarter. But right now, it’s really a game of basis points because we’re already delivering with such high quality, but every basis point of improvement matters, and we really sweat the details to make sure that our customers get the exact order that they wanted or if products aren’t on the shelves, that we replace the products with a highly satisfactory replacement. And we do that through a variety of methods. One is our depth of integration with retailers. We get their catalog data updated constantly. We get planogram data, which allows us to show inside of shopper app where the items are located inside the store so that our shoppers can go and find them.
With some retailers, we go as far as integrating with electronic shelf tags like we do with SNAP [ph] and Aldi, where from the shopper app, you can literally light up the shelf to tell you exactly where an item is going to be so that again, we increase the likelihood that shoppers are going to find this items in-store. And so that’s like deep retailer integrations that are very defensible and a very deep competitive advantage. Then you combine that with the fact that our shoppers are in the aisles of grocery stores every day. So, they know what’s on the shelves often better than what retailers know themselves. And it has allowed us to really develop great predictive algorithms to understand what’s going to be in stock versus what’s not going to be in stock, what’s a suitable replacement that’s going to generate a positive experience.
And just to give you an idea, we make more than 75 million replacements a quarter with 95% satisfaction. And so the combination of deep retailer integration data that we collect every day and predictive analytics model really allows us to deliver the superior experience that creates a very significant competitive advantage. There’s still some room to grow, but I think we are already very much at the top of our game there and are continuing to chip away at the remaining few percent to make sure that we are delivering the best possible experience. And that’s why customers and retailers trust us with their business in one case and delivering their meat and their produce in another.
Colin Sebastian: Okay. Thank you.
Operator: Thank you. Our next question comes from the line of Jason Helfstein of Oppenheimer. Your line is open.
Jason Helfstein: Thanks. Two questions. Just first, just can you elaborate on the point about advertising correlates more with trailing GTV, not current quarter? I think you made a point. And second, Nick, can you clarify the comment about how GTV growth would step up? Did you mean per quarter through the rest of 2024 or just broadly for all of 2024? Thank you.
Fidji Simo: So, on advertising, the way budgeting work is that all advertisers set budget this quarter based on the sales performance that they saw in the past. So, if we have been growing at a lower rate in the past, have seen sales growth that’s a little bit more muted, they’re going to allocate fewer budgets in the upcoming quarters based on that. But then when GTV growth reaccelerates, then they end up allocating more budget. We have actually seen this trend play out in the past. If you look back at our financials, you will see that in Q2 of 2022, for example, we had actually a decrease in year-over-year investment rate because we were coming off of several quarters of fairly low GTV growth. And then as soon as GTV reaccelerated, advertising rate accelerated again in the following quarter.
And so that’s what I meant by the trailing aspect of it. It’s not uniform across the board. You have emerging brands, for example, who are a lot more flexible, a lot more nimble in how they allocate budget. So, the minute that they see that GTV is increasing and their sales are increasing, they double down and increase their advertising. But for larger companies that are planning on a quarterly basis, sometimes even on a half basis, it takes a little bit more time for them to digest the change in GTV one way or another and reflect that in the advertising budget.
