Nick Giovanni: Thanks for the question, Deepak. So, just to give you some additional context, we mentioned that in the first half of last year, 2023, the mature cohorts were declining double-digits and that in the second half of last year, they were declining single-digits. And I’m sure that lots of folks who want to know exactly when they’ll get back to flat or when they will turn to growth, but it’s just not something that we’ve guided on. We’re very pleased with the consistent improvement that we demonstrated throughout the course of last year. And then as it relates to newer cohorts, we haven’t called out any different trends. Typically, cohorts grow in the second year compared to the first, and we’ve mentioned that the new cohorts that we’re activating are larger than the pre-COVID cohorts.
Deepak Mathivanan: Got it. Thanks so much.
Operator: Thank you. Our next question comes from the line of Steven Fox of Fox Advisors LLC.
Steven Fox: Hi, good afternoon. I just had two questions. First, a simple one. Any thoughts for the new year on free cash flow conversion, also EBITDA? And then secondly, on — there’s been a lot of discussion on the found and fill rates. Can you just sort of — I guess the one aspect I was curious about, talk about how advantaged you are versus some of either existing or up-and-coming competitors and why technology tied to AI or electronic tags might not lead competitors to close the gap more quickly? thank you.
Nick Giovanni: I’ll answer the first question quickly on free cash flow. So, we’re very pleased that we’ve been able to demonstrate free cash flow growth, operating cash flow growth, net income and adjusted EBITDA. We don’t guide to conversion as it relates to free cash flow as a percent of adjusted EBITDA. It’s impacted by things like launching new products, whether that be EBT SNAP or Alcohol or Caper. But over time, they trend in the same direction. And we believe adjusted EBITDA is a good proxy for the operating cash flow that we generate. Fidji, do you want to touch on–?
Fidji Simo: Yes. So, on your question, very important to note that if you look at online grocery in general, the number one reason for churn is cost. The second reason for churn is order quality. And that’s why order quality is so critical to get right if you want people to retain and continue ordering with you. And order quality even more critical to get right on the core of the weekly shops, things like meat, things like produce, which is why I wrote in my shareholder letter that we obsess over like the ripeness — your preferred ripeness of bananas, so that we’re able to exactly what you want and that’s really important to be able to move the industry online. I’ve described previously all of the deep integration that we have with retailers in order to be able to have this high found rate and fill rates, whether it’s catalog integration, planogram integration, collecting a lot of data, millions of replacement, billions of data points on what people prefer and all of that is contributing a significant advantage.
You ask like whether AI, in particular, is an advantage. I would say we have absolutely leading models on this particular aspect, but much more importantly, if a competitor was coming into the market right now and was able to reproduce all of our models overnight, they still wouldn’t have the 10 years of data that we have accumulated on exactly all of the inventory patterns at 85,000 stores, all of the preferred replacement for all of the different parts of the population. They wouldn’t have all that data that powers our machine learning models and allowed us to really deliver a completely differentiated experience. So, again, it’s really the combination of deep integration with retailers, lots of data, great predictive analytics model that gives us a really substantial edge.
Steven Fox: Great. That’s very helpful.
Operator: Thank you. Our last question comes from the line of Mark Zgutowicz of The Benchmark Company. Your line is open.
Mark Zgutowicz: Thank you. I just had two questions, 1 on user growth and the other on AOV. First, just curious how your customer acquisition strategy is evolving. Understanding that the secular growth in online grocery has been deliberate and there’s only so much you can press here, I’m just curious if you think about the returns you’re seeing in customer acquisition, if the rate of improvement that you’re seeing there suggests, at some point, you’ll see — we’ll see a dollar investment accelerate here relative to GTV. And then separately on AOV, just curious if you could maybe break out what the puts and takes or headwinds, tailwinds are this year, both inclusive and exclusive of the broader inflationary environment? Thank you.
Fidji Simo: So, on user growth, we go back to this idea that this is a massive that’s still vastly underpenetrated online, just 12% online penetration, while other categories of commerce are at 25%, 30%. And we’re the category leader so we see that our responsibility to accelerate the move of the market online. That is done through a variety of tactics. Marketing is one of them but there are many other ones. We invest in partnerships. You probably saw what we did with Peacock this quarter. We partner with our retailers so that our retailers can also market to their customers because the very clear data showing that the omnichannel customer is 2 to 4x more valuable than the in-store-only customer. So, retailers have an incentive to get their customers to the omnichannel.
So, we are really using all of these tactics to move the market online. As it pertains to marketing specifically, we try to get more and more efficient with marketing every year and unlock new tactics. And what you’re hearing this quarter is that we did shift some of our marketing investments towards incentives because we have really unlocked the ability to deliver incentives in a way that allows us to both acquire customers but also retain them over time by incentivizing the behavior that leads to habituation. And so we continue to invest in marketing based on long-term goals, not just expecting a return within the quarter, but really investing with a five-year LTV guardrails mine, so that we can leverage the 10 years of core data that we have to give us some confidence in the return of our marketing.
Nick Giovanni: As it relates to AOV, just as context, in 2022, as inflation was increasing, we saw basket sizes increase from 107 in Q1 to 111 in Q4. Last year in 2023, basket size was relatively stable, it was 112 in Q1 and 113 for Q2, Q3, and Q4. But as a result, comparing 2023 to 2022, you saw a decrease in AOV growth year-over-year. It was at 5% in Q1 then 3% then 2%, then 1%. And that’s why for the last couple of calls, we’ve been calling out that the GTV growth that we’ve been delivering is higher quality, and by that, we mean driven more by orders growth. And so we continue to be focused on orders growth and accelerating orders growth. We know that AOV is impacted by some things that are outside of our control like inflation. We have seen inflation moderate. We’ve witnessed 4 quarters in row of relatively stable basket sizes. So hopefully, that gives you the context that you’re looking for.
Steven Fox: Yes, it does. Thanks very much.
Operator: Thank you. This concludes today’s conference call. Thank you all for participating. You may now disconnect.
