Q3 2023 Maplebear Inc d/b/a Instacart Earnings Call
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Speaker 1: Good day and thank you for standing by. Welcome to Instacart's third quarter, 2020 Financial Results Conference call. At this time, all participants are in a list and only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. Please limit yourself to one question and one follow up so that we will have enough time to address everyone's questions.
Good day, and thank you for standing by welcome to instill carts third quarter 2023 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question.
During the session you will need to press star one one on your telephone please limit yourself to one question and one follow up so that we will have enough time to address everyone's questions. Please be advised that today's conference is being recorded.
Speaker 1: Please the advice of today's conference is being recorded. I would now like to hand the conference over to Rebecca Yoshiyama, VP of Investory Relations. Please go ahead.
I would now like to hand, the conference over to Rebecca Yoshi Yamana VP of Investor Relations. Please go ahead.
Speaker 2: Thank you Gigi and welcome everyone to Instacart's third quarter.
Thank you Gigi.
Welcome everyone to <unk> third quarter 2023 earnings call on the call with me today are our.
Speaker 2: On the call with me today are Fiji Simo, our Chief Executive Officer, and Nick Giovanni, our Chief Financial Officer.
Our Chief Executive Officer.
Our Chief Financial Officer, shortly we will open up the call for live questions during.
Speaker 2: During today's call, we will make forward-looking statements related to our business plans and strategy, future performance and prospects, including our
During today's call, we will make forward looking statements related to our business strategy future performance and prospects, including our expectations regarding Q4, and full year 2023 financial results and future profitability.
Speaker 2: financial and operating targets, business and industry trends, market opportunities, and potential share repurchases.
Actual and operating targets.
Industry trends market opportunities and potential share repurchases. These.
These forward looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements you can find more information about these risks and uncertainties in our financial prospectus for our initial public offering filed with the SEC on September 20th 2023, and in our Form 10-Q for the quarter ended September 32020.
Speaker 2: could cause actual results to differ materially from those anticipated.
Speaker 2: find more information about these risks and uncertainties in our financial perspectives for our initial public offering filed with the SEC on September 20th, 2023. And in our Form 10Q for the quarter ended September 30th, 2023.
Three that we will file with SEC.
Speaker 2: We assume no obligation to update these statements after today's call except as required by the law.
No obligation to update these statements after today's call except as required by the law.
In addition, we will also discuss certain non-GAAP financial measures. These non-GAAP financial measures have limitations and should not be considered in isolation from or as a substitute for our GAAP results.
Speaker 2: These non-dat financial measures have limitations and should not be considered in isolation from or the substitute for.
Speaker 2: As a reconciliation between these gaps and on GAAP financial measures is located in our shareholder letter which can be found on Earth.
A reconciliation between these GAAP and non-GAAP financial measures is located in our shareholder letter, which can be found on our investor Relations website.
Speaker 2: This conference call is being webcasted and will be available for audio replay on our Investor Relations website in a few hours. Now I'll turn the call to...
This conference call is being webcast and will be available for audio replay on our Investor Relations website in a few hours now.
Now I'll turn the call over to <unk> for opening remarks.
Thank you, Rebecca and hi, everyone and welcome to our people for all various public earnings call. I Hope you all had a chance to read our shareholder letter, which includes lots of information about our first quarter results.
Speaker 3: Thank you Rebecca and hi everyone and welcome to our table for our very first public earnings call. I hope you all had a chance to read off shareholder letter who thinks with lots of information about our third quarter results.
Speaker 3: For more than 10 years, we have been investing in purpose via technologies that can solve a wide array of complex challenges and growth.
For more than 10 years, we have been investing in purpose built technologies that consult a wide array of complex challenge you Didnt groceries, we are the clear leader among digital sales platforms and online grocery with a winning combination of selection quality value and convenience of strength are evident.
Speaker 3: We are the clear leader among digital platforms in online grocery with a winning combination of selection, quality, value and convenience.
Speaker 3: Our strengths are evident across our business. The breadth and depth of our retailer of integrations, the quality of the experience and accuracy of all those, the size of our baskets, he increased all their frequency and spent from our customers over time, not to mention our LC unit economics.
Household business, the breadth and depth of our retailer of integrations, so quality of the experience and accuracy of for all does the size of all baskets to increased all the frequency and spend from our customers over time not to mention our LC unit economics, we have in massive had stock and we're getting better.
Speaker 3: We have a massive headstock and we're getting better every single day with every order.
Every single day with every order.
Speaker 3: A significant advantage is our unmatched selection and deep integration with retail phones.
A significant advantage unmatched selection and deep integration with retail partners, we found out with more than 1400 retail banners across more than 80000 locations that connectivity represents more than 85% of the U S grocery market.
Speaker 3: We partner with more than 1,400 retail banners across more than 80,000 locations that collectively represent more than 85% of the US grocery market.
Speaker 3: For us, it's about more than just putting on foreign catalog online. It's about becoming the strategic partner across their entire digital transformation.
For us it's about more than just putting a format catalog online it's about becoming a strategic partner across our entire digital transformation. For example, rebuilding power many retailers ecommerce storefronts and pick up businesses.
Speaker 3: For example, we build and power many retailers who come up for front and pick up businesses. We support operations at the African motor stores and so much.
We support operations adult brick and mortar stores and so much more.
Speaker 3: Another advantage is our highly engaged customer base. Instacart has become an important part of our customer's lives to the point where people count on us for their weekly grocery shop and many other use cases.
Another advantage is our highly engaged customer base is the growth has become an important part of our customers' lives.
Appointed while people count on those filled out weekly grocery shop and many other use cases.
Speaker 3: When looking at annual cohort data from 2017 to 2022, on average, our monthly active orderers start by using Instacart 2.1 times a month and spend $226 a month in year one. And by year six, they order 3.9 times a month and spend $480 a month.
When looking at the annual cohort data from 2017 to 2022 on average our monthly active all the rails is stopped by using us to call. The two one times a month and spent $226 a month in year, one and by <unk>. Six is the order of three nine times a month and spent 400.
At $80 a month.
Speaker 3: On average, this means our customers spend more than $100 per order, which is a key element to unlocking profitable unit economics, along with our next advantage, which is our massive scale in growth.
On average this means our customers spend more than $100 per order, which is a key element to unlocking profitable unit economics, along with our next advantage, which is a massive scale in groceries.
Speaker 3: Over the last 12 months, we completed more than 265 million orders. This gives us the experience and data needed to unlock efficiencies that are unique to grocery and that you can only unlock once you reach that scale. From our best-in-class search engine and replacement algorithms, to our batching technologies, to our wayfinding inside the store, and much more.
Last 12 months, we completed more than 265 million all of those he keeps us experience and data needed to unlock efficiencies that's off a unique to grocery and that you can only unlocked once you reach that scale from a best in class search engine and replacement algorithms to a batching technologies.
Finding inside the store and much more.
Speaker 3: And this, in term, allows to improve customer and shopper satisfaction while minimizing off procurement costs.
Geez in time allow us to improve customer and shopper satisfaction, while minimizing our fulfillment costs.
Finally advertising.
Speaker 3: Our advertising and other revenue operates at a nearly $900 million run rate today. As we continue to scale our hard business, we're also working to drive better results for all our stakeholders, creating new and more effective ways for brands to connect with consumers, and generating more sales for our retailers out of their existing locations.
Advertising and other revenue operates at the nearly 900 million dollar run rates today as we continue to scale our business. While also working to drive better results for all our stakeholders, creating new and more effective wasteful brands to connect with consumers and generating more sales for all retailers.
Out of that existing locations.
Speaker 3: And because advertising helps us force our order more profitably, we're able to maintain lower customer and retailer fees as a percentage of the...
Because advertising helps us fulfill all those more profitably.
Well to maintain law of customer and retail our fees as a percentage of G. T G.
Speaker 3: To put this in perspective, our fees are generally about half as much as the fees charged in restaurant delivery.
To put this in perspective, our fees are generally about half as much as the fees charged in restaurant delivery.
Speaker 3: All of these advantages explain why the Instacart experience remains vastly superior. Based on third-party data, we continue to be the clear leader among digital third platforms in online grocery with more than 50% share of small baskets under $75 and more than 70% share of large baskets over $75.
All of these advantages explain why is it is the golf experience remains vastly superior.
Based on third party data, we continue to be the clear leader among digital platforms in online grocery with more than 50% share of small baskets under $75 and more than 70% share of large baskets over $75 when.
Speaker 3: When we look at new customer activations in online grocery, or large basket activations are more than five times higher than new handprints, which leads to our new activation GTV doing multiple higher.
When we look at new customer Activations in online grocery or large baskets activations are more than five times higher than you'll entrants, which leads to a new activation CTG doing multiples higher.
Speaker 3: Once a customer is onboarded to a platform, we closely track the conversion rate of small basket customers to large basket customers. And our rate is more than five times higher than these other players as well. These are all critical distinctions because approximately three quarters of online grocery and likely even more of the profits fits in large baskets of $75 and above.
Once a customer has on boarded to our platform. We closely tracks the conversion rate of small basket customers two large basket as customers and our rate is more than five times higher than these other players as well.
These are all critical distinction because approximately three quarters of online grocery and likely even more of the profits.
It's in large baskets of $75 and above.
While our business continues to be impacted by several macro headwinds our competitive advantage is put us in a much better position to navigate this period and come out stronger we remain relentlessly focused on profitable growth, while staying disciplined and managing the things we can control to ensure we can deliver.
Speaker 3: While our business continues to be impacted by several macro-edwins, our competitive advantages put us in a much better position to navigate this period and come up stronger. We remain relentlessly focused on profitable growth, we're staying disciplined and are managing the things we can control to ensure we continue delivering strong earnings and operating cash flow.
Strong earnings and operating cash flow.
Speaker 3: Today, we have approximately $2.2 billion of cash and similar assets and recently established a new $500 million share repurchase program to opportunistically buyback share.
We have approximately $2 $2 billion of cash and similar assets and recently established a new $500 a million 500 million.
Dollar share repurchase program to Opportunistically buyback shares.
Speaker 3: Overall, I'm enravering in my long term view on the future of online grocery adoption. I'm confident that our competitive advantages will allow us further expand our category leadership. And we are focused on executing our profitable growth strategies.
Overall I am unwavering in my long term view on the future of online grocery adoption.
I'm confident that our competitive advantages will allow us to further expand our category leadership and we are focused on executing our profitable growth strategy.
Speaker 3: Transforming the world's largest retail category will take time, but we believe we have all of the ingredients to generate long-term value for our partners, teams, and shareholders. Thank you for your support and being on this journey with us. Now, I'll turn the call over to Nick to provide more of an update on our finance.
Transforming the world's largest retail category will take time, but we believe we have all of the ingredients to generate long term value for ball knows teams and shareholders. Thank you for your support and being on the journey with US Nah I'll tell them to Cologuard to Nick to provide more of an update on our financials.
Speaker 4: Thank you, BG. In Q3, we delivered a solid quarter and our business fundamentals continue to improve.
Thank you <unk>.
In Q3, we delivered a solid quarter and our business fundamentals continue to improve now let me provide a bit more color on our Q3 results and our future outlook I'll start with GTP in orders in Q3 year over year G. TV growth improved for a second consecutive quarter.
Speaker 4: Now let me provide a bit more color on our T3 results in our future F.
Speaker 4: I'll start with GTV and orders. In Q3, year-over-year GTV growth improved for a second consecutive year.
Speaker 4: GTV from our mature cohorts collectively declined, but the rate of decline continued to improve compared to Q1 and Q4.
<unk> from our mature cohorts collectively declined but the rate of decline continued to improve compared to Q1 and Q2.
Speaker 4: Our largest 2020 and 2021 COVID cohorts no longer represent the majority of our total GT.
Our largest 2020 and 2021 COVID-19 cohorts no longer represent the majority of our total GTD as we've layered on new customers in 2022 and 2023.
Speaker 4: as we've layered on new customers in 2022 and 23.
Speaker 4: In Q4, we expect year-over-year GTD growth to remain in the 5% to 6%
In Q4, we expect year over year GTD growth to remain in the 5% to 6% range.
Speaker 4: and the composition of this growth to continue to be driven more by orders growth than AOV growth as the impact of inflation wanes.
And the composition of this growth to continue to be driven more by orders growth than <unk> growth as the impact of inflation Wayne's year over year, our philosophy on GTP guidance is to share what we expect will happen based on the trends that we're seeing in the business. So far in Q4, which are consistent with the past few quarters, we are not providing guidance that we expect to exceed.
Now on the transaction revenue.
Speaker 4: As we expect, we saw transaction revenue as a percent of GTV rebound from 6.8% in Q2.
As we expect we saw transaction revenue as a percent of GTD rebound from six 8% in Q2 to seven 2% in Q3 and Q4, we expect transaction revenue as a percent of GTP to remain flat quarter over quarter. As a reminder, our long term target for transaction revenue was six five to seven five.
Speaker 4: In Q4, we expect transaction revenue as a percent of GTV to remain flat quarter over quarter. As a reminder, our long-term target for transaction revenue is 6.5 to 7.5 percent.
<unk> of GTT now for advertising and other revenue. Our Q3 performance was much stronger than expected, primarily driven by higher advertiser spending and back to school and fall football campaigns. In Q4, we expect advertising and other revenue to grow sequentially with seasonality, we expect roughly $20 million of sequential.
Speaker 4: Now for advertising and other revenue. Our Q3 performance was much stronger than expected, primarily driven by higher advertiser spending in back to school and fall football.
Speaker 4: In Q4, we expect advertising and other revenue to grow sequentially with seasonality. We expect roughly $20 million of sequential advertising and other revenue growth compared to $6 million from Q1 to Q2 and $16 million from Q2 to Q4.
Typing and other revenue growth compared to $6 million from Q1 to Q2 $16 million from Q2 to Q3.
Speaker 4: As a reminder for the past few quarters are at an other investment rate has expanded year over year by approximately 30 to 50 basis.
As a reminder, for the past few quarters, our AD and other investment rate has expanded year over year by approximately 30% to 50 basis points and that's much higher than the 20 basis points that we aim for on an annualized basis. This was largely due to the ramp up of <unk> display and shovel video launches in the second half of 2022 and as a result for the next few quarters it.
Speaker 4: And that's much higher than the 20 basis points that we aim for on an annual.
Speaker 4: This was largely due to the ramp up of shoppable display and shoppable video launches in the second half of 2020.
Speaker 4: And as a result, for the next few quarters, it is still our expectation that at an other investment rate will expand less than 20 basis points year over year as we comp again.
Still our expectation that add another investment rate will expand less than 20 basis points year over year as we comp against these periods overtime. We continue to expect steady expansion towards our long term target for AD and other revenue, which is 4% to 5% of GTD achieving.
Speaker 4: Over time, we continue to expect steady expansion towards our long-term target for add another revenue, which is four to five.
Speaker 4: Achieving our targets for transaction revenue and ads and other revenue would bring our long-term target for total revenue to 10.5% to 12.5% of GTV, and GAAP gross profit target
Achieving our targets for transaction revenue and ads and other revenue would bring our long term target for total revenue to 10, 5% to 12, 5% of GTP and GAAP gross profit target to 8% to 10% of GTD.
Speaker 4: Turning to adjusted operating expenses, we generally expect the same trends we saw in Q3 to persist in Q4 as a percent of GTV, but I would call out the following. First, adjusted option support typically increases sequentially in Q4 due to seasonality and shopper onboarding. And second, we will be prepared to spend more on adjusted sales and marketing if we see the right opportunities to drive long-term growth.
Turning to adjusted operating expenses, we generally expect the same trends we saw in Q3 to persist in Q4 as a percent of GDP, but I would call up the following first adjusted ops and support typically increased sequentially in Q4 due to seasonality and shopper Onboarding and second we will be prepared to spend more on adjusted sales at <unk>.
Marketing, if we see the right opportunities to drive long term growth throughout the quarter, our long term target for adjusted operating expenses at four 5% to 5% of GTD, putting all this together, we expect to expand the Q4, adjusted EBITDA quarter over quarter and year over year to a range of $165 million to $175 million. This is in.
Speaker 4: Our long term target for adjusted operating expenses is four and a half to five.
Speaker 4: Putting all this together, we expect to expand the Q4 adjusted EBITDA quarter over quarter and year over year to a range of $165 to $175 million.
Speaker 4: This is an increase compared to the $163 million we generated in Q3 2023, and the $133 million we generated in Q4 2020.
The increase compared to the $163 million, we generated in Q3 2023, and the $133 million, we generated in Q4 of 2022.
Speaker 4: It also demonstrates ongoing progress towards our long-term adjusted EBITDA target of four to five.
It also demonstrates the ongoing progress towards our long term adjusted EBITDA target of 4% to 5% of GTD and finally, we will remain disciplined on share dilution and expect to return to GAAP profitability in the full year 2024.
Speaker 4: And finally, we will remain disciplined on share dilution and expect to return to gap profitability in the full year 2020.
Speaker 4: We have already taken steps to manage stock-based compensation and lower dilution, but expect it will take several quarters for the stock-based expense related to pre-IPO awards to normalize, given they are expensed using the accelerated
<unk> already taken steps to manage stock based compensation and lower dilution, but expect it will take several quarters for the stock based comp expense related to pre IPO awards to normalize given their expense using the accelerated attribution method, we remain committed to being profitable on adjusted EBITDA basis, even after deducting the net value of equity REIT grant each year.
Speaker 4: We remain committed to being profitable on adjusted EBITDA basis, even after deducting the net value of equity we grant each year and this framework, which we are on track to achieve this year is expected to position us to return to gap profitability for the full year.
And this framework, which we are on track to achieve this year is expected to position us to return to GAAP profitability for the full year in 2024 overall, we believe our fundamentals are solid and we have delivered improving growth throughout the year at higher levels of profitability.
Speaker 4: Overall, we believe our fundamentals are solid and we have delivered improving growth throughout the year at higher levels of profitability. Together with our partners, we believe we can continue to lead the digital transformation of the grocery industry. We're excited about the future and appreciate your support as
<unk> with our partners. We believe we can continue to lead the digital transformation of the grocery industry. We're excited about the future and appreciate your support as shareholders with that we'd like to open it up for live questions. Operator, you may begin.
Speaker 4: With that, we'd like to open it up for live questions. Operator, you may be.
Speaker 1: Thank you. As a reminder to ask a question, you will need to press star 11 on your telephone. Please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster.
Thank you as a reminder to ask a question you will need to press star one one on your telephone please limit yourself to one question and one follow up question.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Eric Sheridan from Goldman Sachs.
Speaker 1: Our first question comes from the line of Eric Sheridan from Goldman Sachs.
Speaker 5: Thank you so much for taking the question. Maybe if I can go back to asking something that would be a big picture question. We continue to get asked by investors about the broader competitive landscape and how you think about your opportunity set and competitive positioning between the small basket and large basket size elements of the broader online grocery landscape. Would love to revisit your broader thoughts there. Thank you.
Thank you so much for taking the question maybe if I can go back to asking something there'll be a big picture question. We continue to get asked by investors about the broader competitive landscape and how you think about your opportunity set and competitive positioning between the small basket and large basket.
Elements of the broader online grocery landscape, but love to revisit your broader thoughts there. Thank you.
Thanks, Eric.
Speaker 3: As I mentioned, I think it's incredibly important to understand that.
As I mentioned I think it's incredibly important to understand that three quarters of the industry is in large baskets and even more of the profits.
Speaker 3: three quarters of the industry is in large baskets and even more of the profits.
Speaker 3: We are the market leader in both small baskets and large baskets.
We are the market leader in both small baskets and large baskets.
Speaker 3: 50% share of the category in small baskets, more than 50% share and more than 70% share in large baskets.
<unk>, 50% share of the category and small baskets more than 60% share in more than 70% share in large baskets.
Speaker 3: But what we're seeing is really that we have built an incredibly defensible business by having this deep integration with grocers by uploading their entire selection online and making it available to people at the highest quality, highest accuracy over the course of 10 years, which has really allowed us to capture the weekly shop, which is a core use case basket of more than $75. That are very defensible. And so what we're seeing is that obviously, the grocery industry is an attractive market for new entrants. We expect competition to continue to try to enter that market. But what we've seen is that when they do enter that market, especially new entrants coming more from the restaurant delivery side, they are really focused on small baskets. And we have a much greater ability, more than five times.
But what we're seeing is really that we have built an incredibly defensible business bye.
By adding this is deep integration with sclerosis by uploading their entire collection online and making it available to people. That's the highest quality highest accuracy over the course of 10 years, which has really allowed us to capture the weekly shop, which is a core use case baskets of more than $75.
That's all very defensible and so what we're seeing is that obviously the grocery industry is an attractive market for new entrants. We expect competition to continue to try to enter that market, but what we've seen is that when they do it until that market, especially new entrants coming more from the restaurant delivery side. They are really.
<unk> focus on small baskets, and we have a much greater ability more than five times.
Speaker 3: a greater ability to convert small basket customers into large basket customers and also uh five times greater ability to attract large baskets and you know
<unk> ability to convert small bhaskar customers into large baskets customers and also a five times greater ability to attract large baskets and.
Speaker 3: A large basket means that you have more fulfillment efficiencies. It also means that you have more advertising opportunities. And that's really where you are seeing the strength of our unique economic shine. Because we are able to have such a strong share in that part of the market.
A large baskets means that you have more fulfillment efficiencies. It also means that you have more advertising opportunities and that's really where you are seeing the strengths of our unit economic sign up because we are able to add such a strong shipping that to fall through to the market.
Thank you one moment for next question.
Speaker 1: Thank you. One moment for our next question.
Speaker 1: Our next question comes from the line of Colin Sebastian from Baird.
Our next question comes from the line of Colin Sebastian from Baird.
Speaker 6: Thanks, and good afternoon. I guess also a bigger picture question for me. I mean, given that there are four sides to your marketplace, I'm curious how well balanced do you think the supply side is with store
Thanks, and good afternoon.
I guess also a bigger picture question for me.
I mean, given that there are four sides to your marketplace I'm curious how well balanced do you think the supply side is with stores and shoppers versus the demand side from consumers and advertisers. If there's one area or multiple areas that need more focus or where are those in pretty good balance right now. Thank you.
Speaker 6: one area or multiple areas that need more focus or broad
Great question. Thank you. So I will go one by one on the shop side.
Speaker 3: Great question, thank you. So I will go kind of one by one. On the shopper side, supply is extremely healthy. We continue to have a weight list of shoppers in many cities. And we are seeing that we have high satisfaction of our shoppers, 80% of our shoppers would recommend to others to shop at Instacart and think that Instacart offers good paying and an opportunities. So on that side, we feel very good. On the retailer side, we have 80,000 stores on the platform. We have a very big selection advantage here. We still have more room to grow on attracting the rest of the market, the long tail of the market. But we certainly have a lot of supply already. We have 85% of the market represented on Instacart. And so from that perspective, I think growth is going to come more from
Supply is extremely healthy we continue to have a waitlist of shoppers in many cities and we are seeing that.
We have high satisfaction of Hawk charterers, 80% percent of.
Shoppers would recommend.
Those two shop audience to call up and take things up in cycle offers a good paying out opportunities. So on that side, we feel very good on the retailer side.
80000 installs on the platform, we have a very deep selection advantage sure we still have more room to grow on attracting.
The rest of the buckets of long tail of the market, but we certainly have.
A lot of supply already we have 85% off.
The market represented an instant coffee and so from that perspective, I think growth is going to come more from deepening our integration with grocers and offering more services like Dr. Shaw convenience like snap like Everything's pick up everything you have seen us rollout.
Speaker 3: deepening our integration with grocers and offering more services like virtual convenience, like snap, like, you know, everything's pickup, everything you have seen us roll out in the last couple of years, rather than just expanding number of stores.
Last couple years, rather than just expanding the number of stores.
Speaker 3: On the advertiser side we have 5500 advertisers on the platform that number continues to grow and What we're seeing is that there isn't really any at scale Brands that are sell from the platform that isn't already advertising within the car So here again a lot of the game is continuing to attract more emerging brands, but also in big part
On the other days upside we have shifted 500 advertisers on the platform that number continues to grow and what we're seeing is that there isn't really any upscale brands sales on the platform that isn't already advertising wasn't used to call. So here again, a lot of the game is continuing.
To attract more emerging brands, but also in big fault deepening key investment rates from our advertisers by continuing to show them the value of the platform I left the consumer side. So last because I think that is actually where we have the most room for growth. This is an industry that is still only 12% penetrated online.
Speaker 3: deepening the investment rate from advertisers by continuing to show them the value of the platform.
Speaker 3: I left the consumer side for last because I think that is actually where we have the most room for growth. This is an industry that is still only 12% penetrated online and so
And so a lot of our focus and some of our of what Youre seeing in terms of investment in sales and marketing and customer incentives all really geared towards accelerating.
Speaker 3: a lot of focus and some of what you're seeing in terms of investment in sales and marketing and customer incentive are really geared towards accelerating the online adoption and as a clear category leader we see that there's a responsibility to do that. If more demand, more consumer demand was to come we would be able to handle that with all of the other sides of our marketplace and so that's really the thing we're most focused on.
So online adoption and as a clear category leader, we see it as a responsibility to do that even more demand nascar's shemales human what's to come we would be able to handle that with all of the other sides of our marketplace.
And so that's that's really the thing while most focused on.
Speaker 1: Thank you. One moment for our next question.
Thank you one moment far next question.
Speaker 1: Our next question comes from the line of Nick Hill Divnawny from Bernstein.
Our next question comes from the line of Nick Hilde, they've Nani from Bernstein.
Speaker 7: Hi there. Thank you for taking the question and congrats on the IPO. When you just step back and think about some of your largest partners, some of them have this scale, potentially in the ambition to bring more of their grocery solution and house or even use other partners over time. I mean, how do you think about positioning in the card to minimize the risk of that? And how do you make sure that you're both integral to these large partners and also retaining positive economics for yourself in the process? Thank you.
Hi, there. Thank you for taking the question and congrats on the IPO.
When you just step back and think about some of your largest partners. Some of them have the scale potentially on the ambition to bring more of their grocery solution in house or even use other partners over time I mean, how do you think about positioning in Stuttgart to minimize the risk of that and how do you make sure that you are both integral to these large partners and also retaining pause.
Economics for yourself in the process. Thank you.
Speaker 3: Thank you. So when you think about the percentage of cells that we represent for our bombers, we represent 5% of their total cells.
Thank you. So when you think about or as a percentage of sales that we will present all partners, we represent 5% of the total sales.
Speaker 3: That's a very large number and even with a larger format that can be in the low T.
That's a very large number and even with our larger format that can be in the.
The low teens and so we are already a strategic Paul now deeply integrated with our business.
Speaker 3: And so we are already a strategic panel deeply integrated with our business.
Speaker 3: You mentioned this idea of, you know, partners having the scale to do that on their own. I will call out that it took us 100 million orders before we were able to get to positive unit economics. So scale matters enormously in order to deliver this business not only profitably but also at scale inefficiently. And so the reason you're seeing all of our large partners partnering with us here after you're choosing to continue our relationship with us is because we are the most efficient and we are offering them a service that they know is both efficient for their own P&L but also allows them to keep the service as affordable as possible for their customers which does drive growth.
You mentioned, you say, Jeff of partners, having the scale to do that on their own a I will call out that it took US 100 million all else before we weren't able to get to positive unit economics, So scale matters enormously in all about two.
Deliver this business not only profitably, but also at scale and efficiency and so the reason you're seeing all of our large partner partnering with us year after year of choosing to.
It continues our relationship with US is because we are the most efficient and we are offering them a service that they know is both you shouldn't pull that on P&L, but also allows them to keep the service as affordable as possible, so that customers, which does drive growth and so we feel very good about that and.
Speaker 3: So we feel very good about that and that's why you are continuing to focus on some and efficiencies because we know that it is a very strong competitive advantage and the reason our partner is for policy service.
That's why you are continuing to see us focus on fulfillment efficiencies.
Because we know that is a very strong competitive advantage and the reason I'll probably enough time to a fall off towards your service.
Speaker 1: Thank you. One moment for our next question.
Thank you one moment far next question.
Speaker 1: Our next question comes from the line of Doug and Moose from JP Morgan.
Our next question comes from the line of Doug Anmuth from Jpmorgan.
Thanks for taking the questions you indicated that you'd be prepared to spend more on sales and marketing. If you see the right opportunities to drive long term growth. Just curious if that represents any kind of changed your recent thinking or perhaps any kind of shift in how you think about returns threshold.
Speaker 8: Thanks for taking the questions. You indicated that you'd be prepared to spend more on sales and marketing if you see the right opportunity to strive long-term growth. Just curious if that represents any kind of change to your recent thinking or perhaps any kind of shift in how you think about returns threshold.
Speaker 8: And then, secondly, the slower ad growth in 4Q and 1Q, could you just talk a little bit more about some of the dynamics there as you're lapping the stoppable launches and then how you'll work to offset those impacts? Thanks.
Then.
Secondly, the slower AD growth in <unk> and <unk> could you just talk a little bit more about some of the dynamics there as you're lapping the comparable launches and then how you will work to offset those impacts.
Thanks for the questions. The first on sales and marketing no change to our philosophy, we continue to invest where we see the opportunity to acquire customers that have a high lifetime value and we will do so as long as we see the ability to attract new customers and grow the NPV.
Speaker 4: Thanks for the questions. The first on sales and marketing, no change to our fall off.
Speaker 4: We continue to invest where we see the opportunity to acquire customers that have a high lifetime value and will do so as long as we see the ability to attract new customers and grow the the NPV. And so there has been no change. We just wanted to call out that as we see those opportunities will remain consistent with that philosophy and that might lead to spending more.
And so there has been no change we just wanted to call out that as we see those opportunities will remain consistent with that philosophy and that might lead to spending more in Q4.
Speaker 4: And as it relates to the ad business, what we wanted to call out is there's no change in our expectations for the level of ad revenue that will generate in Q4 and Q1. But we wanted to point out that Q3 was exceptionally strong and that we didn't expect the sequential increase from Q3 to Q4 to be as strong because of the outperformance.
And as it relates to the AD business, what we wanted to call out is there is no change in our expectations for the level of AD revenue that we'll generate in Q4 and Q1, but we wanted to point out that Q3 was exceptionally strong and that we didn't expect a sequential increase from Q3 to Q4 to be strong.
Because of the outperformance in Q3 as it relates to what we'll do to get there.
Speaker 4: as it relates to what we'll do to get the advertising business back at track, I'll turn it over to Fiji to talk about the long-term growth.
The advertising business back on track I'll turn it over to <unk> to talk about the long term growth in the ads business.
Speaker 3: Yeah, in terms of long-term growth, I'll essentially fall levels one is getting off current advertisers to spend more. And that comes from continuing to roll out innovation in terms of formats. So in addition to shopable display and video, we roll that stock up and save and plan to continue to innovate there. And also rolling out more measurement capabilities. We roll that self-leafed and continue to expand that.
Yeah in terms of long term gross sales essentially four levers one is getting off current advertisers.
To spend more and that comes from continuing to rollout innovations in terms of format. So in addition to shopper, both Japan deal, we rolled out start up and save and plan to continue to innovate and also rolling out mobile measurement capabilities, we have rolled out self lift and continue to expand up the second love all of us to get more of emerging brands.
Speaker 3: The second lever is to get more emerging brands to advertise on Instacart. We see that emerging brands tend to spend more as a percentage of GGG in general because they want very measurable solutions, which is what we offer.
On the call, we see that emerging brands tend to spend more as a percentage of GCG in general because it wasn't very measurable solutions, which is what we offer to self never he's penetrating categories that have a high investment rate even sell that I'll give you a couple of examples I'll alcohol personal care.
Speaker 3: The third lever is penetrating categories that have high investment rate even further. I'll give you a couple of examples. I alcohol, personal care pets tend to have a much higher investment rate than the rest of the selection. And so continuing to deepen on ninth nutrition in this category will naturally raise investment rate. And then a fourth but smaller lever is actually of investment in offsite through carat ads where we take our entire ads platform and we make it available on our retailers on an operated properties.
Pets tend to have a much higher investment rates out into the rest of.
The selection and so continuing to deepen our 19 nutrition and you just can't take or we will naturally raised investment rate and then a fourth but smaller left is actually all the investment in all sites through carat. That's why we take all the entire platform and we make it available on all retailers on an operated properties.
Speaker 3: so that they can create a retail media business on their own as well as some of the recent launches that we've announced with the Trade Desk or Rook.
So that they can create a retail media business on their own as well as some of the recent launches that we've announced with the trade desk all of them.
Speaker 1: Thank you. One moment for our next question.
Thank you one moment far next question.
Our next question comes from the line of Ross Sandler from Barclays.
Speaker 1: Our next question comes from the line of Ross Sandler from Barclays.
Speaker 9: Great. Fiji just won a big picture question and then Nick, more of a housekeeping. So the big picture is on the topic of advertising. One of the questions we heard during the IPO was that while your ad business is great, it's a nice differentiator in the market. There's a natural tension that exists that.
Great.
One Big picture question and then Nick.
More of a housekeeping.
So the big picture is on the topic of advertising one of the questions. We heard during the IPO was that while Youre AD business is great and it's a nice differentiator in the market, there's a natural tension that exists that the.
Speaker 9: The larger you guys get, the more vendor dollars.
The larger you guys get the more vendor dollars are moving away from your retail grocery partners. So how would you address that topic and then Nick on the transaction take rate a nice little uptick.
Speaker 9: are moving away from your retail grocery partners. So how would you address that topic? And then Nick, on the Transaction Take Rate, a nice little uptick to...
Speaker 9: This is 7.2% quarter on quarter. What were the primary drivers of that improvement versus last quarter? Thanks.
This is seven 2% quarter on quarter, what were the primary drivers of that improvement.
Versus last quarter.
Yes.
Thanks, Ross so.
Speaker 3: Thanks for us. So two parts on how we address what you mentioned. One is, as I just mentioned, we've carried out ads. We have taken all of our ad technology ad sales and are making it available to grow a salesman that owned and operated property so they can benefit from everything we've tell me that business of their own. We've done that, we've spread, for example, and others.
Two parts on how we address what you mentioned one is as I. Just mentioned was carried out that we have taken all of our large technology sales and making it available to grow sales on that owned and operated properties. So they can benefit from everything we've done to create a retail business that's on and we've done that.
We sprouts for example, and others.
Speaker 3: And so that's a way in which we completely align the growth of garage business with our retail partners. A second part of that is that
And so that's that's the way in which we completely aligned to the growth of our business is always helpful and as a second part of that is that so your question implies that the finite budgets, but what we're actually seeing is that because we are able to really demonstrate performance of advertising online.
Speaker 3: Your question implies that there are finite budgets, but what we're actually seeing is that because we are able to really demonstrate performance of advertising online, CPGs are starting to unlock more as dollars that
CPG is all starting to unlock more AD dollars are.
Speaker 3: to go to our channel and we tell media in general without adding to trade data or free trade spend because they are seeing that because these dollars return, there is room to actually grow these budgets. If you look at the rest of the advertising industry, that's certainly been the case in e-commerce. And now that we tell media platforms are making advertising as measurable as e-commerce advertising, we're starting to see similar trends in CPD advertising, which is really promising.
Two to go to a channel and we tell them you got in general without adding to trade that off with trade spend because they are seeing that because he's dollars retail there is a room to actually grows as budgets. If you look at.
The rest of the advertising industry. That's certainly been the case in E Commerce and now that you know we tell me the platforms are making advertising as measurable E. Com advertising, we're starting to see similar trends in CPG advertising, which is really promising.
And then second question.
Speaker 8: And then on your second question, Ross, yeah, we were really pleased with transaction revenue in the quarter. Year over year, we saw about 80 basis points of improvement and fulfillment efficiencies that were offset by about 40 basis points that we reinvested into customer incentives. And quarter over quarter, we saw about a 40 basis point improvement in retailer revenue, because the one-time items that occurred in Q2 did not recur in Q3.
Ross, Yes, we were really pleased with transaction revenue in the quarter year over year, we saw about 80 basis points of improvement in fulfillment efficiencies that were offset by about 40 basis points that we reinvested into customer incentives and quarter over quarter. We saw about a 40 basis point improvement in retailer revenue because of the onetime items that occurred in <unk>.
Two did not recur in Q3.
Thank you one moment for our next question.
Our next question comes from the line of Michael Morton from Moffett Nathanson.
Speaker 1: Our next question comes from the line of Michael Morton from Moffit, Nathanson.
Speaker 10: Hi, thank you so much for the question. I'm sure you're going to get a lot of advertising questions. So sorry to follow up on that, but I would love to learn a little bit more about. What any you see your advertising product in for the large enterprise I was at the grocery shop and you guys had a great.
Alright. Thank you so much for the question I'm, sorry are you going to get a lot of advertising questions I'm, sorry to follow up on that but I would love to learn a little bit more about.
What inning, you see your advertising product and for the large enterprise.
Grocery shopping and you guys had a great.
Speaker 10: presentation talking about, you know, the ability with your shopping carts to measure kind of in store transactions and the perfect closed loop system for incrementality.
Presentation talking about.
The ability to put their shopping carts to measure kind of in store transactions in the perfect closed loop system for instrumentality.
Speaker 10: That seems to be the big question for CPG branch, right? It from mentality.
That seems to be the big question for CPG brands right incrementally So just love to.
Speaker 10: So I would just love to hear your thoughts going forward into the future on that. And if that kind of allows you to go from unlocking fixed add budgets to in theory unlimited add budgets as it becomes more of a row-ass measurement, if that makes sense. Thank you.
Your kind of thoughts going forward into the future on that.
If that kind of allows you to go from unlocking fixed AD budgets to in theory unlimited.
Budgets.
Comes in more of a rollout measurement if that makes sense. Thank you.
Speaker 3: Yes, thankful to the question. As I mentioned, the last two years I've been really a journey of rolling out more measurement capabilities, more optimization capabilities.
Yeah. Thanks for the question as I mentioned the last two years have been really a journey of rolling out more measurement capabilities more optimization capabilities and are initially we were really just focused on measuring roadhouse, which is very strong and fox during the quarter, we really small case studies like Chomsky.
Speaker 3: And initially we were really just focused on measuring raw ads, which is very strong. And in fact, during the quarter, we released more case studies like Tom's, Ditching Sars showing strong raw ads.
<unk> sauce, showing strong raws, but we also rolled out a measurement for selfless specifically and if you look on average all adult cells. These studies would you see that advertising on in the call gives you a 15% sales lift which is really meaningful full brands.
And so we're continuing to rollout Celsius measurement to more and more brands more and more formats because that should be the ultimate.
Speaker 1: because that should be the ultimate measurement that they should look at to decide to invest and continue the trend of increased investment that you're seeing. You mentioned in-store solution, we think that this is a longer term bet for us, especially as part of deploying over the future of Kapor cards in-store. And we believe that it provides a really great opportunity to take all of the strength of online advertising and bring it to the store. Because our Kapor cards have a screen on which you can do very measurable, very personalized, very dynamic advertising and really blend the best of online and the best of offline. Obviously longer term vision, but something we're excited about and our brand partners are very excited about as well. Thank you. One moment for our next question. Our next question comes in the line of Ron Josie from Citi. Great. Thanks for taking the
Measurement that they should look out to decide to invest and continue.
Our trend of increased investment that you're seeing you mentioned install solution. We think that this is a longer film that for us.
Especially as part of deploying of elses future keep off costs install and we believe that it provides a really great opportunity to take all of the strengths of online advertising and bring it to the store because I'll keep our costs up a screen on which you can do very measurable very tough to analyze very dynamic.
Advertising and really blends the best of online and offline, obviously longer term vision, but something we're excited about an old brand problem that was all very excited about as well.
Speaker 3: Obviously longer term vision, but something we're excited about and our brain partners are very excited about as well.
Thank you.
Enrollment for next question.
Speaker 1: Our next question comes from the line of Ron Josie from City.
Our next question comes from the line of Ron Josey from Citi.
Great. Thanks for taking the question I have two P. J you spoke quite a bit about the technology integration with your partners and in the letter I think you talked about that on fill rates continues to improve just talk to us a little bit more about the integration and what's driving those bound until rates to improvement maybe thats not the integration with your partners, but but more just better efficiencies.
Speaker 11: Great, thanks for taking the question. I have to PG, you spoke quite a bit about the technology integration with your partners.
Speaker 11: And in the letter, I think you talked about found still rates continues to improve. To talk just a little bit more about the integration in what's driving those found still rates to improvement, maybe that's not the integration with your partners, but more just better efficiencies with an Instacart. And then Nick, I wanted to understand a little bit more. I think you mentioned a 40-bit sequential investment.
With an instant cart and then Nick I wanted to understand a little bit more I think you mentioned, a 40 bps sequential investment in customer incentive sequentially.
Speaker 11: in customer incentives sequentially, to talk to you about the results you're seeing on those incentives and perhaps just on incentives then going forward. Thank you.
Talk to you about the results Youre seeing on on those incentives and perhaps just on the incentive spend going forward. Thank you.
Speaker 3: I run through on on fundraising show rates. Very excited that we are now at the highest level of fund rate and show rates since, you know, the very beginning of the pandemic.
Hey, Ron so on Unfun rates and show rates are very excited that we are now at the highest level of foundries and shell rates.
Since the very beginning of the pandemic.
Speaker 3: That is the result of both deep integration with partners as well as a lot of machine learning and AI that we've deployed to continue to improve quality. So just to give you a couple of examples.
That is a result of both deep integration with partners as well as a lot of machine learning and AI is that we've deployed.
To continue to improve quality. So just to give you a couple of examples. Some integrations. We saw now include Paul now passing us.
Speaker 3: Some integrations with Paul News include Paul News passing us.
Speaker 3: their balance on hand data, that inventory data, so that we can better predict what's going to be on the shelves. But in addition to that, we have 600,000 shoppers in 80,000 grocery stores, basically capturing on a, you know, daily, hourly basis, like whether products are on the shelves or not, which allows us to train our algorithms.
Our balance on hand, Ddos that inventory data so that we can better predict what's gonna be onto shelves, but in addition to that we have 600000 shoppers in 80000 grocery stores basically capturing on a.
Daily hourly basis with.
Where there are products on the shelf now which allows us to train our algorithms are too.
To understand much better what is on the shelf and in fact, the greatest compliment that we are we have is that some of our retailers and some of our brand partners to use this data to improve that store operations, because thanks to our shopper, we know better than what's on the shelf then sometimes of retailers.
Do themselves and these data helps them improve their operations, which is a really a wonderful virtuous loop and then the last thing I'll mention is that shell rates really means you know like includes replacements and we Havent made 75 million replacement just in Q3 alone.
95% satisfaction on those replacements and again that speaks to our scale and the fact that we have so much.
Speaker 3: So much, you know, feedback from users about what is a good replacement? That's not a good one that we can constantly through machine learning, improve that, we find out. And I have, you know, the best quality industry based on all of the data that we have accumulated over time.
Feedback from users about what is a good replacement doses are not so good one that we can constantly through machine learning improves that we signed up and the best quality in the industry based on all of the data that we have accumulated over time. So it's still we still continue to want to improve we'd go after every basis.
Speaker 4: What is a good replacement? This is not a good one that we can constantly through machine learning, improve that, we find out. And I have the best quality industry based on all of the data that we have accumulated over time. So we still continue to want to improve. We go after every basis points there, but we are very proud of the level of quality we provide. And under second question, Ron, around incentives, just to clarify what I suggested was year over year, we saw about 80 basis points of efficiency gains in transaction revenue. And then we reinvested about 40 basis points of that into consumer incentives, which is part of our plan as we make a service. More affordable, we can pass the savings back onto customers quarter over quarter. Incentives were roughly flat. We like incentives.
Speaker 3: So still, you know, we still continue to want to improve. We go after every basis points there, but we are very proud of the level of quality we provide.
Points out, but we are very proud of the level of quality that we provide.
Speaker 4: And on your second question, Ron, around incentives, just to clarify what I suggested was year over year, we saw about 80 basis points of efficiency gains in transaction revenue, and then we reinvested about 40 basis.
And on your second question Ron around incentives just to clarify what I suggested was year over year, we saw about 80 basis points of efficiency gains in transaction revenue and then we reinvested about 40 basis points of that into consumer incentives, which is part of our plan as we make the service.
Speaker 4: into consumer incentives, which is part of our plan, as we make the service more affordable, we can pass those savings back on to customers. Quarter over quarter, incentives were roughly flat. We like incentives because we can target them to specific customer behavior types, for example, referrals to generate new activations or coupons to resurrect users that have not been activated.
More affordable we can pass those savings back onto customers quarter over quarter incentives were roughly flat, we like incentives because we can target them to specific customer behavior types for example.
Hurdles to generate new activations or coupons to resurrect users that have not been active in some time.
Speaker 4: And the framework that we use for incentives is similar to the framework that we use for paid marketing, where we're looking to invest where, based on our five-year LTV goal.
And the framework that we use for incentives is similar to the framework that we used for paid marketing, where we're looking to invest where based on our five year LTV guardrails.
Thank you one moment for our next question.
Speaker 1: Thank you. One moment for our next question.
Speaker 1: Our next question comes to the line of Jason Healthstein from Oppenheimer.
Our next question comes from the line of Jason Health Stein from Oppenheimer.
Thank you.
Speaker 12: Thank you. Can I have to about Instacarp Plus any color is the kind of growth rate or how that's gone in the quarter? And then have you...
I asked about in CCAR plus.
Any color as to kind of growth rates or how that how that has gone in the quarter and then have you been leaning more into that or not into that based on kind of what you've been seeing from customer conversion and then secondly, just a follow up on advertising the trade desk integration.
Speaker 12: and leaning more into that or not into that based on kind of what you've been seeing from you know, customer conversion. And then secondly, just a follow up on advertising the trade desk integration. I mean, could that be meaningful once it's scaled, just help us understand kind of where that fits into your ads back, thanks.
Could that be meaningful ones at scale, just help us understand kind of where that fits into your adds back. Thank you.
Speaker 3: I'll take the trade desk and then maybe Nick will take in Scott plus so on on the trade desk.
I'll take the trade desk, and then maybe Nick well they can sculpt plus so on on the trade desk.
Speaker 3: We're excited about the partnership. It is for context for everyone. It is a way to use Instagram self-body data in combination with a programmatic buy-on-the-trade desk. This is something that a lot of our brand partners have been asking about.
We're excited about the partnership it is a full context for everyone. It is a way to use in the GALT softball, the data.
In combination with a programmatic buy them to trade desk. Because this is something that a lot of our brand partners have been asking about it's it points to a larger vision that we have around the scaling offsite advertising, but I would say in the short term, we don't expect that to be a material driver of auto revenue.
Speaker 3: It points to a larger vision that we have around scaling off-site advertising, but I would say in the short term, we don't expect that to be a material driver of adding another revenue. We want to continue building off-site advertising over time through a series of partnership and are using the trade desk integration to tend to see, then here we go.
We want to continue building off site advertising over time through a series of partnership and all using the trade desk integrations, you see tend to sit and see how it goes.
Speaker 11: And related to Instacarp Plus, for our S1, we had 7.7 million now as of June and 5.1 million paid Instacarp Plus subscribers. We did not disclose these metrics on a quarterly basis, but I'll comment that we do continue to see malgrove trending in line with orders growth and ongoing strength in Instacarp Plus penetration, which continues to represent more than half of the activity.
And related to instant card plus.
Per our S. One we had $7 7 million MAU as of June and $5 1 million paid in <unk> plus subscribers. We did not disclose these metrics on a quarterly basis, but I'll comment that we do continue to see mail growth trending in line with orders growth and ongoing strength in instant card plus penetration which continues to represent.
More than half of the activity on our platform.
Speaker 1: Thank you. One moment for our next question.
Thank you one moment for next question.
Our next question comes from the line of Justin Post from Bank of America.
Speaker 1: Our next question comes from the line of Justin Post from Bank of America.
Yeah.
Speaker 4: Great, thank you. Two questions. First, could you talk a little bit about the grocery pipeline, both maybe new partners or maybe more importantly, deepening the relationships with the existing partners? How do you feel about that over the next year? And then maybe for Nick, you mentioned you're at 7.2% transaction take rates, kind of in the upper half of the range for long term. Could you talk about the drivers as you look out the next 12 months, both positive and negative on take rates? Thank you.
Great. Thank you two questions.
First could you talk a little bit about the grocery pipeline, both maybe new partners or maybe more importantly, deepening the relationships with the existing partners. How do you feel about that over the next year and then and then maybe for Nick.
You mentioned, you're at seven 2% transaction take rates kind of in the upper half of the range for long term could you talk about the drivers as you look out the next 12 months, both positive and negative on take rates. Thank you.
Speaker 3: Yes, thanks for the question. So on the grocery pipeline, as you probably saw in the show, the letter, we continue to unborn new partners, including large ones, like giant EgoDisk quarter, which we're very excited about. And in terms of deepening of relationship, we have several lines of business that we continue to roll out. You so far, example, in the quarter of your short convenience, continuing to roll out with partners like WakeFirm, pick up, starting to roll out with Kruger, which we're excited about, and also continuing to power the unannoperated websites and businesses of our partners, like, for example, powering delivery for high IV.
Yeah. Thanks for the question.
So on the grocery pipeline.
So you probably saw in the shareholder letter, we continue to onboard new pulp miles, including large ones like giant. She goes this quarter, which we're all very excited about and in terms of deepening of relationship are we have several lines of business that we continue to rollout.
So for example in the quarter of just real convenience continuing to rollout.
Paul and I was like Wix pick up starting to rollout with Kroger, which we're all excited about and also us continuing to power the owned and operated websites and businesses of all of our partners like for example, our.
Power delivery for Ivs and so this is just kind of a flavor of the type of work that we continue to do and fundamentally I expect to continue doing that over the next few quarters about feeling good about these lines of business is being very compelling for our partners and are continuing to grow.
All that out I forgot to mention snap, which we are.
Our recently announced with Djs and we expect a snap to come back to being a tailwind for us in the future as we rolled out a new path on snap.
It doesn't mean that Martha headwinds is sharing with us not benefits being cut by 30%, but we expect that to go back to being a tailwind for the business as we onboard new partners.
Speaker 11: And as it relates to transaction revenue, the largest driver of the increase in our transaction revenue as a percent of GTV historically, has been efficiencies related to batching, which means it can cost us less per order because we have the ability to increase the number of orders that a shopper is shopping for at the same time. We expect to continue to see efficiencies in batching, but we don't flow all of that through to the bottom line. We reinvest it. We reinvest it into consumer incentives as we just discussed. And other times we invest it into new service offerings like No Rush. No Rush is an opportunity for a customer to save money and have no delivery fee if they give us a three hour window to deliver their groceries.
Speaker 4: And as it relates to transaction revenue, the largest driver of the increase in our transaction revenue as a percent of GTB historically has been efficiencies related to batching, which means it can cost us less per order because we have the ability to increase the number of orders that a shopper is shopping for.
And as it relates to transaction revenue the largest driver of the increase in our transaction revenue as a percent of GTT historically has been efficiencies related to batching, which means it can cost us less per order because we have the ability to increase the number of orders that are shopper is shopping.
Four at the same time.
Speaker 4: We expect to continue to see efficiencies in batching, but we don't flow all of that through to the bottom line. We reinvest it. Sometimes we reinvest it into consumer incentives as we just discussed.
We expect to continue to see efficiencies and batching, but we don't flow all of that through to the bottom line, we reinvest it at sometimes we reinvested into consumer incentives as we just discussed and other times, we invested into new service offerings like no rush no rush as an opportunity for a customer to save money and have no delivery fee if they give us.
Speaker 11: In other times, we invest it into new service offerings, like No Rush. No Rush is an opportunity for a customer to save money and have no delivery fee if they give us a three-hour window to deliver their groceries. And that allows us.
A three hour window to deliver their groceries that allows us.
Speaker 4: to increase the battery on those orders and reduce our cost, but we've turned that into a new product in the service offering for customers. So our long-term range is 6.5 to 7.5%, we're at 7.2%, and we'll continue to balance growth through incentives and new product offerings along with the
To increase the batch rate on those orders and reduce our cost, but we've turned that into a new product and new service offerings for customers. So our long term range of six 5% to seven 5%. We're at seven 2% and will continue to balance growth through.
Through incentives and new product offerings, along with efficiencies.
Speaker 1: Thank you. One moment for our next question.
Thank you one moment for next question.
Our next question comes from the line of Andrew Boone from JMP Securities.
Speaker 1: Our next question comes from the line of Andrew Boone from JMP Security.
Speaker 6: Thanks so much for taking my question. I wanted to ask about grocery delivery.
Thanks, So much for taking my question I wanted to ask about grocery delivery elasticity is there any thoughts you can share there and then are you, making progress on crushers offering and store fees. How is that going as you guys have those discussions just so much grocers. Thanks, so much.
Speaker 6: Is there any thoughts that you can share there? And then are you making progress on grocers offering in-store fees? How's that going as you guys have those discussions with grocers? Thanks so much.
Can you repeat the second question on the line cut out a bit.
Speaker 6: Yes, sorry about that. I wanted to ask about grocery delivery elasticity. And the question really is, how do you guys think about that? What are you guys seeing from consumers on that level? And then how are grocers moving towards in-store fees? What are you guys seeing on that component? Thanks.
Yes, sorry about that.
I wanted to ask about grocery delivery elasticity and the question really is how do you guys think about that what are you guys seeing from consumers on that level and then how our groceries moving towards in store fees right. What do you guys see on that that component.
Yeah.
Speaker 3: Okay, I'll ask, I'll ask, I'll answer the question and then I may want to ask you to clarify which means by insta-key.
Okay, I'll I'll I'll I'll ask on until the first question and then I may wanted to ask you to clarify what you mean by install fees.
Speaker 3: On grocery delivery elasticity, basically what we've seen is that ever since kind of the rise of inflation in the middle of last year, pretty much all segments of customers have become more price sensitive. However, within those, there are still some people who value price over who value convenience over price. And for them, we have an offering called Priority Delivery where we charge extra, like $2 for deliveries that are delivered in less than 15 minutes.
On the grocery delivery elasticity basically what we've seen is that ever since kind of the rise of inflation in the middle of last year are pretty much all segments of customers as become more price sensitive however, within those they'll still some people value price over raws you can.
Jinyan silver price and for them, we have an offering called priority delivery, where we charge extra like $2 four deliveries that's all.
In deliver the less than 15 minutes. Meanwhile, on the other end of the spectrum you have people who are.
Speaker 3: Meanwhile, on the other end of the spectrum, you have people who prioritize price over convenience. And for them, we have options like no rush delivery, which Nick just covered. And so really what we're trying to do is have offerings on the price to convenience scale that's really aligned with all of the needs of the entire total addressable market. And if you look at all kind of demographics by income, they went from a couple of years ago being mostly high income customers to now mirroring US population pretty closely because of everything that we've put in place in terms of affordability, whether it's our fees or integration with loyalty programs for grocers.
Prioritize price of a convenience and told them, we have options like no rush delivery, which Nick just covered and so really what we're trying to do is offerings on the price too convenient scale, that's really aligned with all of the needs of the entire total addressable market.
And if you look at all our kind of demographics by income. They went from a couple of years ago being mostly high income customers to now.
Mirroring U S population pretty closely because of everything that we've put in place are.
In terms of affordability was off its ease of integration with loyalty programs for grocers deals from brands coming onto the platform that that brought a lot more affordability to the table now I am curious what you meant by grocers moving to install fees are you do you mean by it sounds like same.
Speaker 3: Giles from brands are coming onto the platform that have brought a lot more affordability to the table.
Speaker 3: Now, I'm curious what you meant by growth is moving to in-store fields. Do you mean by that, like same price as... Yeah, I meant matched in-store.
Price is.
I mean, it's matched in store, yes, sorry about that.
Speaker 3: Imagine, yeah, it makes total sense. So out of 1400 retail banners that are on our platform, 425 of them are at price parity with the store. And what we are seeing is that for the three largest growth sales that are at price parity with the store, they are growing faster than the rest.
Yeah. It makes it a little time, so out of a 1400 retailer retail banking I was I thought one of platform 425 of them are not.
Price parity with the store and what we are seeing is that for the three largest gross sales I thought price parity resisting the all growing faster than the rest of our platform and therefore, we think that you know grocers, who embrace an omnichannel strategy.
Speaker 3: of the platform. And therefore, we think that, you know, browsers will embrace a non-new channel strategy and embrace giving the same value online as they do offline because a non-new channel customer spends.
And embrace giving the same value online as they do offline because of the omni channel customers spend two to four times as much as a install on the customers all the grocers that are poised to gain share in the coming years.
Speaker 3: two to four times as much as an in-store only customer.
Speaker 3: are the grosses that are poised to gain share in the coming years. And therefore, this is something we highly encourage all grosses to do. Now, we don't control prices on Instacart, they do. But we certainly give them tools to optimize pricing like Eversite, which is a company we acquired last year and continue to encourage them to match the same prices as us all.
And therefore this is something we highly encourage horses to do now we don't control prices I'm used to call it that they do.
But we felt that when he gives them tools to optimize pricing like Ah, if upside, which as a company we acquired last year.
And continue to encourage them to too much sand prices have stalled.
Alright, thank you.
Speaker 1: Thank you. One moment for our next question.
Thank you one moment for next question.
Speaker 1: Our next question comes to the line of Bernie McTernan from Needham and Company.
Our next question comes from the line of Bernie Mcternan from Needham and company.
Speaker 6: Great, thank you for taking the questions. Maybe just to start a follow-up question on the integrations where you have access to inventory data with the retailers. Is that just with enterprise partners or is it broader? And is that data exclusive or do you think your competitors could have access to it over time as well?
Great. Thank you for taking the questions maybe just to start a follow up question on the integrations, where you have access to inventory data with the retailers is that just with enterprise partners or is it broader than is that data exclusive or do you think your competitors could have access to it over time as well and then another follow up on the previous <unk>.
Speaker 6: And then another follow up on a previous question, just the talk of conversion from smaller baskets to larger basket customers.
Just to talk of conversion from smaller baskets to larger basket customers.
Speaker 6: What percentage of customers generally come to Instacarp for the first time purchasing smaller AOV baskets for a larger one?
What percentage of customers generally come to in CCAR for the first time purchasing smaller baskets versus larger ones. Thank you.
Sure.
Speaker 3: Thank you. So on the inventory data, I would say, you know, we, we try to have these integrations with as many partners as possible. That being said, a lot of retailers don't really have the sophistication to have like that depth of integration. So it really varies. And with a lot of them, like it tends to be more geared towards enterprise.
And she said onto inventory data I would say.
We try to have these integrations with as many partners as possible and that being said a lot of retailers don't really have the sophistication to of like that depth of integration. So it really varies.
We saw a lot of them like it tends to be more geared towards enterprise, but just to reiterate one more time.
Speaker 3: Just to reiterate one more time, what I said earlier, a lot of our lead in found rate and shell rate also comes from combining the retailer data with our shopper data, and with the fact that we have so much access to what's on the shelves in real time. And it's really that combination that gives us a strong competitive advantage.
Said earlier, a lot of like a lead in foundry and shell rate also comes from combining retail all data, we'd all shop, all data and with the fact that we have so much access to what's on the shelves in real time, and it's really that combination that gives us a strong competitive advantage.
Speaker 3: I would say, you know, you mentioned in competitors get access to similar things. I would say, you know, it goes much deeper than just integration into inventory system. We're integrated with on retailer CRM system, with on retailer OMS system, with on retailer's point of self system to do bypass checkout. And so all of the integration takes enormous amounts of time, especially with retailers who have very limited IT resources. And that's why we have such a deep advantage for having just focus on grocery for the last 10 years.
I would say you know you mentioned can competitors get access to similar thing I would say you know it goes much deeper than just our integration into our inventory system, we're integrated with all retailers.
And he's already tell Oh EMS system, we've already tell us point of sale system to Dubai fast checkout and so all of these integrations take enormous amounts of time, especially with retailers, who have very limited resources and that's why we have such a deep advantage for having just focus on the grocery for the last 10 years.
Speaker 3: We also have, you know, hundreds of millions of folders over, you know, 11 years and through our AI and ML, all of these data points contribute to us having such a superior experience.
We also have you know hundreds of millions of hotels over 11 years and through our AI and ml all of these data points contributes to us having such a superior experience.
Speaker 3: On your second question, Nick, do you want to take that?
On your second question, Nick do you want to take that.
Speaker 4: Sure. Just to give you a framework, 75% of grocery spend in North America comes from large.
Sure.
Just to give you a framework 75% of grocery spend in North America.
Comes from large baskets and so we believe it is critical that an online grocery service can serve that use case and we think that we're the best at that.
Speaker 4: And so we believe it's critical that an online grocery service can serve that use case and we think that we're
Speaker 4: If you were to look at market share of online first players in large baskets, our share is greater than 70%, but small baskets are important, too, as a fill-in use case for those customers that are doing their weekly shop, but also as a way to inactivate with the service, and we have greater than 50% share.
If you were to look at market share of online first players in large baskets, our share is greater than the 70%, but small baskets are important too.
Still in use case for those customers that are doing their weekly shop, but also as a way to activate with the service and we have greater than 50% share.
Speaker 4: of those baskets. We don't break down the mix of our activations in those two tiers, but we do point out based on third-party data that our large basket activations are more than five times higher than other new entrants, and our ability to convert a small basket activation is more than five times higher as well compared to new entrants.
Of those baskets, we don't breakdown the mix of our Activations in those two tiers, but we do point out based on third party data.
That our large basket activations are more than five times higher than other new entrants in our ability to convert a small basket activation has more than five times higher as well compared to new entrants.
Thank you one moment for next question.
Speaker 1: Our next question comes from the line of Benjamin Johnson from Piper Sandler.
Our next question comes from the line of Benjamin Johnson from Piper Sandler.
Speaker 13: Hi there, thanks for taking my question. I was just wondering if you could talk about the progress you made on increased batching during the order and how you plan to balance increased shop or efficiency with order quality over the long run. Thank you.
Hi, there thanks for taking my question.
I was just wondering if you could talk about the progress you've made on <unk>.
<unk> batches during the quarter and how you plan to balance increased shopper efficiency with order quality over the long run. Thank you.
Speaker 11: Thanks for the question. So we continue to see that we improve our batch rate, and we've done so consistently, and we've been able to do that while making sure that order quality remains high, as Fiji mentioned in the introductory remarks, our order quality is higher than it's been since pre-pandemic, and certainly the highest that it's been since we've reached mega-scale.
Thanks for the question. So we continue to see that we improve our batch rate and we've done so consistently and we've been able to do that while making sure that order quality remains high as D. G mentioned in the introductory remarks, our order quality is higher than it's been since pre pandemic and certainly the highest that it's been.
Since we've reached a mega scale for us it's all about balancing the four sides of our marketplace.
Speaker 4: For us, it's all about balancing the four sides of our marketplace.
Speaker 4: We want to make sure that we provide great opportunities for shoppers to earn and also to make sure that we keep fees low for our consumers and for our grocers and so Batching is a key differentiator for us It's something that we were truly able to unlock once we once we reached very significant scale as a reminder Batching is not the result of the number of shoppers. We have it's the result of the density of big basket orders that we have in the same store at the same time
We want to make sure that we provide great opportunities for shoppers to earn and also to make sure that we keep fees low for our consumers and for our groceries and so batching as a key differentiator for us it's something that we were truly able to unlock once we once we reached very significant scale as a reminder, batching.
Is not the result of the number of shoppers. We have it's the result of the density of Big Basket orders that we have in the same store at the same time.
Speaker 4: And that's something that's incredibly difficult to replicate.
It's something that's incredibly difficult to replicate.
Speaker 14: As we continue to see batching efficiencies, we will reinvest some of those into consumer incentives and create new service offerings like no rush and we'll balance on an ongoing basis.
As we continue to see batching efficiencies, we will reinvest some of those into consumer incentives and create new service offerings like no rush.
And we'll balance on an ongoing basis.
Thank you one moment for next question.
Speaker 1: Our next question comes from the line of Deepak Mativanun from Wolf Research.
Our next question comes from the line of Deepak <unk> from Wolfe Research.
Speaker 15: Hey, guys, thanks for taking the questions. One big picture question and another one on exclusives. So as we look ahead beyond 4Q into 2024, can you talk about a few factors that could help the GTV growth rate at a high level, currently from mid-single digits? Is it more dependent on macro factors? Are there any sort of notable initiatives that you would say that can drive potential acceleration?
Hey, guys. Thanks for taking the questions one big picture question and another one on exclusives. So as we look ahead beyond <unk> into 2024 can you talk about a few factors that could help the GDP growth rate at a high level kind of currently from mid single digits is it more dependent on macro factors are there.
Or any sort of notable initiatives that you would say that can drive potential exploration and then second one can you talk about the exclusive agreements you have with some of the retail partners. There is a concern in the investment community that the loss of exclusives could hurt your value prop in the near term could you maybe give us an update on the timeline and what happened in the past when you lost some of these exclude.
Speaker 15: And then second one, can you talk about the exclusive agreements you have with some of the retail partners? There is a concern in the investment community that loss of exclusives could hurt your value prop in the near term. Could you maybe give us an update on the timeline and what happened in the past when you lost some of these exclusives?
Thank you so much.
Speaker 3: Thanks for the question. So on reaccelerating of GGG, well, first off, we are pleased to see some of that reacceleration from Q1 to Q2, Q2 to Q3.
Thanks for the question so on re accelerating Oh, Gee well soft stuff. We are pleased to see some of that re acceleration from Q1 to Q2 Q2 to Q3.
Speaker 3: What is going to push out to continue is two-fold one is on recipe of continuing to provide selection for the ability, quality, convenience. These have made us into the category leader so far. This is what we're going to continue to do to accelerate growth.
What are you just got pushed.
Pushed out to continue is two fold one is one recipe of continuing to provide selection affordability quality convenience as he says you know made us into the category leaders. So far if this is what we're going to continue to do to accelerate growth, but also some of the macro factors.
Speaker 3: but also some of the macro factors easing up. And so two things there that can help is, one, all mature cohorts continuing to stabilize. As Nick mentioned, we are pleased to see that the 2020-2021 cohort decreased single digits in Q3 versus double digits in H1. And so seeing some stabilization of that would certainly help us.
Using up until.
Two things that can help is one on the truck cohorts continuing to stabilize as Nick mentioned, we are pleased to see that the 'twenty 'twenty 2021 cohort a decrease single digits in Q3 of us at double digits in H, one and so are seeing some stabilization of that would sell.
And really help us.
Speaker 3: The second thing is that a big part of the headwind teacher is the fact that SNAP benefits work by 30%. We certainly so snap as a tailwind to our business because we were a pioneer in bringing the SNAP program online that has been a headwind teacher, but we expect SNAP to go back to being a tailwind next year as we continue to onboard more browsers onto SNAP. So that will continue to help.
Second thing is that a big part of the headwinds as Jeff.
So fox that stopped benefits were cut by 30%.
We certainly saw snap is a tailwind to our business because we were a pioneer in bringing its just not program online.
So that's been a headwind to shell, but we expect snap to go back to being a tailwind next year as we continue to onboard more grocers onto snaps. So that that will continue to a halt now in terms of your question on exclusives I Wonder if you kill that exclusivity is not our strategy our growth is falling out with us.
Speaker 3: Now, in terms of your question on exclusives, I want to be clear that exclusivity is not our strategy.
Speaker 3: grocers partner with us because we offer the best service at the most competitive prices and with the best quality and so this is something that is very fundamental to our strategy. Now when these grocers go non-exclusive and decide to sit on multiple marketplaces
Because we offer the best Sal This is the most competitive.
Prices and with the best quality and so this is something that is very fundamental to our strategy now when she's grocers go non exclusive and decided to sit on multiple marketplaces.
Speaker 3: What happens is, first, these retailers don't leave us, they just diversify their business, but they also continue to grow with us and deepen their relationship with us because we are the partner that can drive the most growth for them.
What happened is first these retailers don't leave us they just diversifies our business, but they also continue to grow with us and deepens our relationship with us because we all know pulp mills that can drive the most growth for them and then finally one thing that's interesting is that when they are electing to be non exclusive.
Speaker 3: And then finally, one thing that's interesting is that when they're electing to be non-exclusive, it means that retailers elect to get to higher fees with us, so our revenue and profitability can actually continue to grow from this point of going non-exclusive.
It means that the retail is elect to get to higher fees with us. So on revenue and profitability you can actually continue to grow from a he has fallen off going nonexclusive.
Speaker 1: Thank you. One moment for our next question.
Thank you.
One moment for next question.
Speaker 1: Our next question comes in the line of Mark Kelly from Stiefel.
Our next question comes from the line of Mark Kelly from Stifel.
Speaker 16: Great, thanks very much. I just had two quick ones. The first is.
Great. Thanks, very much I just had two quick ones. So first is.
Speaker 16: Just going back to the advertising side, when I see announcements like the one with the trade desk and some of the other third party verification companies.
Just going back to the advertising side.
And I see announcements like the one with the trade desk and some of the other third party verification companies.
Speaker 16: And I know the trade desk, you know, is aimed at more off-site, but is there an opportunity to maybe add incremental demand partners outside of the API, API partners that you already have, you know, like a larger scale DSP, like the trade desk over time? Does that make sense for your business?
And I know the trade desk is aimed at more offsite, but.
Is there an opportunity to maybe add incremental demand partners outside of the API API partners that you already have.
Like a larger scale DSP like the trade desk over time does that make sense for your business.
Speaker 16: And second, Nick, just really quick, you know, with the buyback in place, can you please just remind us what the capital allocation priorities are? Thank you.
Second.
Nick just really quick with a buyback in place can you. Please just remind us what your capital allocation priorities are thank you.
Mark ons honestly outside fall now, we're really trying to figure out how to you know scale is offsite to add opportunity in a way that is extremely privacy safe and also maintains you know what.
Speaker 3: figure out how to, you know, scale these off-site ad opportunity in a way that is extremely privacy safe and also maintains, you know, what we think makes Instacart really special in terms of the value of our data. I see the partnership with the Trade Desk as just the beginning of, you know, us entering that space, so nothing more to announce at this time, but we are continuing to explore more opportunities to continue to grow that business as we believe the value of our data is very significant and something that our brand partners definitely want to use beyond our own properties. Next.
We think Mexican sick all three of these special in terms of the value of all data Ics are piling up ship with the trade desk is just the beginning of.
US entering that space, so nothing more to announce at this time, but we are continuing to explore more opportunities to.
To continue to grow that business as we believe the value of all data is very significant and something that our brand partners are definitely if you want to use beyond our own properties.
Speaker 4: Nick, do you want to take the buyback on your question on capital allocation? Just as a reminder, we have more than $2.2 billion of cash current.
Nick do you want to take the buyback.
On your question on capital allocation just as a reminder, we have more than $2 $2 billion of cash currently the business continues to produce cash.
Speaker 4: the business continues to produce cash, and we continue to invest significantly in R&D to innovate and support our partners in sales and marketing to grow our business and the business of our partners. And so it's not an and, it's not an or, it's an and. We can do those things and also look to opportunities.
And we continue to invest significantly in R&D to innovate and support our partners and sales and marketing to grow our business and the business of our partners and so it's not an and not an or it's an AD that we can do those things and also look to opportunistically repurchase shares.
Speaker 11: repurchase shares to make sure that we are great stewards of
To.
Make sure that we are great stewards of shareholder capital.
Okay.
Speaker 1: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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