Instacart’s Pronounced Growth Likely to Subside as Home Delivery Competition Intensifies

Equity Analyst

Noah Rohr

Orders

Revenue segments as reported by the company.

Transaction

Advertising and other

Revenue Segments

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Operations and support

Research and development

Sales and marketing

General and administrative

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

With a network of nearly 8 million monthly active customers and over 600,000 drivers, Instacart’s grocery delivery platform boasts a strong presence across the United States. The firm benefited from a pandemic-induced surge in online grocery ordering in 2020, with its gross transaction value eclipsing $20 billion (versus $5 billion in 2019) as retailers hastily joined forces with Instacart to meet consumers’ evolving purchasing preferences that favored home delivery. In the years that followed, Instacart has managed to maintain a resounding position in the grocery delivery industry, as the platform’s more than $30 billion in gross transaction value gives it about 70% share of grocery sales placed on third-party intermediary platforms and about 30% of total grocery delivery sales (per eMarketer). 

Instacart’s platform strengthens as ordering activity grows. With increased order volumes, the firm can more efficiently route its network of gig drivers between stores and customers’ homes, driving down the time required to complete a delivery order and lowering overall fulfillment costs. With Instacart capturing about 6.5%-7.5% of each order’s value as revenue, an increase in gross transaction value allows Instacart to profitably reduce its take rate while still boasting ample scale to cover its fixed costs, thus creating a virtuous low-cost cycle. The firm also leverages its platform usage to drive high-margin advertising revenue from its brand partners. 

With that said, Instacart’s competitive standing is not without contention. Instacart faces competition from both third-party intermediary platforms (such as narrow-moats Uber and DoorDash) that boast more pronounced driver networks, and its own retail partners, which paints an opaque future for the firm. Many of the nation’s largest retailers do not appear content with outsourcing delivery services and continue to gradually bring omnichannel fulfillment capabilities in-house. And, with a business model that requires significant scale in the form of both order volume and driver breadth, increasing fulfillment competition may pressure Instacart’s unit economics and financial marks in the future.

Business Strategy & Outlook

We don’t believe Instacart benefits from a durable competitive edge. While we acknowledge that the grocery delivery platform’s 600,000 shoppers and over 7 million monthly active users could give rise to a possible network effect, we think Instacart is likely to face growing competition from both third-party intermediary platforms (such as Uber and DoorDash) and its incumbent retail partners seeking to bring omnichannel operations in-house. Furthermore, we expect the pace of digital ordering to slow materially from its pandemic-induced surge, making it more arduous for Instacart to grow transaction volumes and thus reinforce a network effect.

Instacart benefited from burgeoning grocery delivery demand in 2020 as retailers scrambled to adapt to consumers’ new purchasing methods. Retailers' hasty adoption of online ordering and home delivery helped propel a significant increase in Instacart’s retail partnerships, bringing its total serviced storefronts from about 15,000 in 2019 to over 80,000 in 2024. The grocery delivery platform also saw its gross transaction value increase fourfold in 2020 to nearly $21 billion, and GTV eventually eclipsed $30 billion in fiscal 2023. As such, Instacart enjoys about 30% share of the total $106 billion grocery delivery industry and about 70% share of sales made on intermediary delivery platforms (per eMarketer).

While its pronounced growth has been impressive, we don’t think Instacart’s existing retail relationships, or its established network of users, prompt a durable edge over competing delivery platforms. First, while Instacart’s 1,500 retail relationships appear encouraging initially, most of Instacart’s partnerships are nonexclusive. For instance, retailers such as Aldi, Target, and Albertsons partner with multiple grocery delivery services, and we don’t believe significant data and technological integration exists yet between Instacart and retailers that would warrant a first-mover advantage over other intermediary platforms. To our knowledge, most of Instacart’s retail partners share data regarding its broad product catalog and, in some instances, store planograms, though we surmise this level of data is also shared with the likes of DoorDash and Uber. We would be encouraged if Instacart enjoyed more intricate integration at the stock-keeping-unit, or SKU, level with retailers, as we think this degree of data sharing could allow Instacart to improve driver and ordering efficiency in the event of stockouts and may provide retailers with valuable insight into online supply and demand. We note that Instacart has attempted to increase its level of integration with retailers through the rollout of its enterprise platform designed to work in unison with retailer’s existing online websites. However, the enterprise platform comprises only about 20% of Instacart’s GTV, making us wary of its moat-endowing strength. 

Additionally, given that Instacart was founded in 2013 and only became a ubiquitous grocery delivery service about four years ago, we don’t believe the platform has amassed a technological advantage or an irreplaceable user base compared with competing intermediaries. For instance, we don’t think Instacart’s network of 600,000 drivers is large enough to warrant an edge over Uber, whose global driver network stands near 7 million, and DoorDash, at 2 million. Without a clear edge in driver capacity and without prominent switching costs to prevent drivers from joining a new delivery service, we don’t see why Instacart’s drivers would be beholden to its platform. Similarly, Instacart’s 7.7 million monthly active users pales in comparison to Uber and DoorDash’s active user counts of 150 million and 37 million, respectively, which makes us skeptical of the durability of Instacart’s network effect.

Aside from growing competition from other third-party delivery platforms, we think Instacart’s standing is also threatened by retailers’ aspirations to internally develop online ordering and delivery capabilities. Assuming a perfectly rational competitive environment, we think it would be reasonable for grocers to collectively leverage the scalability that would come from using a single grocery delivery platform (such as Instacart, Uber, or DoorDash) because the inherent network effect would almost surely reduce home delivery costs for the entire industry. In reality, despite the attractive value proposition that Instacart (or another delivery platform) could theoretically offer to the broad grocery industry in the event of collective use, we believe grocers’ willingness to bring online fulfillment in-house provides a natural ceiling to its potential network effect. We think the intense competitive nature of grocery retailing makes firms reluctant to outsource what is currently viewed as a critical functionality of its business. This puts Instacart’s long-term relevance into question, in our view, especially as the firm faces uncertainty regarding worker classification and pay structures. Furthermore, retailers view their first-party online platforms as a lucrative medium to attract high-margin advertising dollars from consumer-packaged goods companies. In our opinion, this sours Instacart’s appeal to many retailers, as firms prefer to engage shoppers through their digital platforms directly rather than through third-party intermediaries. As such, we think Instacart’s success is inherently limited, as we doubt retailers will idly stand by as the delivery platform’s user base and advertising flourish. We think this is already apparent by the decision of wide-moat Walmart (which comprises about 25% of the domestic grocery industry) to aggressively invest in its own digital app and omnichannel fulfillment capacity in recent years. Similarly, no-moat Target has invested to expand its internal shipping capacity and even acquired Shipt, a grocery delivery firm, in 2017 to handle same-day home delivery for online orders placed on Target’s website. Pure grocers such as no-moat Kroger and no-moat Albertsons have also invested heavily in in-house delivery capabilities. As such, we think Instacart is viewed by most large grocers as a temporary solution as they pursue ongoing development of internal home delivery capabilities. 

With competition growing more stringent as grocers increasingly build out in-house delivery networks and fulfillment capacity, we surmise Instacart’s growth trajectory is likely to slow materially from the elevated pace seen in 2020-22. Giventhat the strength of Instacart’s business model is contingent upon expanding transaction volumes to drive delivery route efficiencies, we think Instacart’s ability to reduce fulfillment costs is likely to wane as it faces stringent market share competition (we estimate Instacart’s share of total grocery delivery sales declined from about 31% fiscal 2022 to 28.5% in 2023, based on eMarketer’s data), thus giving retailers more incentive to invest in their own delivery networks and fulfillment process. Furthermore, we believe larger grocery retailers have more adequate financial resources than smaller retailers to invest in its own fulfillment and delivery infrastructure. As such, we think Instacart is susceptible to suffering volume declines from its largest retail customers (we suspect firms such as Kroger, Publix, and Costco help drive a bulk of Instacart’s transaction activity), which could prompt worsening fulfillment economics in coming years.

In our view, increased delivery competition has also been evidenced by Instacart’s weaker growth in year-over-year transaction value by cohort, especially as it pertains to the 2020-21 group of signups. Notably, per Instacart’s prospectus, second-quarter 2023 gross transaction spending declined across each of its 2017-21 cohorts compared with the prior year. Sales and marketing expense per order has also increased in recent years (from $0.92 per order in 2020 to $2.40 in 2023), which we think captures the growing competitive landscape. We anticipate continued growth in Instacart’s marketing expenses per order as customers see a growing assortment of online channels to choose from, which we think is contrary to a traditional network effect advantage.

None

Economic Moat

Instacart (Maplebear Inc.)

Carolina Trust BancShares, Inc. is a bank holding company, which engages in the provision of financial services. Through the Carolina Trust Bank, it offers banking products and services such as savings accounts, personal and business loans, debit and credit cards, home equity line of credit, cash management, online banking, and mortgages. The company was founded on February 29, 2016 and is headquartered in Lincolnton, NC.

Earnings data Q3 2023

Earnings data Q4 2023

Earnings data Q1 2024

Earnings data Q2 2024

Instacart excels in Q1, focuses on growth and profitability

Instacart's Q1 2024 earnings call showcased exceptional performance, strong outlook, and a focus on sustained growth and profitability.
The company's strengths in market leadership, strategic partnerships, technology utilization, and affordability position it well for future success.
Challenges include competition, advertising revenue impact, operational efficiency, and the need for continuous innovation and adaptation.
Opportunities for Instacart include expanding partnerships, enhancing advertising revenue, evolving the enterprise segment, and diversifying the ad business.

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Maplebear, Inc. engages in the design and development of an online application that offers grocery delivery and pick-up services. The firm offers Instacart which enables users to connect with personal shoppers in the area who pick up and deliver groceries from local stores. The company was founded by Apoorva Mehta, Brandon Leonardo, and Max Mullen in 2012 and is headquartered in San Francisco, CA.

Instacart soared 40% above its IPO price on Tuesday as trading began. Its shares have since tumbled close to its debut price of $30 as momentum fades.

Instacart shares come back down to earth as IPO surge is wiped out

ARM Holdings PLC

Instacart fell below its IPO price in premarket trading, while chip-design company Arm is just above its own listing price. Fresh data suggest more pain could follow.

Instacart Falls Below IPO Price, Arm Is Also Close. What the Data Show Happens Next.

Klaviyo, Inc. 

Shares of the three tech companies that recently conducted initial public offerings — including two unicorns — were all trading lower early Thursday, with the most recent, Klaviyo Inc., pulling back after a strong debut on Wednesday.

Klaviyo, Instacart and Arm Holdings slide premarket as shine comes off recent crop of IPOs

Shares of Instacart, the online grocery-delivery service, slumped to their initial public offering price on Wednesday, as investors appeared to have second thoughts, in a setback for the newly energized IPO market.

Instacart shares slump to their IPO price as investors have second thoughts

Following Arm's debut, shares of Instacart surged more than 40% at their initial public offering (IPO) launch on Tuesday.

Instacart's Shares Have Dropped 18% Since Listing, Trading at $32

Marketing automation firm Klaviyo's shares closed well below their first-day high on Wednesday, while a slump in the stocks of Arm Holdings and Instacart added to doubts over whether a hoped-for new-listings revival would materialize.

Klaviyo, Arm, Instacart wobble, raising doubts over IPO revival

Instacart's IPO saw shares soar more than 40% on their first day of trading, driven by high demand for new IPO issues. Some shareholders are using the IPO to cash out which I consider a sign that shares are too expensive. While Instacart is already profitable, its high valuation suggests post-IPO correction risks and I would advise investors to stay on the sidelines.

Instacart: Another IPO Hype You Should Avoid

Instacart parent Maplebear and Arm have reversed sharply after their IPOs. Read on to find out if you should buy the dip on Instacart stock.

As Instacart Stock And Arm Suffer Reversals, Don't Forget Risks Of IPO Stocks

AMC Entertainment

Digital World Acquisition Corp

General Motors

Nikola

Nintendo

The September slump is in full effect as the S&P 500 fell about 2% since the end of August. Still, investors are finding plenty to be excited about in today's markets.

September's 7 Most Controversial Stocks: Buy or Bail?

Instacart shares dropped on Wednesday leaving them narrowly above their debut price

Instacart loses almost all its IPO gains by second day of trading as rally fizzles

Instacart was in the “right place at the right time” during the pandemic, but Needham analyst Bernie McTernan doubts the path forward will be as easy for the grocery-delivery company.

Instacart has a tougher path ahead, analyst warns as stock sputters

Instacart (NASDAQ: CART) is in the red this morning after a Needham analyst assumed coverage of the delivery company with a “hold” rating. McTernan shares his view on Instacart stock Bernie McTernan sees risks and rewards associated with Instacart stock as balanced.

Needham initiates Instacart stock with a ‘hold' rating

Instacart's shares have had a successful public offering, but there are concerns about growth, pricing strategy, and business quality. Instacart claims to be the leading grocery technology partner, serving 85% of the US grocery industry. The company's valuation looks reasonable with strong revenue growth and operating profits, but there are potential risks and uncertainties.

Instacart: Intrigued And Reserved At The Same Time

The leading grocery technology company Instacart (CART) made its Nasdaq debut on Tuesday.

Instacart (CART) Jumps on IPO: 3 Reasons to Buy the Stock

Instacart (NASDAQ:CART)) traded more than 5% lower, to $31.88, as the Nasdaq's newest listing retreats back towards the IPO offer price – after yesterday's initially giddy market debut temporarily spiked the market price by over 40%. The grocery shopping and delivery app firm initially saw its shares trade at an intraday high of $42 on Tuesday.

Instacart retreats towards IPO after Tuesday's giddy Nasdaq debut

The Federal Reserve's Federal Open Market Committee (FOMC) will announce its decision on another interest rate hike Wednesday afternoon.

A Busy Day: FOMC, Instacart and Klaviyo IPOs, Petroleum Inventories

Grocery-delivery app Instacart CAR, known officially as Maplebear Inc., fell 4% in premarket trade Wednesday, a day after the stock debuted on Wall Street with a bang, opening 40% above where its initial public offering priced before easing later on — potentially paving the way for more IPOs after a two-year dry spell. Arm Holdings Plc.

Instacart and Arm shares fall premarket as all eyes turn to Klaviyo

Instacart stock soared 40% above its IPO price on Tuesday when it started trading. Before Tuesday, the grocery brand secured a $10.2 billion valuation fully diluted, far below the $39 billion valuation it earned during the pandemic.

The IPO market has been frozen for 2 years. Arm and Instacart point to a thaw coming in 2024.

Dollar General

eBay

Pinterest

Steelcase

Shares of Steelcase Inc. SCS gained 3% after the office-furniture maker called for “significantly improved” profit as more companies order their employees back to the office.

Instacart stock slips after IPO, Dollar General shares hit by downgrade and other stocks on the move

After years of rumors of an imminent IPO, Instacart has finally filed for a public offering of its shares, aspiring to raise about $600 million from markets, at a pricing of about $9-$10 billion for its equity. Instacart operates as the intermediary between customers and grocery stores, where customers pick the grocery store that they would like to shop at and the items that they would like to buy at that store, and Instacart does the rest. To estimate revenue growth at Instacart, I think it makes sense to break down revenues into transaction revenues and advertising revenues, with the former coming from service fees and subscriptions, and the latter from ads.

Putting The (Insta)Cart Before The (Grocery) Horse: A COVID Favorite's Reality Check

Instacart stock closed at $33.70 a share on Tuesday (Sept. 19), the day of its initial public offering (IPO).

Instacart Stock Closes 12% Higher Than IPO Price

Investors may be wondering where the opportunity lies at among recent IPOs as analyst and research firms work to complete their financial estimates for Instacart (CART) and Arm Holdings (ARM).

Time to Buy these Recent IPOs after Instacart's (CART) Day View?

CNBC's Jim Cramer gave investors his take on Instacart's IPO, saying he sees a bull and bear case for the stock.

Cramer examines Instacart's IPO, says he's 'torn' on the stock

The grocery-delivery app Instacart, known officially as Maplebear Inc., debuted on Wall Street with a bang Tuesday, opening 40% above where its initial public offering priced before easing later on — potentially paving the way for more IPOs after a two-year dry spell.

Instacart stock opens with a bang, in another sign of life for cautious IPO market

Shares close at $34.23, the second successful IPO in a week following sale of UK chip designer Arm

News for Instacart (Maplebear Inc.) Stock (CART)