Instacart revenue and GMV growth slowing down

In their first quarterly report as a public company, Instacart reported a slightly slower growth. The revenues continued to grow at a double-digit rate, whereas Gross Transaction Value (GTV) has slowed down to low single-digits. Besides the revenue growth, the company reported Stock-based compensation (SBC) expenses worth $2,6 billion. This one-off expense dragged the company's overall financial situation to unprofitability.

However, reported adjusted numbers painted a picture of a company that has been able to improve margins and reduce costs.

At the same time, the revenue growth part of the business has been gradually decreasing. For Q3/2023, Instacart reported +14,4% growth in revenues and +5,8% growth in Gross Transaction Value (GTV).

Ad growth driving revenue and profitability

The revenue growth was driven by the growth in Ad sales, with a +19,4% jump in Ad revenue. As a result of the growth, Ad sales represent almost 30% of Instacart’s total revenues and are an essential element in the improved Gross margins (72,6% → 73,2%).

Compared with the Sales and marketing expenses of Instacart, the Ad sales are already 40% bigger. This means that every dollar Instacart invests in acquiring customers generates 40% more in selling advertising slots for the suppliers.

Another interesting question is when the retailers realize that besides taking the transaction fees, Instacart also influences their marketing revenues as the suppliers transition marketing spending to Instacart.