Instacart is a leading online…

Instacart (

CART, Financial) is one of the most popular grocery delivery companies in the U.S, with a 21.8% market share as of 2023, this is up substantially from just 10.2% market share in 2019, according to data from eMarketer. 

This means approximately $1 out of every $5 spent on online grocery shopping is spent on Instacart. Given Americans shop for groceries 1.6 times per week, with an average spend of $438 per month, this is a lucrative market. Andresson Horowitz Backed Instacart has recently gone public (under Maplebear inc) on the stock exchange in a blockbuster IPO. In this post, i’m going to break down its business model, financials and valuation, let’s dive in. 

Business Model 

The Instacart business model focuses around the online delivery of Groceries and household items. The company was a pioneer in this space, but does face competition from Amazon Fresh, DoorDash and even Uber Eats which is moving into the grocery delivery market. 

Many large grocery stores have also built out their own delivery service which adds extra competitive pressure. 

A positive for Instacart is the company has best in class technology and a number of partnerships with major players such as Walmart, Costco, Safeway etc. 

The largest online grocery provider is surprisingly Walmart and thus the partnership is believed to be an act of “co-opetition” against Amazon Fresh.

Instacart leverages its personal “Shoppers” who go to the store to “pick and pack” items for customers. Instacart labels these Shoppers as “independent contractors”, in order to avoid having to pay healthcare benefits etc. However, in some states this is currently being disputed and could result in a hefty law suit in the years to come. Uber faced similar challenges historically with its Drivers. 

Instacart also offers a subscription service, called Instacart Express. This enables customers to get free delivery on eligible orders. The idea behind this scheme is to promote loyalty and repeat purchases, similar to Amazon Prime. 

The business generates its revenue through a combination of service fees, delivery fees and even markup on product prices. Instacart also enables brands to pay for featured placements to increase visibility and sales. 

Solid Financials 

Instacart has achieved solid growth in its number of orders from 223.4 million in 2021 to 262.6 million in 2022, up 18% year over year. In the 6 months ending June 30th, 2023, Instacarts order level has remained flat relative to the prior six months at 132.9 million. 

This could be an indication of maximum market share being reached or just a cyclical pullback from the major Grocery boom in 2020. 

Its gross transaction volume (GTV) was $24.9 billion in 2021, this rose by 16% year over year to $28.8 billion by 2022. In the six months ending June 30th, GTV, rose by 4% year over year to $14.9 billion, which is positive given the flat order volume. 

Moving down the income statement, its total revenue was $1.8 billion in 2021, up a rapid 39% to $2.5 billion in 2022.

For the six months ending June 2022, the business reported $1.4 billion up a rapid 31% year over year. While its Transaction revenue (69% of the total) rose byy a rapid 44% in 2022 and 34% in the six months ending June 2023, to $1 billion. 

 Its Advertising revenue has been growing surprisingly fast, up 29% to $327 million in 2022, this now contributes to 29% of the total revenue. For the six months ending June 30th, 2023, its revenue was $406 million, up 24% year over year. 

 Moving onto Gross profit, the business reported $1.8 billion in revenue up 49% year over year. For the six months ending June 30th 2023, its revenue rose to $1.1 billion, up 44% year over year.

 Instacart is surprisingly profitable as its net loss of $73 million reported in 2021, turned into a net profit of $428 million in 2022, although this did include a $358 million tax benefit.

The company also reported $242 million in profit for the 6 months ending June 30th 2023. 

Instacart does not need to report “Adjusted” metrics but it does anyway with an Adjused EBITDA margin of 19% for the six months ending June 2023, up significantly from the negative 2% margin reported in the prior year.

With its “Adjusted” metric Instacart is adding back stock based compensation which many would deem to be a “real expense”. 

In terms of its balance sheet the business reported $1.9 billion in cash, cash equivalents and marketable securities. 

Intrinsic Valuation?

Instacart trades at a price to sales (P/S) ratio = 2.72, which is cheaper than Doordash which trades at a P?S ratio = 3.82.

A DCF valuation study by NYU, also indicates a fair value of $29 per share, assuming mid range forecasts. 

Its “best case” expected value is $57 per share and “worst case” at $24 per share. Therefore is the stock price pulled back to these levels that could indicate a safe entry point. 

Final Thoughts 

Instacart is a leading grocery provider in the U.S and has a strong market position. The company is surprisingly profitable for a marketplace style business and has a solid opportunity with its advertising segment. The valuation metrics above indicates the best entry prices for those who have faith in the future of online grocery shopping.