Maplebear Inc. (CART) Earnings Call Transcript & Summary

Okay. So with the music turning down, we're going to start our next fireside chat with Instacart, Chris Rogers, CEO. Chris, first of all, thanks for coming back.

Thank you.

You came here the first half a year ago so it did go horribly wrong. You came back a second time, and I appreciate that.

Fantastic, yes.

Excellent to see you again in this format, but we love when you come to the conference. I'm going to start reading the safe harbor. Some of the statements made today by Instacart may be considered forward-looking. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. Any forward-looking statements made today by the company are based on assumptions as of today, and Instacart undertakes no obligation to update them. Please refer to Instacart's most recent Form 10-Q or Form 10-K for a discussion of the risk factors that may impact actual results. The company may also reference certain non-GAAP financial metrics and reconciliations are available on Instacart's Investor Relations website. Okay. So let's start with my intro. It's busy year. You were a new CEO when you were here a year ago. It's a year later. Before we take a step forward, let's take a step back and talk about the transition of what the company and the platform has been going through the last year.

Awesome. Well, so great to be back with you a year later. I've actually been at Instacart for 7 years, but this last year as CEO has really reinforced my confidence in the foundation that we've built. You recall last year when I stepped into the role, I said, I'm deliberately not going to change our strategy because our strategy is fundamentally sound, our chosen lane of being a grocery technology company is the right one. And just to reiterate, our strategy is to build the very best end-to-end experience on our consumer marketplace and then take all of that technology and offer it to retailers in the form of an enterprise product as well as building one of the leading and largest retail media businesses out there. So that's our strategy. At year-end, I would say our strategy is working. But the other thing that I said last year was just want this to be a continuation. I wanted to accelerate us into the next chapter. And there was a few things that I highlighted specifically that we were going to focus on. One was affordability. This has been a long-term effort for us, but that included on a very difficult conversation with retailers about their pricing strategies on Instacart because we know that retailers that don't markup perform a lot better. I said we were going to accelerate enterprise. So enterprise is where we pull all of our capabilities into one connected platform that spans e-commerce, we do fulfillment, both technology fulfillment, and we do physical fulfillment. We do retail media. We have in-store technology. We're now expanding with AI. I said we were going to go international for the first time. And we're going to continue to accelerate ads and data by continuing to extend our ads ecosystem, diversify our supply and demand and monetize our data for the first time. So fast forward to today, and I would say that our results validate that our strategy is working and it's validating our acceleration areas, we have meaningfully accelerated our growth over the last 3 quarters, including plus 14% in Q2. We guided to plus 14% in Q3 at the midpoint. We are activating net new customers at our fastest growth rates since 2022. On affordability, we have more retailers with no markups on Instacart's marketplace versus any other third-party marketplace in North America. We're continuing to extend that advantage. We just announced grocery outlet has gone to price parity nationwide. Bash has told us last week, Stratton, VantaHill. So there's been many retailers that have eliminated their markups. On enterprise, we are now powering 380 retailers with our technology, including now Aldi, which was something that we launched in the spring. Aldi has 2,700 stores roughly. We power their e-commerce and their fulfillment and their picking tech. We expanded internationally. We went to Spain and France with Costco with Storefront Pro. And then on ads, our ads ecosystem is -- it's working. We're diversifying supply and demand. Our results have been strong. Our ads and other revenue grew plus 16% in Q1 and Q2. It outpaced GTV. So I would say general synopsis year one in. I would say our -- we're executing well against our strategy of being a grocery technology company. We're more of a grocery company technology company today than we were when we sat down a year ago, and our growth engines across marketplace and enterprise and ads are working.

So when measured against that set of strategic priorities and that update, maybe a 2-parter, what are you most excited about for this business on a multiyear view? And what do you think investors still least appreciate about those strategic priorities and how it translates into the company's performance?

Yes. So this time last year, I talked a lot about the fact that I think the biggest misperception is that we are just a consumer marketplace versus a grocery technology company. I still think it's underappreciated that we're playing a fundamentally different game here. But I do think that we're making progress on that front. Increasingly, we are viewed as the grocery technology partner for the industry. We're helping retailers come online. We're helping retailers modernize their infrastructure using our technology stack. But what I do think is still underappreciated is of the retail integrations that we have across the entire grocery landscape, including with e-commerce solutions, fulfillment solutions, in-store ads and of course, with our marketplace, we have the leading place. So I think that's misunderstood. And it's taken us years to build these deep integrations. And this is a key differentiator for us that's very, very difficult for anybody else to replicate, right? It's a big reason why we're able to do something as difficult as deliver large basket grocery across all of the categories that matter to customers produce and meat and seafood pantry items. That's why we're able to do that. So really, the way that we're thinking about this is that we're the operating system for grocery. And so to the other part of your question around what's exciting to me the most is with this operating system for grocery in mind, it's really what is going to be possible with AI for us specifically. AI, we believe, is going to accelerate everything that we've built over the last 4 years and I want to be clear, and this is probably evident to everybody in the room, like everybody is going to have access to great AI. What they're not going to have is our data, or these retail integrations that we've built and all of the millions of signals that we're getting from stores in real time. That is something that's a complete differentiator. So then it really gives me confidence in our ability to use AI to accelerate all of our growth engines. On the consumer side, I mean grocery shopping is about to become far more personalized. We're going to know about your purchase history. We're going to know about your preferences. We're going to know what your kids like. We're going to know what's actually on the physical shelf. So when you come to Instacart, it's really going to feel like we know you. And then on the enterprise side with AI, I mean, retailers are going to have to move a lot faster when it comes to technology, that includes with AI, but not a lot of the grocery retailers are going to build that on their own. So we can build these AI capabilities and then put them in the hands of our retail partners. And we think that's going to further us with this grocery technology play that we're doing overall. And then on the advertising side, we've been seeing AI and machine learning for years to advance our personalization and our recommendations and all of the tools within ads manager. So what excites me the most about the future is our unique position here with AI. And again, everyone is going to have access to AI, but we know that grocery needs the data and the integrations and the real signals from in-store, and we have all of that.

Okay. You referenced earlier about how you've seen an acceleration in the business over the last couple of quarters. Probably a question we get a fair bit from investors is how to think about the operability of those levels of growth. And more importantly, how you see yourself fitting into the competitive landscape for grocery...

Yes. So look, it's important to point out that we have accelerated our growth meaningfully despite all of the competition despite all the competitive headlines last year and the years before. And remember, 80% of the GTV on our platform is with retailers who are working with multiple platforms. So we actually have already -- we think about the growth in the context of the competition in that way. And when it comes to the durability of that growth, look, there's a lot of things that, again, are really hard to replicate. For example, our experience, our years of experience and our data, we have 1.6 billion orders to date. We have a 2 billion product catalog. We get millions of signals every day from in the store -- so we have all of the data and the experience in order to understand the consumer, understand the products, understand what's actually on the shelf, and that's critical to be able to deliver the grocery experience. It also has to do with the enterprise, what I've been talking about with the enterprise integrations. This allows us to solve difficult grocery problems once on either side of the fence, either marketplace or enterprise and then scale that solution across our entire network. And then finally, the thing that really makes us durable comes down to the use case that we're built to serve. We are very strong in large baskets. Our AOVs are around $115, which is much higher than most. And the reason is, is because customers trust us to, again, with their whole weekly shop to deliver their entire basket with meat and seafood and produce. And what we know is that it's very difficult to do at scale. We know that better than most. It requires depth of selection, it requires quality and fulfillment accuracy across multiple items that requires affordability, and it requires you to be able to deliver fast and predictably. And so it's very easy for others in the industry to do 1 or 2 of those well, it's very difficult to do all 4 of those well. And again, that's where we excel. And so we believe strongly in our path forward and the durability of our growth and our position.

Maybe just double-click you on this and giving a way for you to frame it for investors, where you've seen competition come into a market where you've seen some of this competitive force, what have you seen in the actual end market demand? Because I feel like there's a lot less of that. There's the fear of the competition, but not necessarily as much focus on how does it actually manifest itself.

Yes. Yes. So look, I think, first of all, none of the competition that we're seeing is surprising us at all. When it comes to other players and market entrants that are making a lot of noise, for example, restaurant delivery players or rideshare deliveries. I think it's important to remember that restaurant delivery and rideshare is fundamentally different than doing a full weekly shop, picking up a package or picking up a person and delivering that from A to B is just fundamentally different. We are purpose-built for grocery, and we have the expertise. Nearly 2/3 of all of the orders completed on Instacart are completed by our shoppers that have done a median of over 1,000 shops. And so that matters a lot. And so what we see is kind of this expansion of availability. So a retailer might decide that they want more delivery options. But we don't see that manifest in kind of large baskets and what I've already talked about and the depth of relationships, which really matter the most. So let me just -- I'll give you an example -- one example. Let's use Costco as an example. So we launched with Costco in 2017 on our marketplace. And since then, our relationship with Costco has just gotten deeper and deeper. So we now power same-day costco.com. So if you go to costco.com, you'll see the tab that we power. We do the fulfillment for Costco. Since then, we have expanded with an executive membership benefit. We have expanded with EPD Snap and alcohol and loyalty. We just launched Food Storm. So Food Storm is our catering software. So now you can order custom cakes and party platters from Costco using our software for both order and delivery. And what we've seen is, I mean, Costco has been sitting -- has been partnering with other marketplaces in certain markets for years. And what we see in those markets is we continue to be the vast majority of share. We continue to grow nicely in those markets, and we continue to have much higher baskets. So nothing that we're seeing from a competitive standpoint concerns us and nothing that we're seeing is slowing our momentum.

Okay. One of the biggest topics so far at the conference as we get towards the second half of the second day here has been the interplay between agentic commerce and partnering with LLM agents as opposed to developing AI customer forward solutions on your own platforms. Can you talk to us a little bit about the balance that's trying to be struck in the industry between making sure you're not losing share of traffic that can come for you from new avenues, but also continuing to curate an AI experience on platform.

Yes. So you recall last year, when I was up on stage, I talked about how we are going to build the gold standard of agentic experiences directly on Instacart because we have all of the data, and we have all the retailer integrations. And we have all of the real-world signals. So I'm really pleased to announce actually that just today, we announced Clementine, which is our AI assistant for grocery, which is going to be available for everyone across North America. We're extremely excited about this. It's extremely differentiated versus all of the other grocery chatbots that are out there. This isn't an assistant that just recommends generic pairings and generic recipes, it really understands your purchase history, your preferences. It understands again, what's on the shelf. It understands all of the promotions that are in market, and it can create a basket that's shoppable within an hour. And so we're extremely excited about this. We're getting very positive signals from consumers because we've been in market with this for some time. And what we're seeing is that they're engaging with it in ways where they're obviously using it to rebuild their weekly cart, they're using it to discover products, learn more about products. And increasingly, they're using it to build their weekly meal plans and plan their meals. And so for example, you can go to Clementine and say, I want -- I need a week's worth of kid lunches that are budget friendly or you can just say reorder my usual and it will go ahead and build a basket for you in seconds and you'll be able to check out. And so -- and then the fine line that we -- between what you're asking around different agentic experiences, we view other third-party marketplaces is a place that we want to participate in because we view them as lead generation opportunities for us. So we've already integrated with OpenAI and Gemini and we've integrated with Claude so that you can experience Instacart there, and we view that as a lead gen opportunity for us to bring in new traffic, those surfaces so far are really quite small relative to, obviously, what we're seeing within agentic experiences directly on Instacart. On the broader opportunity here, what I do believe is that grocery shopping has the opportunity to become far more personalized across the board. Remember, the penetration of grocery shopping specifically online is low -- really low, lower than most categories, and it is an extremely uniquely complex grocery experience, it's time-consuming, and it's deeply personal. We think agents like Clementine are going to be able to remove the friction and create a far more personalized and intuitive grocery shopping experience, which I think, is going to accelerate online adoption. We believe it's going to drive conversion, retention. We're already seeing larger basket sizes. This is one of the unique things that we're seeing with users -- with orders that have originated with Clementine. What we're seeing is that there's more items in the basket and the AOV is higher, which is notable because we already have an AOV that's industry leading at around $115. I also think it's going to increase order frequency and so I'm very optimistic around what our agent is going to be able to do and our ability to use our data advantage to build the best grocery agent in the industry.

Okay. You highlighted it earlier, but on the last earnings call, the level of growth you saw in net new customer additions was something that clearly broke through from an earnings standpoint on that night fastest growth since 2022. Can you talk a little bit about the building blocks that have put in place that have now produced that type of new buyer growth, just so we can better understand some of the dynamics that have led to that outcome.

Yes. At the highest level, and I've said this already, but worth repeating, grocery -- online grocery is so underpenetrated. And that just means that there's a massive opportunity to activate new category buyers over time. And for us, we are the category leader in online grocery, and we have technology on both the marketplace side and the enterprise side. So we are in a fantastic position to do that. And what we're seeing, the way that we think about this is, are we driving strength across both customer growth and engagement. And we are, to your point on customer growth, we are activating net new customers at our fastest year-on-year growth rates since 2022, we saw that in Q2 in the past 3 quarters. That's driving strong monthly customer growth. But then the other part of the algorithm is what happens after you acquire those customers and that's very important because what we see is customers that stay with us, they spend more of their grocery wallet with us over time, and they order more frequently. And so for us, the way that we think about that is delivering the absolute best experience and most engaging experience directly on Instacart and on our partners. And so the types of things that we focus on are order quality as an example. So we had 16 consecutive quarters of year-on-year gains for found rate and perfect order fill rates from a quality perspective. We're investing in personalization, obviously, with Clementine, but we're also just improving our AI-driven recommendations and replacements. We're constantly making our experience more personalized. We're investing in affordability, as I kind of spoke about earlier. And so -- look, I think this is showing up in the metrics. Again, our AOV is industry-leading at $115 last quarter. What we're seeing is order frequency is increasing. And so we are really happy. The algorithm is very simple for us. We're basically -- we acquire new customers, we bring them online. We give them the absolute best first experience. And then we fight to earn more of their grocery wallet over time. And what we're seeing strength at every stage there, and we're confident in our ability to continue to leverage our advantage to win there.