Maplebear Inc. (CART, Financial), more commomly known as Instacart, 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. The Andresson Horowitz-backed company has recently gone public on the stock exchange in a blockbuster initial public offering.
Understanding the business odel
The company's business model focuses around the online delivery of groceries and household items. Instacart was a pioneer in this space, but does face competition from Amazon Fresh (AMZN, Financial), DoorDash (DASH, Financial) and even Uber Eats (UBER, Financial), which is moving into the grocery delivery market.
Many large grocery stores have also built out their own delivery service, adding 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 (WMT, Financial), Costco (COST, Financial) and Safeway.
Partnerships and revenue generation
Surprisingly, the largest online grocery provider is Walmart. Thus, the partnership is believed to be an act of “co-opetition” against Amazon Fresh.
Maplebear's Instacart leverages its personal shoppers, who go to the store to pick and pack items for customers. The company labels these shoppers as “independent contractors” in order to avoid having to pay health care benefits, etc. However, in some states, this is currently being disputed and could result in a hefty lawsuit in the years to come. Uber faced similar challenges historically with its drivers.
The company also offers a subscription service called Instacart Express. This enables customers to get free delivery on eligible orders. The idea behind this strategy 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. Intsacart also enables brands to pay for featured placements to increase visibility and sales.
Financial performance
Instacart's parent company has achieved solid growth in its number of orders, up 18% from 223.4 million in 2021 to 262.6 million in 2022. In the six months ending June 30, the 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 was $24.9 billion in 2021, which rose by 16% year over year to $28.8 billion by 2022. In the six months ending June 30, 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, which grew 39% to $2.5 billion in 2022. For the six months ending June 30, the business reported $1.4 billion, up 31% year over year. Further, its transaction revenue (69% of the total) increased 44% in 2022 and 34% in the six months ending June 30 to $1 billion.
Its advertising revenue has been growing surprisingly fast, up 29% to $327 million in 2022. It now contributes to 29% of the total revenue. For the first half of the year, its revenue was $406 million, a gain of 24%.
Moving on to gross profit, the business reported $1.8 billion in revenue, up 49% year over year. For the first six months of 2023, its revenue rose 44% to $1.1 billion.
Maplebear is surprisingly profitable as its net loss of $73 million reported in 2021 turned into a net profit of $428 million in 2022, though this did include a $358 million tax benefit.
The company also reported $242 million in profit for the six months ending June 30.
Valuation and final thoughts
Maplebear trades with a price-sales ratio of 2.72, which is cheaper than Doordash at a ratio of 3.82. A discounted cash flow 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 the worst case is $24 per share. Therefore, if the stock price pulled back to these levels, that could indicate a safe entry point.
Maplebear's 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 indicate the best entry prices for those who have faith in the future of online grocery shopping.
