Maplebear Inc. (Instacart) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results. Instacart operates a technology platform connecting customers, retailers, advertisers, and shoppers, alongside retailer software services. The company completed its IPO on September 21, 2023.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Change |
|---|---|---|---|
| Revenue | $764 million | $668 million | +14% |
| Gross profit / gross margin | $561 million / 73% | $485 million / 73% | Gross profit +16%; margin flat |
| Net income (loss) | ($1,999 million) | $36 million | Turned to loss |
| Adjusted EBITDA | $163 million | $74 million | +120% |
| Orders | 66.2 million | 63.8 million | +4% |
| GTV | $7,494 million | $7,080 million | +6% |
Q3 revenue included $542 million of transaction revenue (+12%) and $222 million of advertising and other revenue (+19%). Gross profit as a share of GTV increased to 7.5% from 6.9%. Management attributed revenue growth to higher orders and GTV, fulfillment efficiencies, and advertising product adoption. Gross margin remained flat as IPO-related stock compensation, slower fulfillment cost efficiencies, and customer incentives offset growth and efficiencies.
The reported Q3 net loss was dominated by $2.605 billion of stock-based compensation expense, including $2.581 billion associated with IPO-related vesting of equity awards. A $440 million income tax benefit partly offset the resulting loss. Adjusted EBITDA excludes stock-based compensation and other items; it is a non-GAAP measure and should not be treated as a substitute for GAAP results.
For the nine months ended September 30, revenue was $2.239 billion, up 25%; gross profit was $1.670 billion, up 33%; net loss was $1.757 billion versus a $38 million loss in 2022; and Adjusted EBITDA was $442 million versus $54 million. Nine-month GTV was $22.431 billion, up 5%, and orders grew 2%.
Cash flow, balance sheet, and capital
- Cash and cash equivalents: $2.010 billion at September 30, 2023; short-term marketable securities were $56 million. Total current assets were $3.073 billion and current liabilities $683 million.
- Cash flow for the first nine months: $353 million provided by operations, $146 million provided by investing activities, and $6 million provided by financing activities. Operating cash flow included substantial noncash stock compensation and deferred tax adjustments; it should be considered alongside the $1.757 billion GAAP net loss.
- Debt and obligations: The filing does not report borrowings or a debt balance. Total liabilities were $762 million, including operating lease liabilities. Non-cancellable purchase commitments were $67 million, of which $38 million was due within 12 months.
- IPO and private placement: The IPO generated $392 million net proceeds; a concurrent Series A preferred-stock private placement generated $175 million. The filing states the proceeds were used to satisfy equity-award tax withholding and remittance obligations. The company paid $570 million for those obligations in Q3.
- Share repurchase: After quarter-end, the board authorized repurchases of up to $500 million of common stock. The program is discretionary and does not require the company to repurchase shares.
Material changes, outlook, and risks
- IPO accounting and dilution: IPO-related vesting drove unusually high Q3 stock compensation and the reported loss. At September 30, the company had $711 million of unrecognized stock-based compensation expected to be recognized over a weighted-average 2.15 years. The new Series A preferred stock has a 5% annually compounding stated-value feature, senior liquidation rights, and potential redemption or conversion provisions; conversion could dilute common holders.
- Management outlook: No specific numerical revenue, profit, or cash-flow guidance is provided. Management expects near-term GTV growth to be tempered by macroeconomic pressures, post-pandemic demand normalization, and maturing growth initiatives. It expects order growth to become a more important GTV driver as inflation wanes. Advertising growth may face near-term pressure from cautious brand spending. Management expects gross-margin expansion to taper and anticipates continued investment and expense growth, while stating existing cash and securities should cover anticipated working-capital and capital-expenditure needs for at least 12 months and beyond.
- Legal and tax contingencies: Shopper classification remains a material risk. California’s appellate court largely upheld Proposition 22, but plaintiffs appealed to the California Supreme Court. The company reported $56 million of accrued legal reserves related to misclassification matters and $34 million of sales and indirect tax reserves at September 30. Actual losses or assessments could exceed reserves. The company also settled California matters for $46.5 million and $32 million in 2023; both amounts had been accrued and paid during the nine-month period.
- Business risks: The filing highlights competition, dependence on retailer relationships and shopper availability, consumer sensitivity to fees and inflation, advertising-budget volatility, privacy and cybersecurity exposure, and regulatory uncertainty. It notes that the top three retailers represented approximately 43% of GTV in each of 2021 and 2022.
- Other: Management reported disclosure controls were effective at a reasonable assurance level and no material Q3 change in internal control over financial reporting. The company does not intend to pay dividends in the foreseeable future.
Most important facts for investors to verify
- How much of future GAAP earnings will be affected by remaining stock-based compensation, and whether operating performance supports the Adjusted EBITDA trend.
- Whether order and GTV growth can continue as inflation effects, customer incentives, and post-COVID behavior change.
- Advertising growth and brand spending trends, particularly given management’s near-term caution.
- Developments in Proposition 22 and other shopper-classification proceedings, including whether reserves remain adequate.
- The Series A preferred stock’s redemption, return, and conversion terms and potential effect on common-stock ownership and value.
- Whether the $500 million repurchase is executed, and its effect on liquidity, investment capacity, and share count.