Maplebear Inc.

Moat: 2.5/5

Understandability: 3/5

Balance Sheet Health: 4/5

Maplebear Inc., operating as Instacart, is a technology company facilitating the digital transformation of the grocery industry. They connect consumers with grocery retailers, providing a platform for online ordering and delivery.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Instacart is essentially a technology company that powers the infrastructure for a new kind of grocery shopping experience. They are in the business of making grocery shopping convenient and efficient for both consumers and retailers.

  • Platform: At its core, Instacart offers an online marketplace where customers can browse through various stores, select items, and place orders for delivery or pickup. They provide both a website and a mobile app for this. This platform also facilitates partnerships with different grocery and other retailers to offer a wide array of options to the customer.

  • Retail Partners: They have partnered with over 1,400 national, regional and local retail partners across different geographies. They don’t do their own fulfillment and focus on providing the technology and the platform.

  • Personal Shoppers: This platform is dependent on a network of personal shoppers, who are independent contractors. Shoppers fulfill customer orders and are responsible for picking, packing, and delivering goods. In addition to that they also help retailers in fulfilling orders and in store pickup. This ensures last mile delivery in a very cost efficient way for Instacart as they do not have to be a logistics provider or fulfill the orders with their own employees.

  • Advertisements: In addition to core transaction revenues, they also make a large portion of their revenues through advertising. Retailers pay for higher product placement and sponsored advertising on the platform. This is a growing market and it has become increasingly lucrative for the company.

  • Enterprise Marketplace: They have an enterprise platform, that enables retailers to directly offer shopping through an online and app experience. The benefit for retailers are that they can control the overall customer experience. Retailers can use their own logistics or drivers, and only use the platform from Instacart.

  • Analytics & Data Insights: Instacart generates a lot of data through interactions on its platform. They provide that data to their retail partners in order to help them understand the trends and shopping preferences.

  • Technology: They pride themselves as a technology company. To provide that, they have AI based inventory algorithms that help shoppers pick more efficiently. They have order fulfillment technology which helps retailers manage their inventory to meet customer demands. Their infrastructure for a mobile app and website needs to be reliable and accessible at all times. They also need to develop a lot of algorithms that help them with things like personalized recommendations and targeted advertising.

Industry Trends and Competitive Landscape

The grocery industry is undergoing a digital transformation, with the shift towards online ordering and delivery continuing to accelerate.

  • Competition is also intensifying, and Instacart faces competition from e-commerce giants like Amazon and Walmart, who have deep pockets to establish themselves in the grocery space. Also other tech companies are also looking to get into this sector, for example, DoorDash and Uber have expanded their offerings. The most recent competitor is also grocery stores like Kroger and Albertsons who are building their own delivery and fulfillment platforms.
  • High Capital Requirements: The grocery industry is inherently capital-intensive, which means that companies need to invest a significant amount in physical infrastructure to succeed. This can make it difficult for companies to have a decent foothold in the industry.
  • Low Margins: There are generally low margins in the grocery industry, which makes profitability a challenge. High levels of competition among retailers drive down profit margins for everyone.
  • Fragmented Landscape: There are thousands of small local grocers in addition to big giants like Walmart, which makes this a competitive landscape to navigate in.

Financials

Maplebear Inc. reports its financials in an annual report (Form 10-K) and quarterly reports (Form 10-Q), both of which are available on the SEC website. The latest reports available for 2023 are from their quarterly report ending in September 2023, along with the annual report for the 2022 financial year.

  • Revenue Streams:
    • Transaction revenue: This is the revenue generated from the core business, which is the delivery and pickup operations. This is their main source of income.
    • Advertising and Other Revenue: This category comprises revenue generated from advertising placements on their platforms. Retailers pay fees in exchange for sponsored listings and banner ads. Other revenue includes sales of goods and services that are not primarily transaction related.

  • Revenues: The revenues have been volatile for Instacart in the last few years. The first 9 months of 2023 had revenues of $2.2 billion, which is quite an improvement compared to revenues of $1.7 billion for the same period in 2022. However, their revenue growth has significantly reduced over time.

  • Cost of Revenue: The cost of revenue has been a very high percentage of their total revenues, this is because they have a lot of operational costs like transaction cost and amortization.

  • Gross Profit: The gross profits have been quite inconsistent in the last few years, but improved in the last few quarters, showing profits of almost 40% for the recent quarter, which is a significant increase compared to the last few years.

  • Operating Expenses: These include technology and development, sales and marketing, and general and administrative costs. They have a very low operating margin. Even though the revenues have risen significantly in the last quarter, the increase in operating expenses have also been quite significant. For instance, in the last quarter, the operating expenses have increased by 31% as compared to the same quarter last year.

  • Profitability: Instacart has yet to achieve significant profits, but in the last quarter they were able to show a profit before taxes after many years. However, their operating income is still negative.

  • Cash Flow: The cash flow statements also show an increasingly negative cash flow from operating and investing activities. This is a major concern as they are struggling to generate positive cash flows despite the increase in revenues.

  • Balance Sheet:
    • Assets: They hold a huge amount of assets in marketable securities and cash equivalents, close to 3.6 billion dollars. In addition, they have significant amounts in property and intangible assets. Overall, the balance sheet has almost 6 billion dollars worth of assets.
    • Liabilities: They also have a lot of liabilities, including short-term debt, current liabilities, and long-term debt, for a sum of almost 4 billion dollars. Overall the amount of liabilities for Instacart is considerably high. They also carry a negative retained earnings amount.
    • Equity: Their equity amount is close to 2 billion dollars.

Moat Rating: 2.5 / 5

Instacart’s competitive advantages, or moats, can be rated 2.5/5. The company does not have a particularly strong moat and would be considered a niche player in an increasingly competitive grocery industry. The company has had a history of decent profitability but has been unable to achieve stable and high returns consistently, as shown by their fluctuating earnings numbers. They also do not have a strong advantage when it comes to price and will be severely hampered if competitors start offering similar products for cheaper. In addition, the company is also susceptible to disruption, like new players, that can provide a better and more advanced platform.

  • Limited Network Effects: While Instacart’s marketplace connects buyers and sellers, the network effects are not as strong as platforms like Facebook or eBay. If a new player comes in with better technology and user experience, most of the customers and shoppers will simply migrate to it. Hence, the moat is not very strong in that regard.
  • Weak Brand Loyalty: Most users are indifferent to choosing between different delivery apps. Instacart’s brand has some popularity, it’s not as strong as some of their main competitors, for example, Amazon or Walmart, which are often used for their shopping needs. Most people who use these services are likely to opt for an app that gives them the best deals or is more convenient for them. In other words, price and convenience matters most, not brand.
  • Low Customer Switching Costs: Users can often switch to competing platforms with ease, as long as they provide a similarly good service and product quality at a lower price. This creates price sensitivity in its customer base.
  • Unproven Scale Advantage: The size of operations does give an advantage to the company but its operations are not nearly as big as some of their competitors. Hence, a low scale of operation is a major hurdle for the company in competing in a highly demanding industry.
  • Some Unique Tech: Their reliance on data and algorithms and their partnership network is something that may differentiate themselves, but this advantage is not insurmountable.

Risks to the Moat and Business Resilience

Instacart faces several legitimate risks that can harm their moat and business resilience:

  • Intense Competition: As previously mentioned, the grocery delivery space is crowded and has plenty of deep-pocketed competitors. New players, or existing players expanding further will lead to price and revenue pressures that will hurt the overall profitability for Instacart.
  • Dependence on Partnerships: A large part of their business model is dependent on having good relationships with retailers. Any deterioration in these relations could greatly harm the business.
  • Technological Disruption: If a rival introduces a better and more cost-effective technology platform, that will be a significant threat to the company. The recent advancements in AI will make this competition even more intense.
  • Poor Customer Loyalty: Lack of loyalty among users implies that their revenues are very volatile, with users moving easily to other platforms.
  • Low Operating Margins and Profitability: Their low operating margins and an increasing trend in operating expenses means that the company is struggling to generate profits and sustain value creation in the long term.
  • Negative Cash Flows: Continued negative cash flows will strain the finances of the company and could create severe issues in long term. The company has been heavily reliant on debt and equity funding, which cannot continue forever.
  • Employee Relations The company relies on a network of individual contractors to fulfill their services. Employee backlash related to compensation or safety could affect their operations.
  • Regulation: Government regulations with respect to employment classification, and other restrictions on gig workers, could greatly affect the profitability of the company.

Understandability: 3 / 5

Instacart is a company that provides an online platform for grocery delivery. The business is moderately easy to understand. Investors can easily comprehend the company’s primary operations in connecting customers, stores, and shoppers, but might require a deeper understanding to fully grasp the underlying economics of the market.

Balance Sheet Health: 4 / 5

The company has a moderately healthy balance sheet. While the company is still not profitable, their large amount of cash and cash equivalents are reassuring, which give them a good foundation to build on and make investments for future growth. They need to find ways to bring down their high amount of liabilities and generate consistent positive cash flow to gain a fully healthy balance sheet.