Make eye contact with the driver.
There you go. Yep. Got to make eye contact with the drivers. Good morning, everyone. Welcome to day two of the Morgan Stanley 2025 TMT conference. We're thrilled today to have Emily Reuter, the CFO of Instacart, with us. Good morning. Good to see you again.
Good morning. Nice to see you too.
Before we get started, let me do the disclosures to wake everybody up. A little caffeine. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at www.morganstanley.com/researchdisclosures. 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-K for a discussion of the risk factors that may impact actual results. Emily may also reference certain non-GAAP financial metrics and reconciliations that are available on Instacart's investor relations website. Check. Okay. So you've been in the CFO role now for almost a year, call it 10 months.
I sort of want to start a kind of big-picture question around your focal points strategically and sort of when you do your investor meetings and you're sitting down sort of explaining the strategy, what has changed, what has not changed, and what are sort of some of the misunderstood aspects of the strategy as you kind of sit there after 10 months?
Okay. Great. That's a big one. So we'll start with some of the things I think that haven't changed, and then maybe I'll lean into some of the things that have changed. I think first and foremost, and maybe this is something that I underappreciated coming into the role as well, which is the level and depth and breadth of our retailer relationships and retailer integrations. It's something we obviously spent a lot of time talking about last year, but I think continues to be misunderstood. And it's important because that is the thing that allows us to continue to innovate with our retail partners to get on their IT roadmaps, which sounds simple, but of course, they're bandwidth constrained. But because we also power their owned and operated websites, we're right there at the table with them thinking about how to build the future together.
And those relationships and the scale of those partnerships is the thing that's allowed us to build the scale we have today, which of course drives back into the business in terms of efficiencies, in terms of our ability to sort of reinvest and do that all in a way that is attractive from an overall margin perspective. So I think those retailer relationships are really foundational. I think the other piece that has been true but maybe has some changes since I've been in the role is really around how we are continuing to both build the business, build towards those long-term margins that we set out at the time of IPO. And you've seen that, right? We've continued to improve overall profitability for three years, both on an absolute basis and on a margin basis, and we're committed to continuing to do that.
But within that envelope, we are reinvesting in the business. And so one of the things that, again, I think is maybe misunderstood is around the levers that we have in the P&L. So we're able to continue to improve overall profitability even as we're reinvesting. We're gaining efficiencies from Adjusted Operating Expense. We're gaining efficiencies from our fulfillment capabilities. And then we have the ability to then put that money back into the business to continue to grow. And so I think there's a lot of flexibility in terms of the kinds of investments we make, again, even as we improve overall profitability.
Let me actually sort of drill into that last point a little bit of sort of investments and sort of the cadence, because I think after last week's earnings that you and I were sort of talking about, there seems to be a little discussion about how to think about the profit profile, the profit shape of the year. Just sort of walk us through big picture of the messaging around sort of the EBITDA trajectory or kind of profit shape of this year. I know it's quarterly, but it is the most common question I'm getting the last seven days.
Yeah, it's a really important one. So I think one thing to really point out here is that there is some seasonality to our business. So if you look at particularly the ad side of the business, there's normal advertising-related seasonality. Q4 is a particularly strong quarter. In Q1, you have a little bit of a step down, and then you build throughout the year. Now, that's a trend that we've seen in every year. But I think if you go back maybe a year ago, it was a little bit masked because you did have a step up in transaction revenue.
So that made the Q4 to Q1 progression look. Actually, it was flat on an absolute basis, whereas from a normalized perspective, I would actually expect what we've guided to and what we're seeing in the business, which is you do have a Q1 seasonal component, and then you build from there, so I really don't view our guidance or anything about Q1 as different than what I would have expected in the other year, and then that allows us to continue to build on that and, again, expand overall EBITDA from an absolute and a margin perspective.
Got it. Okay. That's very clear. We've got 1 Q, and then we build from there. Let's talk sort of a little bit about the fundamental drivers of the business when we sort of think about the 10% GTV growth you most recently delivered. Can you sort of walk us through trends in user growth, trends in frequency, trends in spend per user? How much are each of those contributing to the growth? And as you sort of look into 2025, how are you thinking about each of those contributing to growth from here?
Sure. So one thing that has been really great to see over the last couple of quarters has been improvement in overall order frequency. So it's something that we're focused on, we think is a helpful identifier of the health of the business. And if you look back over the last couple of quarters, order frequency has been an increasing contributor to overall order growth. So we have AOV growth as well as order frequency in the last quarter both contributing, and we expect that to continue to occur. Now, we think that's a reflection of some of the things that we're doing in the strategy working, right? So things that we talked about in 2024, like our expansion into restaurants, that was, of course, something we wanted to do to drive increased engagement with the platform.
That's reflected in order frequency, not just because people are ordering restaurants on a standalone basis, but also because they're coming back and ordering groceries more frequently. Similarly, we started to talk about reducing the minimum basket size, which we're able to do on our platform in a way that makes sense and in a way that we like, economically speaking, because of the scale of our platform, the density of our large baskets. And that is something that we're starting to see help improve overall order frequency. Now, of course, that's more a Q1 thing than a Q4 thing given the timing of that launch, but we saw data in Q4 that we liked, and that's why we decided to kind of continue to pursue that approach. So again, we think there will be a balance between order frequency and AOV growth. AOV growth continues to be healthy.
When we think about the overall opportunity, what we've been very pleased to see is that we're getting better and faster at moving quarterly users to monthly users, monthly users to weekly users, so seeing that progression in terms of overall engagement with the platform. The other thing that we look at is Instacart Plus. Instacart Plus membership has continued to grow faster than overall growth. And so that, again, reflective of the penetration of Instacart Plus with our user base and something that we think is a great long-term health indicator because those users are more engaged and they retain better than non-Instacart Plus members.
Okay. Let me ask you a couple more about the user growth specifically. Maybe talk to us about sort of the very top of the funnel when you're trying to bring on new MAUs. What are some of the strategies you're using to sort of bring on more new people to the platform at this point? I mean, awareness has to be pretty high. How do you sort of compete for new people on the platform?
Yeah, it's a pretty broad portfolio approach. I think when we think about the question that you asked is, how do we attract new users? You really do have to start at the top of the funnel. Now, awareness of Instacart is pretty high, but we do think there's continued room to grow, and it's both about awareness of Instacart, but it's also about perception of the company and the brand. And those are things that we think we have continued room to go, and you saw that with the Super Bowl, but frankly, it's much broader than the Super Bowl. I think that's a continuation of what you've seen us be doing around investments in linear TV around football, as an example. We saw a lot of success with that and therefore leaned in and decided to do something like the Super Bowl.
So I think of that, again, as sort of a continuation of some of the areas that we've been investing in through 2024 and even previously. Now, once you've addressed the top of the funnel, it's really about execution and conversion. And I think there's a combination of things that go on within the portfolio there. Obviously, our paid marketing portfolio is incredibly important. And so that's regular way search and shopping and things like that. Occasionally, we will think about pairing that with an incentive to get you, especially in your early days as a user, to adopt the product or to engage frequently because we're trying to get you up that user adoption curve very, very quickly. Now, when we think about overall marketing, it's not just about new user acquisition, right?
It's this mix of we want to be bringing in new users to the platform, and we're doing that, right? We saw in 2024, and we talked about this, that our 2024 cohort is bigger than our pre-pandemic cohort. That's from a user basis and a Shopper . And these are users that are coming to the platform, and they're more engaged or they're as engaged as we've seen in recent years. And so these are high-quality users. So we want to be able to continue to do that. But we also use our marketing portfolio, and I use marketing kind of broadly because that's how we think about it internally, to engage the existing user base, right?
So one of the things that we're really pleased to see after some more challenging years a couple of years ago on the back of COVID, et cetera, is that we're able to use our marketing portfolio to engage that user base, and that's resulted in us stabilizing that existing user base. So we have this strong foundation of existing users. And as I said earlier, we're engaging those. We're moving them up the usage patterns from quarterly to monthly, monthly to weekly. And then on top of that, we can layer in new users through a bunch of these different channels that I talked about. The one thing I didn't mention yet was we also do partnerships. So you've seen that. And we utilize those in probably two different ways as the flavors that I would say.
One is how do we use partnerships to make our Instacart Plus membership more valuable? And so those would be things like New York Times Cooking or our Peacock membership that we know drives acquisition of Instacart Plus users, but also retention of those users. And the other is for new user acquisition as well. So you've seen us in the past do a variety of flavors of partnerships, like with credit cards and other. And so we'll continue to pursue those when we see those opportunities arise.
There's a lot there. There are three areas I want to sort of drill into after that on the user front. So maybe let me start with the partnerships and the Uber partnership. As you sort of evaluate the performance of it to date internally, what are the KPIs you most focus on to ensure it's being accredited to the platform and is sort of achieving the goals that you hoped it would when you signed the deal?
Sure. So maybe it's worth sort of taking a step back and talking about what the thesis was when we signed the deal, so really, if you look back, we are the strongest grocery platform in the industry, and we wanted to be able to make sure that we're continuing to provide the full set of use cases for our consumers, and we knew that in some cases, our consumers are going to other platforms for some of their food needs, meaning restaurants specifically. Now, it likely didn't make sense for us to go try to invest and compete in a more established market, but we did find that through a partnership, we were able to add hundreds of thousands of restaurants to our platform overnight.
And ultimately, the goal, and again, back to the thesis, was if we can provide restaurants to our users, that will engage them, they'll come back to the platform more regularly. And ultimately, that means they'll come back and utilize grocery more regularly. So flywheel effect is really what we're looking for. And so back to what are the metrics that we're looking at, it is, are we actually penetrating our user base with restaurants? Yes, but we think we have a long way to go. So more to do in terms of actual uptake from the existing user base. The second is how regularly are they engaging? And then most importantly, are they then coming back and using grocery more regularly? And so all of that we're seeing, and we're actually seeing that flywheel effect improve over time.
That's really one of the most important metrics that we're looking at.
Got it. Okay. And on the user front, I also want to ask you about sort of the income cohorts. I know you've made some investments in pricing over the last, call it, six months to try to just diversify and expand the income demographic of the users on the platform. Where are you in that journey, and how do you think about sort of continuing to expand into more income cohorts on the platform?
Yeah, so it's really interesting. If you look at our user base, it's actually already and has been for some time reflective of the overall demographic of the U.S. at large. So we actually have a very good ability to address all different types of users from an income perspective. What we then want to be able to do is make sure that we are there for customers regardless of use case. And when you think about even someone like yourself, there may be situations where you're very price insensitive. You're looking for an immediate priority delivery, but there's also probably times where you're driving home from work anyway, and you're willing to go by the store and pick up, and so I think it's less about income and more about making sure we're there for our customers regardless of use case.
I think what I would say is we're seeing that play out in terms of the order frequency commentary we already talked about. We want to be able to be there for customers in any of these scenarios. I think reducing the minimum basket to $10 is just a continuation of that theme. You mentioned last year we introduced free pickup. We introduced some lower-cost options. At the same time, you also see us tweaking pricing structures for our more premium products like priority delivery. I think of this as I don't necessarily want to call it a barbell, but sort of a continuation or a continuum where we know we can charge more for the situations where our customers are more time-sensitive and less price-sensitive.
And then we know we have situations on the other side of the spectrum, and we want to be everything in between. When we think about lowering the minimum basket size, again, continuation of a theme for us. We have long been and continue to be the leader in small baskets, even as the core of our business is in large baskets where the majority of the online grocery market is today, where the majority of profits are. But we will continue to make sure that for any use case, we are top of mind for consumers. We can be there. We can execute what they need us to do. And because of our position and because of our order density, we can already do that at economics that makes sense.
Got it. On users, the last one I wanted to talk to you about is Instacart Plus. You mentioned it before. What are sort of the latest KPIs you share on Instacart Plus uplift in spend or frequency? What happens once you become a subscriber? And then as you sort of think about growing that penetration from here, how are you investing to sort of get more people to flip the subscription switch on?
Yeah. Yeah, I mean, I think it's important to note that our Instacart Plus membership has been quite healthy for some time. So it's accounted for the majority of GTV already for a while now. So we do think there's opportunity to continue to improve that. And that's reflected in the fact that Instacart Plus membership is growing faster than overall MAs. So a combination of a very strong foundation of being very deeply penetrated today, plus some of the things we already talked about. How do we make the membership more valuable? And so those are some of the things you saw us do over the course of the last year. The addition of restaurants really doubled the value of the membership overnight, right? And so that's sort of one example. Some of the things I mentioned earlier in terms of other partnerships.
And then lastly, as we talked about the reduction in the minimum basket size, we're constantly looking at ways to try to make that membership even more compelling because to the beginning of your question, these are customers that retain better on average. They spend more on average. They're more engaged with the platform. In fact, back to your Uber question, those are the customers we see adopt these new use cases more readily. And you see that across some of these examples. So across the board, we think there's a lot more room, but we're very happy with where the Instacart Plus membership program is today.
Got it. When we talk about the online grocery space with first-party or third-party players in general, there's always a discussion around supply and real-time inventory information is difficult.
Yes.
You guys have a really, really strong position here on inventory and supply across many, many merchants and different types of retailers. Maybe walk us through areas where you think you can still improve your own supply, and how are you doing on using GenAI to improve real-time inventory information and sort of just the whole Shopper experience?
Yeah, so there's a lot in there. I think from an inventory perspective or what I really think about it, it comes back to sort of quality. At the end of the day, consumers want to get what they ordered, and that sounds really simple, but it's actually really, really hard in our business, and it's something that we've been working at for over a decade, and if you think about found and fill rate, so do I get you what you wanted? We have best-in-class found and fill rate, and it's something that we've been improving every quarter, quarter after quarter after quarter for over 10 quarters, and so this is something that I think is reflective of our level of focus on this metric. Now, there's a lot of things that we do to drive that.
But to your point, that underlying data visibility is an important piece of it. It is starting with the integrations that we have with retailers that give us that baseline level of data. But actually, that's really not sufficient to get you the level of detail that you need to be able to do what we need to do, which is deliver your order accurately. And that's where our data that we have from over a billion orders layering on the information that we're getting from Shoppers in the store, right? We've got over 12 Shoppers in large-format stores every single day. And so as they're going through the stores, we're getting that feedback. We're layering it into our systems.
And that allows us to then predict on top of the inventory data we have, what is the most likely situation actually in the store at the time of your order. And that means that we can then come up with a suitable replacement or ask you at the time of your order, is there something you'd actually like instead of this item? And so overall, that just drives satisfaction rates up. From an AI perspective, the other thing that I would note in terms of it's not just about what's on the shelf, but providing a more personalized experience to you is actually getting a sense for what I'll think about as either nutrition or specific attributes, right? So you may have, I think it's 73% of our customers have at least one dietary preference, right?
We've actually used AI to tag every single item in our catalog and say, okay, whether that's lactose-free or gluten-free or something. These are the types of things that as we continue to personalize your experience, we can layer that in and make it much more seamless for you to be able to move through your shopping experience.
Let me ask you one about AI then. Just kind of to follow up, we went down that thread. I've had this vision for the last two and a half years since we've sort of been having all the generative AI world of the digital assistance and grocery still to me feels like a product that should have an online grocery agent Saturday morning that'll say, "Good morning, Brian. Here are your 15 things you order every week. Here's some dip that goes well with your chips. Here's a coupon. Is Monday morning 9:00 A.M. when you want it?" I say, "Yes, thank you very much.
Yep.
How far away is that? And what is sort of the main execution hurdle to make that a practical, consistent experience?
Yeah. So I think first and foremost, what I'd say is that we think we are very, very well positioned to take advantage of the continuing move in the direction that you talked about. And that is, again, because of our data, right? So if you think about just the pure quantity of data, we have sort of 2 billion instances of product data across our overall platform across 1,800 retailers. And that is over a billion orders. In Q4, we delivered over a billion items, right? So when you think about that context of not just brands, but the brand intersection with the retailer, intersection with the consumer, there's just a lot of really rich data that we can capitalize on there. So I think that's the starting point.
In terms of how do we get to Brian's vision, I think there's two sort of ways that we're approaching this. The first, I would say, is really around things that we can build ourselves and that we have been and will continue to build into our platform. Ask Instacart, as an example, is a way that you can interact with Instacart in a much more natural language way to try to get your objective of ultimately filling out your basket. Of course, the things that we're surfacing to you as you move through your experience are AI-enabled, right? Even from an advertising perspective, frankly, right? The ads that we want to surface to you, the more that we can utilize AI to get you the most relevant ad or the most relevant pairing means that it's faster and more efficient for you to move through your experience.
Plus, it's also good for our ads business. The other piece of the equation is working with third parties. So you saw us integrate with Operator. We think that's a really interesting way to lean into the space. At the end of the day, for us, we want to be the go-to partner for any agent that's going to be in the space and make sure that wherever consumers are shopping, we're making it as easy as possible for them and that we are the partner of choice.
I'm looking forward to it. I'm waiting for my agent. Great. So maybe let's talk about the advertising business then. So before we get to the AI sort of benefits, walk us through sort of the evolution of the ad business the last six months from the large advertisers, what they're going through, and then sort of now the diversification into more small advertisers. So maybe start there, large and small advertiser trends.
Sure. Even as you look back at 2024, it's been a pretty consistent theme that some large advertisers have been leaning in, even as we've had idiosyncratic issues with individual advertisers. So it's never been, "Hey, large advertisers on masse are pulling back, and that's offset by small advertisers." It's really been a very kind of individual story of individual CPGs having challenges in their business, typically offset by other large CPGs leaning in. Now, we then supplement that by a really strong growing emerging brands business. But today, part of the challenge has been that we came into the year, into 2024, I mean, a bit too oriented towards some large advertisers, which means that if you get one or two or three that pull back even marginally, it has a very meaningful impact on our overall advertising business.
So this goes to the diversification question that you asked, which is, so to combat that, we are really focused on diversifying our overall ad space. That is reflected in the fact that we now have 7,000 brands advertising on the platform. But it's not just about number of brands. It is about number. It's also about depth of engagement with those brands. That allows for a number of things to happen. One is that when you do have these disruptions, you have one large advertiser who's having a bad quarter, they're pulling back. It means that it'll be this less disruptive to our overall business. The second thing that it does is it increases overall auction density, which is great for the business, and then the third thing that does is it increases the quality of our ad load.
The more options that I have for when you search for pasta sauce, the more likely it is that that is relevant to you, and again, that goes back to all the AI that we talked about earlier. The more likely it is that you click on that advertising, and that's ultimately, obviously, how we get paid.
This is how for the first quarter now, we're thinking about advertising growing faster than GTV.
Yep.
So that's sort of some of the benefits of what you mentioned. Maybe let me sort of drill into a little more the point on using AI or just machine learning to improve the ad business. What are you sort of focused on in 2025 to kind of continue to improve the ad performance, the scaling of the ad buys? Where are still low-hanging fruit areas you can improve?
It's really up and down the overall ad stack. So I think I'd start with what you touched on, which is serving you the most relevant ad, right? Making sure that we're taking all of the information into account and getting you the most relevant for your particular circumstances. The second is around context, right? You're searching for one thing, but oftentimes there's broader context that maybe AI can help us understand. Maybe that's around a holiday, but maybe it's around a certain type of recipe. You've already added two things to your cart. Is there something else that maybe we can already sort of get ahead of your line of thinking and help you, again, build that overall basket? So I think there's a lot we can do in terms of performance, continuing to drive that click-through rate and ultimately performance for our advertisers.
Got it. Okay. Let's talk about leverage sort of up and down the P&L. Yeah, I think there's so many moving pieces going on in the net take rate, revenue divided by GTV. I'm always impressed with the ways in which you find efficiencies in your net revenue.
Yep.
So maybe what are still some areas where you think you can improve efficiencies in the net revenue to sort of enable you to keep that net take rate strong even as you invest?
Yeah. So the biggest thing that goes on within specifically transaction revenue, putting ads to the side for the moment, is really that that's where our fulfillment costs show up, right? So the more efficient we are with making sure that a driver or courier or Shopper is within a mile of the store at the time of order, right? So we've talked about 50% of the time, the Shopper's already in the store within a mile of the store. Okay. Every sort of inch that we make in that direction helps. How quickly we can move them through the store. Now, that's everything from the Shopper App. It's the fact that we have planograms so that they can identify where objects are in the store really quickly. We actually have Carrot Tags, which are literally the digital tag in the store that shows you the price. They light up.
And so imagine you get to the beginning of the aisle and you're kind of looking, where is the flour? It shows you exactly where it is. Now, this is a game of seconds, right? So we've been shaving seconds off of orders for quite some time. But that is really how we're doing it. It's really operational excellence at its finest. And we think there's more room to go. So that's really what you've been seeing is we drive these efficiency gains within transaction revenue. And then for the most part, have been reinvesting within other opportunities within transaction revenue. Now, what I want to comment on is that it's not always within transaction revenue where we choose to redeploy dollars. And that is, I think, something that we've talked about. Transaction revenue, we think, will move around because we don't think from a P&L standpoint internally.
We think, hey, where's the best use of our dollar? If the best use of our next dollar is in paid marketing, that's going to show up in sales and marketing. If the best use of our dollar is in an affordability initiative around pricing, that's going to show up in transaction revenue. So, there is some fluctuation across the board in terms of where these dollars move. But it goes back to consistent Adjusted EBITDA improvement on an absolute margin basis. And again, we've shown that prety consistently over time.
You also, on the last call, I thought you had some good early examples of how you're using either GPU-enabled capabilities or GenAI to drive more efficiencies for the Shoppers, for your coders. Just walk us through, again, sort of what are you doing in this early sort of GenAI two and a half years in to drive efficiency in the core and efficiency for your Shoppers in the stores?
Yeah. It's really across the whole business. So, from a core perspective, I think about it internally, from an R&D perspective, from a product standpoint. I mean, this is really around how much of our new code being deployed or modified code being deployed is generated with AI assistance. And we see that continuing to tick up quarter over quarter. And so again, that drives, obviously, efficiency to the overall business. In terms of product experimentation, because we've centralized our sort of product AI capabilities and have centralized infrastructure, centralized tooling, it means from a product standpoint, you can launch AI experimentation kind of with a couple, I don't want to say clicks of a button, but with a couple of commands and with a couple of minutes. And so, it's really become quite self-serve.
So I think you see that reflected in our ability to be quite fast-twitch with our experimentation and in terms of how we're able to overall deploy the product.
Last one on capital allocation, sort of the buyback. I'm asked a lot of questions about the cadence of the buyback. How should we read the latest buyback trends? Just sort of walk us through sort of philosophically how you think about capital allocation, north stars, offsetting dilution, free cash flow per share. What is sort of the internal mindset on capital returns?
Yeah. I would say it really starts with what is the best return of every dollar that we have. And so I think about the buyback program through that lens, truly opportunistic in nature. Now, obviously, there's a couple of factors that you sort of weigh in. If you look back at 2024, we entered the year with a very sizable cash balance. And so, I think that was obviously a factor at play. We want to always make sure that first and foremost, we have dollars to reinvest in the business to drive growth. We want to always make sure that we have dollars to be opportunistic from an M&A perspective. And then last but not least, we want to buy back shares to the extent that we've fulfilled our commitments to one and two at times where we think there's a really attractive overall return.
If you think about 2024 as a whole, sure, you can ask questions about Q4, but we had a very aggressive buyback program in 2024, right? We bought back $1.4 billion of stock at just over $30 a share. So very pleased with the program overall.
And so we feel very good about it. As I said, came into the year with a very, very large cash balance. We also had some unique opportunities in 2024 that meant that we were able to be uniquely aggressive. We had four private transactions. Of course, we had our lockup expiry on the back of the IPO in February of 2024. And so that both created some dislocations, but again, also these opportunities for private transactions that allowed us to do some sizable trades in and around that and then near the end of the summer. So, I think we'll continue to be opportunistic there. So not really a change, I think, but some changes to the dynamics at play.
Got it. All right. Emily, thank you very much. It's good to catch up. Hopefully, a year from now, I'll be one year closer to my shopping agent.
Thank you so much. Appreciate the time.
Thank you.