Instacart’s recent IPO filed gave Wall Street surprising insights into the grocery delivery industry, and how competitors Uber or DoorDash could better harness advertising to unlock profits. The grocery delivery service ended the tech IPO lull last week when it filed for Nasdaq Stock Market listing. Wall Street analysts claim that the filing revealed a company better positioned than expected and further along in the path to profitability than Uber or DoorDash were at the time of the respective IPOs. Bernstein analyst Nikhil Dvnani wrote in a note on Monday that the biggest factor was strong advertising revenue growth combined with healthy gross margins, logistics efficiency and higher transaction fees. The filing for UBER and DASH shows that there is a way to make money, especially since these platforms are able to cross-sell verticals to existing customers (lower CAC), and use an existing driver network, wrote Devnani, referring customer acquisition costs. Instacart’s long-term advertising potential Advertising has been a big success for Instacart and could be a boon for Uber and DoorDash, if they can tap into it. Segment reached 2.8% of the gross transaction value (GTV), up from 2.7% the first quarter, and 2.4% the year before. Advertisers increased 6% in the consumer packaged goods sector, according to filings. Bernstein’s Devnani said that consumer packaged goods brands were the “most exciting piece of Instacart’s revenue growth story,” as they offered high margins. This segment is a huge opportunity that competitors should take advantage of, as these companies spend around 30% of their gross sales on advertising. According to Lloyd Walmsley, UBS analyst, advertising through DoorDash and Instacart will also gain more attention as third-party cookie disappears and brands “gain faith” in the return of advertising through these channels. The filings revealed insights into customer behavior, which both DoorDash (and Uber) can use to improve their grocery segment. Instacart customers who are newer to the service have been spending more than ever before. They spent 1.6 times as much in the first six months than the group that used the service prior to the pandemic. Instacart+ subscribers also spend more money per month and shop at two times as many stores than regular customers. The group contributed more than half to GTV during the first half. Walmsley wrote that “we think the cohort behaviour should bode well” for DASH, as DashMart begins to scale up and customers in cohorts begin to mature on the platform. “Cautious Read-Throughs” Despite the optimism that exists for the future of the grocery delivery industry, the filing revealed some concerns about growth in the near term. Instacart revealed flat orders in the first six months of this year, and that customers were buying less items or trading them down because of inflation. The company said that it also expects the average order value will be lower than the high of $121 in 2020. Walmsley says that Instacart’s average order value and order numbers are “cautious readings” of Uber and DoorDash’s grocery delivery segments in the short-term. But over a longer period, cohort behavior, increasing ad penetration, and subscription users will deliver topline growth. CNBC’s Michael Bloom provided reporting.
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