Madison and Wall: Saturday Summary
For the week ending August 25, 2023
It was a quiet week for news related to the advertising, with the singular exception of what came out on Friday afternoon.
Instacart, or formally “MapleBear Inc”, finally released its S1 ahead of an expected public offering of stock in the coming weeks. As one of the largest players in commerce media, it’s a company I’ve followed with interest for some time.
The data included in the filing shows that during 2022, the company’s gross transaction volume (GTV) amounted to $28.8 billion, almost all of which was US-based. In the S1, the company cites data from Incisiv indicating that grocery accounts for $1.1 trillion in annual spending in the US, although US Census data shows that retailers they categorize as grocery stores generated $864 billion in total sales last year. Of course, a significant volume of grocery sales will occur in non-grocery-based retailers, which presumably explains much of the difference between these figures. As Census defines it, food and beverage retailers only generated $30 billion in e-commerce sales – only slightly more than Instacart’s total GTV – although clearly a large volume of grocery products are sold online by general merchandisers (i.e. Walmart) and non-store retailers (Amazon, in particular), which would be incremental to this figure. As referenced in the S1, the Incisiv data indicates grocery e-commerce amounted to approximately $130 billion.
Slowing growth - GTV only increased 2.9% and 5.6% in the first and second quarters of 2023 – probably suggests something closer to saturation within the US at its current scale.
Within this context, advertising has been growing at a much faster pace for Instacart. Advertising “and other” revenues (which includes not only advertising, but also some revenue related to the company’s software licensing efforts) amounted to $740 million in 2022, 29% of Instacart’s total revenue and 2.6% of GTV. As this ratio has been steadily increasing – from 1.3% in 2019 to 1.4% in 2020 and 2.3% in 2021 – related revenue has outpaced GTV during all years where the data is available, and continues to do so in recent periods. In comparison to the low single digit GTV expansion, advertising and other revenues increased by 28.2% and 20.5% during the same period.
While the company appears on pace towards nearly $1 billion in advertising and other revenue this year, I note the significant deceleration vs. Amazon (whose advertising business grew 23% in the first quarter and 22% in the second quarter both in constant currency terms) despite 50x more scale. I also contrast Instacart’s trends with Walmart, only 4x bigger, but posting accelerating growth of 32% in the first quarter of 2023 and 35% during the second quarter.
In Instacart’s defense, it’s important to consider that its advertising business did experience significant leadership changes between late 2021 and late 2022, and presumably that would have impacted the results we are seeing presently.
As well, because it is focused on grocery specifically, the business may not ultimately be fully comparable to Amazon and Walmart, both businesses which can expand into a wider range of ad product verticals, including those with heightened levels of competition on each company’s respective marketplace from overseas manufacturers. Similarly, their data will presumably be more robust for purposes of targeting consumers off of their O&O properties, thus providing each of Amazon and Walmart with a bigger overall opportunity to pursue. Amazon specifically is clearly pushing harder into a range of offline media as well, including premium sports content in countries around the world.
Overall, narrow focus and relatively modest scale will probably curtail the maximum percentage of GTV that Instacart is able to realize through advertising. Beyond the near-term, sustaining recent growth rates for the advertising business will likely depend to a significant degree on re-acceleration of GTV growth, commerce product category expansion or other inorganic or partnership-based forms of expansion for its ad products.