Instacart (CART) Q3 2024 Earnings Call Transcript

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Instacart (CART 1.26%)
Q3 2024 Earnings Call
Nov 12, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to Instacart’s third quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session.

[Operator instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Rebecca Yoshiyama, vice president of investor relations, capital markets, and securities. Please go ahead.

Rebecca Yoshiyama — Head of Investor Relations

Thank you, Justin, and welcome, everyone, to Instacart’s third quarter 2024 earnings call. On the call with me today are Fidji Simo, our chief executive officer; and Emily Reuter, our chief financial officer. During today’s call, we will make forward-looking statements related to our business plans and strategy, developments in the grocery industry, and our future performance and prospects, including our expectations regarding financial results, partnerships, equity grants, and share repurchases. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated.

You can find more information about these risks and uncertainties in our last Form 10-Q filed with the SEC. We assume no obligation to update these statements after today’s call, except as required by law. In addition, we will also discuss certain non-GAAP financial measures, which have limitations and should not be considered in isolation from or as a substitute for our GAAP results. A reconciliation between these GAAP and non-GAAP financial measures is included in our shareholder letter, which can be found on our Investor Relations website.

Now, I’ll turn the call over to Fidji for her opening remarks.

Fidji Simo — Chairman and Chief Executive Officer

Thanks, Rebecca, and hi, everyone. I hope you had a chance to read our latest shareholder letter, which highlights our strong Q3 results and the momentum we are generating across all aspects of our business. We know the grocery market is still vastly underpenetrated online. And as a leading online grocery marketplace, we see it as our job to further accelerate adoption across all customers’ grocery needs.

And it’s clear that we’re winning at all of these use cases. We continue to be the clear category leader in both small basket fill-up orders, which represents 25% of the industry, and large weekly baskets, which represent 75% of the industry. We are truly building a habit so that over time, customers end up spending their full grocery budget with us. While other platforms are selling some grocery items, they are not building customers’ grocery habits, which is critical to retaining customers with good economics.

Our leadership simply comes from our superior experience, and we’re relentlessly focused on extending this advantage by deepening our retailer integrations. These integrations remain one of the most underappreciated parts of our business and are really our secret sauce. In our letter, I gave examples from several partners that leverage our technologies across our marketplace, their e-commerce websites, and in their stores. Through deep integrations like this, we’re able to provide a faster, more affordable, and higher quality service while helping retailers grow.

Most people underestimate how complicated it is to launch these services for grocers. I mentioned the 150 new features and offer types we built with Sprouts over the last year and a half. We’re the only ones with a breadth of solutions, experience, and trust to deliver on these complex integrations and our ongoing technology leadership is critical. As the industry transformed and the pace of innovation increases, growth has increasingly turned to us as a tech ally to develop experiences they wouldn’t dream of building on their own.

This is especially true with our ongoing investments in AI, which build on more than a decade of specialized grocery data. To further our technological leadership, I’m very pleased that we recently added Anirban Kundu to our team as chief technology officer. As you know, we’re not just grocers’ ally online but also in the stores, and our deep integrations give us a right to win there, too. We are pleased with our progress on Caper as we continue to broaden deployment across more than a dozen grocers, including national, regional, and local grosses.

We’ve taken an approach of piloting Caper Cart with many different grosses to prove the model in different markets and honing on best practices for every market segment. I’m really excited by what we’ve learned, and I look forward to continuing to scale our deployments next year. I’m also really excited about restaurants on our platform. We’re seeing promising early results since the launch in June, and we have a lot more room to grow and build the flywheel between restaurants and grocery.

On ads, as we’ve talked about in past quarters, we continue to work to diversify. It takes time, but we are making a lot of progress on diversifying both demand in terms of the type and number of brands that work with us as well as supply where we’re increasing the number of different sites where our ads appear. On the demand side, we are seeing strength among emerging brands who are doubling down and growing faster than our overall platform. That’s simply because of his work, see help people discover new brands and build purchasing habits.

We see the rec correlations between how much a brand spend on our platform and how this influences their sales and market share. So, we feel extremely strongly about the performance of our ads. We are also continuing to invest in more ad formats, measurement and targeting capabilities as well as campaign management tools to further drive demand. On the supply side, we are diversifying across the Instacart marketplace, but also across more retailer sites, including ones we don’t work with for e-commerce or fulfillment like Thrive Market and Cut+Dry.

In 2025 and beyond, we also expect to further increase supply by expanding our retail media-powered partnerships and bringing more ad formats to keep our card screens which can take the best of online advertising and bring it to the stores. Overall, I’m incredibly excited about the momentum we are generating across all aspects of our business. I’m confident in our ability to execute on our strategy and grow the pie for all of our stakeholders. Now, I’ll pass the call over to Emily for an update on our financials.

Emily Reuter — Chief Financial Officer

Thank you, Fidji. It’s an incredibly exciting time at Instacart as we doubled down on our critical advantages while reinvesting in short and long-term opportunities to accelerate growth for us and our partners. Now, let me provide a bit more color on our most recent financial results and outlook. Q3 was a really strong quarter for us with both GTV and adjusted EBITDA beating the high end of our guidance ranges.

We delivered GTV growth of 11% year over year, consisting of orders growth of 10% and average order value growth of 1%. Q3 advertising and other revenue growth of 11% year over year also outperformed our expectations. While we continue to see certain large CPGs pull back on spend for their own specific reasons, we also saw emerging brands lean in to drive faster growth than our overall platform for the reasons Fidji discussed earlier on the call. We also delivered strong profitability results across the board, which continues to reflect our solid operating fundamentals and our ability to manage multiple levers across our P&L to drive leverage.

This includes our fourth consecutive quarter of positive GAAP net income and adjusted EBITDA of $227 million, up 39% year over year, and operating cash flow of $185 million, up 67% year over year. Looking ahead, we expect Q4 GTV to be between $8.5 billion and $8.65 billion, representing year-over-year growth of 8% to 10%. As a reminder, our approach to GTV guidance is to provide a closest-to-the-pin range that we expect to land within for the quarter. We expect this in Q4, especially as we compare against last year’s strong holiday season as we lap a meaningful sequential step-up in incentive spend in the prior-year quarter.

And as we account for a small impact from Ahold Delhaize’s recent outage given we power deliveries for their owned and operated websites. We are also guiding to Q4 adjusted EBITDA of $230 million to $240 million. On a sequential basis, this guidance reflects positive seasonality in advertising and other revenue, partially offset by our reinvestments in more affordable service options as well as marketing incentives to further drive online grocery adoption. On a year-over-year basis, we expect advertising and other revenue to grow largely in line with our GTV guidance range and expect the primary driver of growth in adjusted EBITDA as a percentage of GTV to come from adjusted operating expense leverage.

In Q4, we also anticipate SBC will begin to normalize now that we have lapped our IPO quarter and don’t expect to benefit from any notable one-time reversals like we experienced in Q1 and Q3 of this year. On an ongoing basis, we continue to expect a step up in SBC starting in every Q2 due to the timing of our annual equity refresh grants. Overall, our business is performing well. Our operating scale and critical advantages continue to have us well-positioned to strengthen our lead as the largest online grocery marketplace in North America and generate more shareholder value over time.

This is why in Q3, we repurchased another $357 million worth of shares, bringing our cumulative repurchases to just over $1.4 billion for 47 million shares, representing a weighted average price of $30.27. As of September 30, we had $68 million of buyback capacity and today announced that we authorized a $250 million increase to our buyback program. We are confident in our ability to execute, and now this additional capacity will give us more flexibility to opportunistically repurchase shares in 2025 and beyond. With that, we will open up the call for live questions.

Operator, you may begin.

Questions & Answers:

Operator

Thank you. [Operator instructions] Please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Thank you.

Our first question is from Eric Sheridan from Goldman Sachs. Please go ahead.

Eric Sheridan — Analyst

Thanks so much for taking the questions. Maybe two-parter if I could. Fidji, when you talk about continuing to scale of the technology side of the business, can you go a little bit deeper in terms of how the technology investments continue to feed into building scale and depth of relationship on the supplier side of the marketplace with respect to retailers? And then the second part of it would be against that theme, how should we think about some of your key strategic priorities for investments on the technology side with an eye toward 2025? Thanks so much.

Fidji Simo — Chairman and Chief Executive Officer

Thanks, Eric, for the question. So, as I mentioned in the letter, the depth of integration with retailers is one of the most important predictor of growth. So, that’s why we invest enormously in technology to continue deepening this advantage. And that takes the form of either new services.

So, you can think of that as like pickup virtual convenience, bringing alcohol to the platform, integration on EBT SNAP. These are like big services where we see that retailers that have adopted one of those — at least one of those in the last year have been able to grow twice as fast as retailers will happen. So, we continue to unveil more of these services. On top of that, we also are building an underlying technology platform that allows us to connect with more and more systems from retailers that are both our marketplace and our enterprise business.

So, for example, if you look at Sprouts, we just upgraded them to the latest version of Storefront Pro, which was a very big technological investment to have really a storefront platform that was highly performance, very future reach, and build on the same infrastructure as marketplace and the advantage of having built that is that now when we build 150 features for Sprouts on this technology platform, it automatically applies to our marketplace and vice versa. And on top of that, it also applies to other retailers. So, that’s really how we gain scale by building this technology investment that really allow us to sell all of our retailers better and really airport marketplace compete as much as our enterprise business continue to lead. So, this is really how we think about it.

If you think about the technology investment in ’25, the thing I’m excited about is that we continue to generate a lot of efficiencies in the business that we can leverage to reinvest in technology. And so, the bets that we’ve made in terms of investing in restaurants, investing in a really robust technology platform for marketing and incentives, investing in paper and in-store technologies, investing in ad tech. All of that is thanks to the efficiencies we found in the business that really fuel future growth. And then I’d be remiss not to talk about the expansion toward stores.

I mentioned Caper, but that is a very, very big opportunity for us because 87% of the grocery industry is still offline. And so, the fact that we have a technology platform that is not just an online technology platform, but an omnichannel one that can serve retailers across their online business and their stores and provide that seamless experience that both customers and retailers really look for is a massive advantage for us that builds on the 12 years of technology integration that we’ve already built.

Eric Sheridan — Analyst

Thank you so much.

Operator

Our next question comes from the line of Ron Josey from Citi. Please go ahead.

Ronald Josey — Analyst

Great. Thanks for taking the question. Fidji, I want to better understand the progress and basically how affordability has led to order growth and specifically, it was great to see order growth reaccelerate this quarter to 10-plus percent year over year. But then also I think we saw savings per order increased 18% year over year.

So, help us better understand how affordability has been driving order growth but then Also, any other major drivers underlying each one of these, so we can better understand, call it, the continued progress for both order growth and affordability. Thank you.

Fidji Simo — Chairman and Chief Executive Officer

Absolutely. So, as you know, we’ve been incredibly focused on this and we think that it’s really incumbent on us to address the total addressable market, which really relies on having the most affordable product. And so, the strategy has been multipronged and affordability. We rely on integrations with grocers, into the loyalty program.

This quarter, I gave the example of Kroger where you can now collect fuel points when you shop for Instacart. That’s a good example of how we create savings through these like loyalty integrations. EBIT is another example. Flyers is a more recent example where similarly with Kroger this quarter, we are bringing a weekly fire where all featured items are going to be at price parity with the store.

So, these are big, big drivers of affordability for us and a big part of the increase that you’ve seen, the 18% increase in savings per order, which are now at $5.35, which we’re really proud of. The other driver of affordability for us is obviously our own fee structure. And as you know, we recently launched our Super Saver, which is an option for people to have $0 delivery if they schedule this delivery in advance. And what we specifically look for with this particular product is whether we are able to do a really good job with price-sensitive new customers.

And what we have found is that our price-sensitive new users use this new fulfillment options for one out of five orders. And when they pick these options, we see better conversion, better retention. So, that’s a really, really good signal for us of future order growth because people who tend to be more price sensitive, come to the door and find an option that is really good for them and get surfaced a lot of savings from retailers, a lot of savings from brands and payment options that match where they’re at, like, that will increase conversion and retention over time and allow us to really address the total addressable market. We’re really just getting started.

So, I feel like there’s still a lot more that we need to do with affordability but I’m very proud of the progress, like 18% year over year and $5.35 per order is very strong, but we’re really excited about future road map as well.

Ronald Josey — Analyst

Thank you, Fidji.

Operator

Our next question comes from Sebastian Colin from Baird. Please go ahead.

Colin Sebastian — Analyst

Great. Well, thanks, guys. A couple of questions for me. Good quarter, by the way.

Maybe following up on Eric’s question on enterprise. I’m not sure if you can update us on the portion of the business that’s coming from enterprise at this point. But maybe as you add these services, including omnichannel, how are you thinking about the split over time, the balance between the consumer marketplace and the enterprise offering? And then secondly, on the advertising business, great to hear that you’re seeing more traction with emerging brands. I guess, Fidji, I’m also curious if you think there’s a path to getting to better standards within retail media.

And if that happens, how much of a lever could that be to drive more spending onto the platform? Thank you.

Fidji Simo — Chairman and Chief Executive Officer

Absolutely. So, on enterprise, we don’t break out enterprise and marketplace. But what I can tell you is that both portions of the business are very strong right now. We were excited about what we are seeing across both.

The thing that’s important to understand is that we think that the market is going to continue having a lot of room and space for both marketplaces as well as people going straight to a retailer. And because we have this enterprise business that allows us to capture the entirety of the market compared to competitors who are just focused on the marketplace model. The other thing that we’re seeing with enterprise is that Retailers are really understanding that the omnichannel customer is much more valuable than the in-store-only or online-only customer. So, they are starting to really lean in to growing their online properties.

And when they do, it directly benefits us because obviously, they deploy dollars toward their own properties not toward marketplace as much, and like that allows us to really benefit from having lower customer acquisition cost on this channel because retailers are investing themselves in it. And then you mentioned omnichannel and Caper over time. Obviously, as we see paper taking off, we think that that could represent a much larger part of the business because it’s like when you look at the structure of the market, 87% of the market is still happening inside stores. And something that gives me a lot of conviction there is when I see and we reported on that last quarter, a retailer like Schnucks where in one of their stores, we managed to reach 10% penetration of sales with only 10 smart carts out of 160 carts in the store.

And it took a decade for online grocery to reach 10% penetration, whereas with smart card we think we could get there much faster. So, for all of these reasons, we feel very good about not just having a marketplace business, but actually addressing the entire market with our enterprise business as well. On your second question about a path to a better standard with retail media. The thing that I would highlight is that we are actually pioneering that.

We are — we were one of the first retail media network to receive MRC accreditation. We have done work with DoubleVerify. We are really pushing for standardization. And we think that it definitely helps us if that’s the case because we have very high confidence in the performance of our ads, as I have mentioned in my introduction.

So, the more that can be like standardized measurements, the more we’ll be able to prove that our ads are actually working so much better than other platforms. And really, that has been why we have invested so much in measurement, so much in standardization because we want to demonstrate that. The last thing I’ll add is that it’s really important as well for our broader network because we have developed that not just on our marketplace, but also on the 220 websites that we power with our ad that gets to benefit from all of these standards, all of these measurement capabilities that we apply to them by default. And brands are very appreciative of that because they tell us that they don’t want to be dealing with the world west of 1,000 subscale retail media network they want to come to us and really hear us establish the standard for the industry and allow them to reach as many retailer websites, that’s possible through one technology platform and one standardized platform.

Colin Sebastian — Analyst

Great. Thanks, Fidji.

Operator

Our next question comes from the line of Ross Sandler from Barclays. Please go ahead.

Ross Sandler — Analyst

Thank you. Fidji, going back to the deeper integration with merchants. So, the stat about those that are adding features growing twice as fast as those that are not adding features, begs the question of what’s going on with the latter group? Is it pushback around what’s the reason why they wouldn’t be adding more features? Is it they’re getting out from another provider? Or is it just like the slow pace of movement at these merchants? Anything more you could help on that would be great. And then for Emily, as nonexclusive grows as a percent of GTV, I believe that should have an upward pull on transaction take rate.

Is that accurate? And if so, are we going to pocket some of that? Or are we going to reinvest most of that back into the business? Any thoughts there? Thanks a lot.

Fidji Simo — Chairman and Chief Executive Officer

Yes. I’ll take your first question, Ross. So, the way to think about it is that the retailers that haven’t added new features in the last year are actually really a mix of situations. There are a lot of retailers that actually moved very fast and added all of these features as soon as they were out.

And so, we’re kind of backloaded in the past. And I think there’s a lot of other retailers that we’re just still adding to the marketplace and slowly onboarding to all of these other features over time. It’s definitely not that they’re pushing back on features. The pace, as you know, of this integration is low, and that is a double-edged for, as I’ve always said.

On the one hand, we always wish it would be moving faster. On the other hand, that also means that when you’re first in line as a platform and the platform they’re going to pick to integrate with, it creates a really big competitive advantage compared to other platforms because you or the platform that they’re going to go to first. And that’s where the depth of integration and the relationship and trust and the fact that we’re deeply embedded within these retailers IT departments really gives us a strong strategic advantage so that we really call first dibs on these IT resources to get to prioritize all of our features. So, we feel good about that.

Of course, we always want to accelerate these things. But it tends to be fairly lumpy. Just to give you an example, with Albertsons was a fairly long period of time where we didn’t add many features because they obviously had a lot going on in their business. But then in the last few months, we added all at the same time, a big pickup expansion, virtual convenience, and many other features.

With Sprouts, it’s a good example as well where the upgrade to their storefront platform is actually a massive like efforts that lasted 18 months. So, that technically doesn’t count as something that would fit within a year, but we are always really working on this integration with a lot of retailers at once, and we’re seeing them always pick up as the No. 1 partner they want to do this integration with because we’re the most at-scale partner. So, they know they’re going to get the biggest bang for the buck if they integrate with us.

Emily Reuter — Chief Financial Officer

Great. Thanks, Ross, for the question. So, as it relates to — I think your question was on retailers going nonexclusive and whether that would have an upward toll on transaction revenue. So, first and foremost, as a reminder, the majority of our retailers today are already nonexclusive.

And so, just wanted to provide that context before I dive in a bit deeper here. I also want to note that if you look over the last couple of quarters, we have had an improvement in transaction revenue, but that’s been more related to efficiencies that we’ve been able to generate on the shopper side related to retailer revenue. And at the same time, you’ve actually seen us reinvest that back in the business over time. So, I think that gives a little bit of context for how we’ve been operating and potentially what that might look like going forward.

I’d also note that transaction revenue has been and continues to be in the upper half of our long-term target. And as we said in the past, we’re really happy with where we are. We actually expect that over time, there may be quarter-to-quarter fluctuations in transaction revenue because there’s a number of different elements within transaction revenue and based on what’s happening in the business, we may choose to invest or harvest from different elements. So, as I mentioned, harvesting efficiencies from Shopper and reinvesting in other parts of transaction revenue.

That can include things like customer incentives as an example. It also includes our investments in lower-cost products. So, I do see a range of opportunities for us to continue to reinvest in transaction revenue. And when we think about individual retailer negotiations, those are really multifaceted.

So, we’re typically not negotiating just exclusivity on a marketplace. We’re negotiating contracts that span marketplace, white label, advertising, Caper Cats, etc. So, it’s pretty — it tends to be pretty bespoke, so I don’t think it’s as straightforward as the question would suggest.

Operator

Our next question comes from the line of Justin Post from Bank of America. Please go ahead.

Justin Post — Analyst

Great. Thank you. Our model is showing really strong leverage this year. Maybe you could just update us on where you are with head count and maybe some of the key initiatives on the investment side, you’re excited about for next year.

Emily Reuter — Chief Financial Officer

Sure. I can jump in there. Thanks for the question. So, yes, we’re really pleased with the progress that we’ve been making, particularly you’ve seen a lot of leverage coming out of our non-GAAP opex.

As you know, we did do a restructuring in Q1, and that did reduce head count, although I will note that the company actually peaked head count in Q2 of 2022. So, we’ve been very aggressively managing overall costs as well as head count since that time. And we took the opportunity in Q1 to look more holistically at the structure of the organization and make deliberate decisions around where we want to invest. And that meant taking head count out of the organization, but then looking to read head count in higher priority strategic areas.

So, those include things like investing head count in Caper, investing in emerging brand ad sales as another example. So, we do definitely expect to continue to invest those head count savings over time. That said, we do think that we’ll continue to drive non-GAAP opex leverage on a go-forward basis.

Justin Post — Analyst

Got it. And any kind of investment areas for next year with Caper or technology stack or marketing to think about?

Emily Reuter — Chief Financial Officer

Yeah. I think it’s very in line with what I’ve mentioned, which is our technology stack continues to improve, especially across our enterprise platform and our marketplace. And really what we are working on is continuing to connect all of these technologies so that retailers can come to us and really adopt the full of technologies across online, in-store, and really create that full omnichannel experience. That’s what we’re really excited about.

I would also add that on more of the marketplace side, we continue to be incredibly focused on affordability, and that remains a very big source of investment for us across products and BD relationship because we really want to lean heavily into value so that we can address the total addressable market. And then finally, we touched on advertising, but building an ad platform that becomes really the one-stop shop omnichannel retail media network across the entire industry is obviously a very big investment, and we want to continue really leaning into that because we’re seeing so much success with carrot ads and so many retailers knocking at our door to power the ad platform that we really want to lean into this opportunity and have the technology platform that allows us to do that. And obviously, like the thing that’s exciting is that we’re able to do all of that while driving steady annual EBITDA growth, thanks to the efficiency that we are getting across the business.

Justin Post — Analyst

Great. Thank you.

Operator

Our next question comes from the line of Jason Helfstein from Oppenheimer. Please go ahead.

Jason Helfstein — Analyst

Thank you for taking the question. I’ll just ask one. So, I mean, is there anything you’re seeing on the consumer outlook that is driving the slower fourth-quarter GTV guidance? Or is it a function of obviously a one-point tougher comp? And general conservatism? Just any more detail around the fourth-quarter GTV. Thank you.

Fidji Simo — Chairman and Chief Executive Officer

Thanks. No, we are seeing very strong consumer demand. And in fact, we track that very closely and we look at a lot of data points. We haven’t seen meaningful trade down whether you look at it on a per item, like types of item basis, whether you look at different types of retailers with a notable exception of clubs being very strong.

We are also now seeing different behaviors across income segments, across the EBT customer or the non-EBT customers. And we think that’s a testament to the fact that people really do value convenience, and we are able to provide that to them. When it comes to Q4, in particular, this is really related to the specific items we called out that make it a tougher year-over-year comp. So, comparing against last year’s strong holiday even lapping the sequential step-up in incentive spend in Q4 of last year and also the small impact we got from Ahold Delhaize’s recent outage because we power deliveries from their owned and operated properties.

But we’re otherwise excited about what we’re seeing in terms of consumer demand and the fundamentals remain really strong across order growth across order frequency going up, in Instacart+ subscribers are continuing to grow and outpace the growth in monthly active orders, Instacart+ engagement going up. So, across all of these fundamentals, I feel very good about the business.

Jason Helfstein — Analyst

Thank you.

Operator

Our next question comes from the line of Brian Nowak from Morgan Stanley. Please go ahead.

Brian Nowak — Analyst

Great. Thanks for taking my questions. I have two. The first one is on overall shopper growth.

I mean, you talked a lot about sort of going after the long runway in grocery, etc. I think the 600,000 shopper number seems roughly flat quarter over quarter. Just can you just talk to us about what you’re seeing on shopper growth? And sort of what are the keys to driving durably faster shopper growth into next year? Then the second one on the advertising business. I know there’s sort of a lot of moving pieces going on with the large brands and the emerging brands, etc.

But as you sort of look into ’25, what are the one or two key advertising innovations that you think could start advertising growing faster than GTV again? Thanks.

Fidji Simo — Chairman and Chief Executive Officer

Thanks, Brian. So, on shopper overall, I want to be clear that our shopper supply is incredibly healthy. And in fact, we have waitlist of shoppers in many, many cities and we are seeing shorter tenure being at an all-time high and the majority of our orders being delivered by our tenured shoppers. So, really what’s happening is that we are simply being more efficient with the shopper we already have by doing batching obviously, by adding faster time of delivery because we’re really optimizing what shoppers are doing inside the store and positioning them closer to the store.

We have 45% of our orders now that are being delivered by a shopper that are inside the store already or within one mile of the store. And so, for all of these reasons, for us, the game is not to grow the total number of shoppers. It’s actually to utilize our shopper supply, like, really efficiently. And that’s what we have continued to do and that’s why you’re seeing also for fulfillment and efficiencies coming out of our business that we are ready to reinvest.

Our shoppers are very different than other gig economy platforms and the dynamics are different. 50% or close to 50% of the time is actually spent inside the store, not driving. It tends to be very different demographics, much more like women and caregivers. And so, for all of these reasons, we have been able to carve out a shopper supply that is just really healthy, really loyal retention that is very strong, again, reflected in the fact that shorter tenure is at an all-time high.

So, feeling really good about our supply and the ability to continue driving efficiencies there. On your second question on ad innovation that could get that revenue to accelerate, I think the first thing that I would say is like the main important thing is performance of ads. And the fact that we have so many measurement capabilities that demonstrate that or had actually really work and that if you pull back spend a little bit, your share gets affected when you invest a little more, your share goes up. That is an incredibly powerful thing that we need to continue really putting in the hands of all the right stakeholders inside those brands.

And so, while I wish it was just one magical feature, I think a lot of the work is actually taking what we have built that proves the case and like putting it in front of the right stakeholders, so that we can help them make the right decision for their business across large and small brands, and that’s really important. We are also, though, continuing to release new formats, and these new formats are directly informed by what brands are telling us they want. So, format, for example, like occasions, bundles, shoppable recipes are ways to market products within a certain context, and with inquiries that didn’t have a lot of ad inventory before. So, for example, if you’re like searching for spinach, it tends to be the kind of query that doesn’t have a lot of ad inventory, but now with shoppable recipe, we can show you some spinach lasagna and like tell you to buy all of the other ingredients to make that recipe, and that’s the way for a pasta sauce company to like advertise on that particular query and get discovered.

And so, we’re really excited about new formats like that. We have seen that our sponsored recipes pilot enabled advertisers to receive 35% of new-to-brand sales and 70% out-of-aisle impressions. What I mean by out-of-aisle is basically impressions of your ad in an aisle that’s not the pasta, for example, if you’re a pasta advertiser. So, that’s an incredibly strong result on new formats.

So, something that we’re very focused on and continue to really lead the industry in terms of new formats that we think can work. And then finally, like a big driver in the future is further extending supply beyond our marketplace. I mentioned Carrot Ads many times because I actually really think that can be a very big driver of our business if we power that not just for our marketplace, but also for other properties. And in some cases, we will end up powering ads on these properties without powering the GTG like Thrive Market, like Cut+Dry, which will be a tailwind to our advertising rate.

Also excited to extend ads on Caper, excited to extend our retail media partnership with Meta, Google, the Trade Desk, and more, because that gives us scale to go apply or really superior ad tech to more places online and as a result, for the ad business over time.

Brian Nowak — Analyst

Great. Thank you so much.

Operator

Our next question comes from the line of Doug Anmuth from JPMorgan. Please go ahead.

Doug Anmuth — Analyst

Hey, thanks for taking the questions. One for Emily and one for Fidji. Emily, was just hoping you could walk through some of the 4Q dynamics a little bit more, particularly on the bottom line. Just trying to understand kind of what keeps EBITDA margins almost flattish sequentially.

And then, Fidji, you mentioned good early traction in food delivery. Just hoping you could talk about the use case there that you’re seeing as opposed to customers going directly to some of the leading platforms. And if there’s anything you can add on contribution to GTV or revenue. Thanks.

Emily Reuter — Chief Financial Officer

Sure. Thanks, Doug, for the question. So, as it relates to Q4 EBITDA guidance, the way that I think about it is Q4, you do have positive impact from ad seasonality as we’ve had in the past. On the other side of the equation, you do have other areas where we tend to invest in and around the holidays.

So, for example, we do invest in shopper supply onboarding to make sure that we have the supply to meet the uptick in demand the seasonal-related uptick in demand. And so, from an overall basis, we feel really good about the progression we’re showing on EBITDA. We’ve shown quarter-over-quarter-over-quarter progression on absolute EBITDA and margin basis, and we’ve committed to continuing to do that gradual improvement on an annual basis. So, to the extent that we have incremental dollars above and beyond that to invest in the business, we’ll continue to do that.

Fidji Simo — Chairman and Chief Executive Officer

And on the restaurant question, we’re very pleased with the result of restaurants. So, when we think about the restaurant use case, to be clear, that we added this use case so that you would increase stickiness of the entire platform. And we’re seeing that it is the case. It’s actually happening where people who adopt restaurants on our platform end up spending more and more frequently, not just overall mean tear, but on grocery in particular.

So, that creates a very interesting firewall for us, where, by investing in this new use case, we indirectly also invest in our — in the grocery part of our business. So, that’s also why we are not breaking out restaurants from grocery and telling you more about contribution because these two businesses are essentially completely intertwined, and we really run the business as just one business with multiple use cases. And our goal is to habituate customers across all of these use cases. The other thing that’s interesting that we are seeing is we are seeing much higher basket size than restaurant delivery platforms.

Uber said on their Q2 call that of restaurant orders were 20% higher than what we see on the platform, and that’s a reflection of us having adequate customer to larger baskets with grocery and then as a result, getting larger baskets with restaurants as well as well as us being very strong with families. And so, we’re really excited about what we’re seeing there and want to continue leaning into it. And also excited to see that we’re driving penetration of the restaurant use case faster than restaurant delivery platform are able to penetrate the grocery use case which, again, is a real positive for the overall strength of our combined business.

Doug Anmuth — Analyst

Thank you both.

Operator

Our next question comes from the line of Nikhil Devnani from Bernstein. Please go ahead.

Nikhil Devnani — Analyst

Hi. Thanks for taking my question. I wanted to ask a bigger picture one on GTV growth. We’ve seen low double-digit GTV growth this year.

How do you think about the durability of these trends going into ’25? Your product keeps getting better you’re scaling the Uber partnership. So, with those tailwinds, is there any reason to think this momentum should not continue? And then related to that, it looks like you leaned in a bit on marketing this quarter. Was that a reflection of specific opportunities you saw? Or how do you think about continuing to lean in to drive the top line here? That would be helpful. Thank you.

Fidji Simo — Chairman and Chief Executive Officer

Thanks, Nikhil. So, we feel very good about our position right now and having delivered three quarters of double-digit growth and guiding to 8% to 10% in Q4. And I think that’s a reflection of the fact that our investments in making our product better are fundamentally working. In terms of how to think about the future, the thing I’m excited about is that the efficiency that we continue to generate are allowing us to reinvest in a variety of initiatives.

We mentioned affordability, which is really important and a big aspect in which we’re going to continue to make our products better. Another aspect is marketing, as you just mentioned, where we are continuing to see good ROI. We are continuing to gain efficiencies, and we want to lean in to creating more new channels of growth because as a category leader, we see it as our job to accelerate grocery adoption and really crack new ways to market to customers and move them online. So, we’re leaning heavily into that, and that’s the reason why we’re doing that.

And then lastly, the last lever is what I mentioned before, which is these new initiatives, whether that’s restaurants, whether that’s Caper, that we are seeing a lot of promise in and want to continue fueling. So, across all of that picture, we feel really good about driving sustainable growth and are excited about our road map for ’25.

Emily Reuter — Chief Financial Officer

I can jump in on the sales and marketing question specifically. You did note that there was slightly higher sales and marketing expense in Q3 of this year. And as I said in the past, we really think about our marketing portfolio, but really our investment portfolio very holistically. And in Q2, we had the opportunity to lean in specifically into paid marketing, as it related to some efforts we did as one example of the different areas we invested in for the Olympics and seasonal events.

And so, I would think about this as something that continues to be fungible. We do think about our marketing investments on a very regular basis throughout the quarter flex into incentives or will flex into paid marketing or potentially into pricing depending on what we’re seeing and where we see the highest and best returns. So, you did see a bit of an uptick, nothing that I would call out there as being particularly systemic in nature.

Nikhil Devnani — Analyst

Thank you both.

Operator

Our next question comes from the line of Shweta Khajuria from Wolfe Research. Please go ahead.

Shweta Khajuria — Analyst

Thanks a lot for taking my questions. Let me try two, please. My first one is, Fidji, as you think about the adoption of these services and integration with retailers, so it could be EBT SNAP or pickup or alcohol or loyalty or enterprise solutions, your top services. Among your top 20 retailers, what is the adoption rate like today? And then the second one I have is on price parity.

Where do you think price parity can go? And where are you today in terms of price parity versus competition among the online grocery delivery platforms? Thanks a lot.

Fidji Simo — Chairman and Chief Executive Officer

Thank you. So, we don’t report specifically on adoption, but what I can tell you is across our top 20 retailers, all of them many of these services. They may not have all of them, but they have many of those. And it depends on their strategy as well.

Like we have some retailers that don’t have a loyalty program. But if they don’t have a loyalty program, they’re going to lean into other options like flyers, for example, to provide value for their customers. And so, our job is to really add a variety of services that can match what the retailer strategy is to create value for their customers and reflect that on Instacart in a differentiated way. I will say with services that are applicable to all.

We’ve made a lot of progress, like, for example, with EBT SNAP. We have the majority of the majors right now earlier this year, we added Costco and Kroger, which were two of the ones that we were missing. But we have now added the vast majority of the majors on the big services. Very similar with pickup, for example, services that have been like around longer but also applicable to retailers where we tend to have like deep adoption in these areas.

On your second question on price parity. So, as a reminder, retail has set the prices on our platform, but we work very closely with them to help them make the right decisions to be competitive on price. And we really like our positioning on where we’re at there, both against competition, but just in general. For example, we have the software called Eversight, which helps retailers dynamically optimize their pricing both online and in stores to really figure out which categories of products are our customers more price-sensitive and that is less price-sensitive on and really adjust their prices based on that information.

And last quarter, for example, we reported that one of the top retailers on our platform use Eversight and concluded that they needed to change our pricing strategy and reduce prices, and go to price parity on some of their banners. We also see that Eversight is really helping retailers identify what are the key value items like meaning the set of items that really drive growth if you go to price pay on those items, and we’re helping them identify that and make the right pricing decisions. And then you also saw the example of Kroger where we are rolling out their weekly sizes where all of the items are going to be at price parity there. I would say the biggest change that I have personally seen over the last year is that in the past, there was a bit of like binary decision.

You were either entirely at price parity or not at price parity. But now that we work with retailers so closely on how to optimize prices, it’s a much more granular decision. You can decide to get price parity on some items and not others. You can decide to be at price parity on your weekly flyer, but not your regular items.

You can decide to be at price parity in some categories where you may want to be a lot more competitive because you have more competition in your region. So, we’re seeing like retailers really engage on a much more sophisticated strategy and as we add more retailers to the platform, we are also seeing retailers react increase competition by lowering prices, which is something that we obviously want to encourage because that’s more value for the customer and a tailwind for Instacart. So, across all of those aspects, I feel good about where this is going.

Shweta Khajuria — Analyst

Thank you, Fidji.

Operator

Our next question comes from the line of Andrew Boone from JMP Securities. Please go ahead.

Andrew Boone — Analyst

Thanks so much for taking my questions. I wanted to go back to Instacart. Within the context of Instacart powering every single grocery order, can you talk about the key bottlenecks that are out there right now for Caper Carts and the broader distribution of cards into stores? What are you guys seeing there? And how do you knock that down? And then a bigger picture question on just a newer initiative, talk about Instacart business? What’s the opportunity there? And how do you guys really expand into SMBs or the broader business environment? Thanks so much.

Fidji Simo — Chairman and Chief Executive Officer

Yeah. Thanks for the question. So, on Caper, we’re really excited about what we’re seeing. And to give you a sense, we have quadrupled the number of carts available in stores in the last six months.

So, we are really in the scaling phase at more than a dozen retailers and with more coming. So, really excited about that. We are seeing that the business case is getting stronger and stronger because we are seeing increases in basket sizes for people who adopt Caper, which is something that obviously makes the case pretty much a no-brainer for retailers. And so, that’s really helping with making the case to a larger set of retailers.

I would say the biggest bottleneck for Caper is just that these things are operationally heavy and take time. Like most retailers, when something is going to impact the operations, especially the in-store operations want to start by rolling out pilots, making sure they validate the data that we tell them we’re seeing across the industry, making sure that we integrate with all of their system, which we have a big advantage because we have already integrated with a lot of these systems for online delivery, but there’s still incremental work to do to make sure that Caper is fully integrated with our in-store technologies. So, all of these things take time. But right now, I’m just seeing that as like blocking and tackling.

But I feel like the product market fit and the business case has already been very strongly established and it is just a matter of executing, rolling out more deployments, proving the case with more retailers, and continuing to scale because all of the wells we’re seeing to date are incredibly encouraging, both on the consumer side, retailer side, and advertising side. So, very excited about it. On your second point of Instacart business and the opportunity there, the thing that Instacart business is a huge testament of the scalability of our technologies. We build technology fundamentally for retailers that we can now apply to bringing distributors on the platform.

And you’ve seen us do that with order, which is part of Gordon Food Services, and this is something that we want to continue doing. We are also getting more and more business customers placing orders on Instacart. We had 1 million business customers placing orders in the last year. And now, we’re continuing to build more and more solutions for them, whether it’s things like having a way to export their receipt, whether it’s tax exemption, whether it’s more robust business profile, all of these things are contributing to growing the number of SMBs that are using in Instacart to place orders.

And then finally, it’s worth mentioning that Instacart business also has an advertising opportunity. I mentioned the fact that we are going to power advertising on Cut+Dry, which is a B2B platform that connects food service companies to food distributors. And that’s a way to leverage the 6,000 active brand partners that we already have on our consumer advertising business leverage them to advertise on B2B platform so that they can influence purchasing decisions at foodservice, restaurants, bars, and SMBs in general. So, what excited across all of these aspects to take the technology that we build fundamentally for consumers and retailers, but now start applying them kind of more upward in the supply chain because we think that these technologies naturally extend and will, as a result, extend our total addressable market as well.

Andrew Boone — Analyst

Thank you.

Operator

Our next question comes from the line of Ross Compton from Macquarie. Please go ahead.

Ross Compton — Analyst

Hi. Thanks for the question. I guess I’m kind of curious about the competitive dynamics of Carrot Ads as it tries to become the Retail Media Network for grocers. I think it was promoted IQ of Microsoft that recently shuttered.

Now, I was curious if you had seen any wins from this and really how your deep integrations kind of across the grocery retailers to help you win against Criteo and Publicis. Any color on the supply side of the market? You’re seeing a rate to the bottom four take rates as Kroger kind of in-sources, I mean, what are some of the factors at play here that grocers are choosing Instacart to be the monetization partners? Thank you.

Fidji Simo — Chairman and Chief Executive Officer

Thanks, Ross. Great question. Fundamentally, we are better at technology because we have an ad technology that we use on our own marketplace. So, it’s tried and proven for our own advertising business, and that means we refined this technology across 1,500 retailers already in our marketplace, and across millions of customers we have the best ad format because we know they work on our marketplace.

We have the best measurement capabilities. But then on top of that, we also come to these grocers and retail is that large with existing ad demand, whereas the platform you described really go to them with technology, but not the demand from 6,000-plus brands that already advertised on our network and that we can naturally extend to all of these other retailers that come on to our network. So, it’s really an amazing virtuous cycle because as we attract more ad dollars to our platform, we can extend it to more gross through Carrot Ads and convince them to join. And then as we extend this supply, we attract more demand because now CPGs realize that by coming to us, you can really reach a very large segment of the industry, and so they continue placing more and more ad demand with us.

And so, that’s an incredibly strong virtuous loop and competitive advantage against players that don’t have this first-party business, don’t know how to optimize this tech platform with their own and operated websites and data, and don’t come with all of the ad demand that we can bring to the table. And as a result, we have added 70 new partners in 2023. We’re at nearly 220 retail banners on Carrot Ads, and we see much more that we can do here with really becoming the one-stop shop for retail media.

Ross Compton — Analyst

Great. Thank you. And I guess to get that virtuous flywheel going, do you think you have to win more on the supply side against larger incumbents like in bake-offs? And do those go up for tender every two or three years? Like what does the supply side of the market look like? You spoke a lot about the long tail, but maybe at the really competitive end, is there opportunity there to kind of win out?

Fidji Simo — Chairman and Chief Executive Officer

Yes. I think there are lots of opportunities. And to be clear, we do not need to necessarily expand the network because again, we have such a strong platform already to attract the CPG dollars within the Instacart marketplace. So, always know that they should advertise in Instacart given our performance.

So, we can continue to grow through this factor but it’s a massive advantage when we go to the rest of these retailers with this momentum. And I think we’re seeing it play out not just with the long tail, but also with fairly large prospects where a lot of them are realizing and are hearing the same thing we’re hearing from brands we do not want to work with subscale networks. And therefore, more and more of these like midsized retailers and even somewhat large retailers are realizing that joining forces with us will drive a lot more demand for their platforms will require a lot less work for them, and will go straight to their bottom line. So, I’m really pleased with the momentum I’m seeing here, and I think there’s more growth to come from that segment of the market for sure.

Ross Compton — Analyst

OK, great. Thanks so much. Appreciate the answer.

Fidji Simo — Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Due to time constraints, we will have to conclude our Q&A session here. This also concludes today’s conference call. [Operator signoff]

Duration: 0 minutes

Call participants:

Rebecca Yoshiyama — Head of Investor Relations

Fidji Simo — Chairman and Chief Executive Officer

Emily Reuter — Chief Financial Officer

Eric Sheridan — Analyst

Ronald Josey — Analyst

Ron Josey — Analyst

Colin Sebastian — Analyst

Ross Sandler — Analyst

Justin Post — Analyst

Jason Helfstein — Analyst

Brian Nowak — Analyst

Doug Anmuth — Analyst

Nikhil Devnani — Analyst

Shweta Khajuria — Analyst

Andrew Boone — Analyst

Ross Compton — Analyst

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