CART - NASDAQ

Good day, and thank you for standing by. Welcome to Instacart's Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now hand the conference over to Rebecca Yoshiyama, Vice President of Investor Relations, Capital Markets and Treasury.

Thank you, operator, and welcome, everyone, to Instacart's Second Quarter 2025 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, impacts from macroeconomic conditions and our future performance and prospects, including our expectations regarding our financial results. 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 SEC filings, including our last Form 10-Q. We assume no obligation to update these statements after today's call, except as required by law. In addition, we'll 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.

Thanks, Rebecca, and hello, everyone. I hope you had a chance to read my shareholder letter, where I highlighted yet another strong quarter for Instacart. Our performance reinforces how central we are in helping families save time, money and effort when it comes to putting food on the table and the vital role we play in building the technology that will power the future of grocery together with our partners. While this is my last earnings call as Instacart's CEO, I can't imagine a better time to step aside. The strength of our business and the opportunities ahead make me incredibly confident in the future we've built for these companies. It's clear our business is firing on all cylinders. We've extended our supply advantage by building innovative technologies that make our service easier to use and more affordable, while deepening our retail partnerships and helping retailers grow faster. This includes launching personalized shopping services, family accounts, loyalty integrations and digital flyers to higher frequency offerings like our restaurant partnership with Uber Eats and industry-leading $10 minimum basket size for Instacart+ members to get wave delivery fees. Together, our efforts are driving strong user growth and higher order frequency while also delivering better retention, especially among new 2025 customers compared to last year. Paid Instacart+ members are also growing and their engagement as a percent of monthly users continues to deepen, too. We're also fulfilling orders more quickly and accurately, an exceptionally tough challenge when it comes to big basket grocery shopping. This is where our technology, operating scale and data really set us apart, whether it's AI-driven inventory prediction, new personalized replacement models, store planograms or real-time receipt scanning to catch issues, we are relentlessly improving every step of the process from helping you place your order to when it arrives on your doorstep. In addition, experienced shoppers who've completed a median of over 1,000 Instacart orders now shop for nearly 2/3 of our orders. Together, over the past 4 years, these advantages have helped us complete orders approximately 25% faster while achieving all- time highs in sound and fill rates. Fulfilling customers' desire for convenience while ensuring they get more of what they order keeps customers coming back to our service and gives us a strategic advantage that is incredibly hard for competitors to replicate. Another one of our biggest strengths is our interconnected ecosystem. Improvements we make on our marketplace fit directly into our enterprise solutions and vice versa, creating a virtuous cycle. This allows us to offer scalable, flexible tools that help retailers innovate and compete, especially at a time when the rate of technological change is only increasing. This is evident in the velocity at which we're onboarding new storefront partners, and our capabilities are also benefiting big B2B players, too, like Costco business centers across North America. With in-store technologies like Caper Carts and Carrot Tags, we're creating omnichannel solutions that bridge digital and physical shopping. Caper Carts, for example, are now deployed in over 15 states and are growing globally with retailers like ALDI and Kohl's. It's still early, but I'm incredibly optimistic about the role Instacart will play as the retail enablement partner that will transform omnichannel retail and accelerate growth across our ecosystem. Because of all our key advantages, Instacart continues to be the clear share of sales leader amongst digital-first players based on third- party data. To put a finer point on this, our share of sales is more than 3x larger than the next player, and we continue to attract the most new GTV to the online category. Our leadership position is driven by our ability to meet customers' full grocery needs, which means winning at big basket, $75 and up because this is where 75% of grocery sales and even more of the profits consistently lives. We continue to activate big basket customers at rates multiples higher than others, and we are also far more effective at converting small basket customers into big basket customers. When looking at our top 20 retailers that have gone nonexclusive, we see that growth on other platforms eventually plateaus that grocery basket sizes remain under $75, and we remain the share of sales leader among digital-first players at these retailers. This indicates to us that these players are fundamentally serving a different use case and further reinforces the importance of our deep retailer integrations and enterprise advantage. Sprouts, in particular, is a retailer that is more leaned into our services. And based on third-party data, we continue to fuel the strong majority of their online sales while helping them grow faster than our overall platform, too. Based on what we've seen to date, even if all our retailers were to sit on other marketplaces, we remain very confident in our ability to remain the clear category leader amongst digital-first players. Overall, the strength of our operating model reinforces our ability to deliver value for retailers and customers in addition to strengthening our Instacart Ads platform. Over the last 4 years, we scaled advertising and other revenue to now over $1 billion in annual run rate while expanding from now over 4,000 active brand partners to over 7,500. By continuing to deliver leading performance and attracting more brands to our ecosystem, we are making our platform more resilient, and we're driving more value to Carrot Ads partners and extending our scale advantage as a top 5 retail media network. Beyond our platform, we're also helping brands more effectively attract customers on partner sites like Google, Meta, Pinterest, The Trade Desk in addition to now monetizing our consumer insights data, which we believe will become even more valuable as AI transforms our business operates. Our strong financial foundation and operational discipline drive all of this. We've grown gross profit per order to over $8 in Q2. We've achieved this through our relentless focus on scale and efficiency, which includes batching more orders and shaving seconds and pennies off of our delivery cost per order. At the same time, we've made aggressive but disciplined reinvestments into our business as well as deliberate capital allocation decisions. We've made strategic acquisitions to accelerate the growth and capabilities of our enterprise offering. And cumulatively, as of the end of Q2, we've bought back over $1.6 billion worth of shares, clearly demonstrating our confidence in our ability to execute. Finally, I have to highlight AI once again because it's built into our DNA as a company, improving our customer experiences, enabling faster product launches and making our teams more impactful. More than 80% of the code we deployed in Q2 continues to be AI-assisted. And now we've also seen the volume of code deployed per engineer grow significantly with average merges per engineer up 30% year-over-year. We're also using AI to automate code reviews and reduce tech debt while transforming nontechnical functions. For example, our sales team has tripled account outreach to high-priority accounts, which resulted in twice as many meetings booked and our legal team is spending significantly less time triaging weekly e-mails. Becoming an AI-first company has fundamentally changed how we operate, and we're just getting started. As we look ahead, I could not be more confident in Chris Rogers as he steps into the role of CEO. He has played a pivotal role in everything we've accomplished from scaling ads and enterprise partnerships to developing new growth strategies. Our business would not be what it is today without him, and that's why he's a perfect person to lead Instacart into its next chapter and to further accelerate our lead in the years ahead. I know he's looking forward to stepping into the role and meeting with investors over the coming weeks, and I can't wait to see the impact that he has in this seat. I want to say a deep thank you to all our shareholders for your confidence and support. It's been an immense privilege to serve as CEO over the last 4 years. Thank you. And now I'll pass it over to Emily to cover our financials.

Thank you, Fidji. It's been an honor to work with you. And on behalf of the team, we're grateful for the incredible vision, strategy and edge you've established at Instacart. There's so much momentum for us to build on, and I'm confident in all that's ahead for us. Now let me provide a bit more color on our most recent financial results and outlook. We delivered strong Q2 results across the board. We grew GTV by 11% year-over-year, driven by 17% growth in orders, which came from both order frequency and user growth. As we anticipated, our average order value decreased by 5% year-over-year, primarily due to the addition of restaurant orders and our lower basket minimum of $10 for Instacart+ members, partially offset by growth in basket sizes elsewhere. Transaction revenue grew 11% year-over-year, held steady at 7.3% of GTV year-over-year and increased from 7.1% quarter-over- quarter. While this sequential expansion was primarily driven by shopper efficiencies, as a reminder, we expect this metric may fluctuate quarter-to-quarter as we reinvest in growth opportunities and manage multiple levers across our P&L. Advertising and other revenue grew 12% year-over-year, modestly outpacing anticipated GTV growth as we expected. This performance demonstrates the increased resiliency of our ads platform as our diversification efforts are working. For example, in Q2, one of our largest brand partners pulled back from some of their ad spend due to macro uncertainty and reasons specific to their business. A year ago, this pullback would have decreased our advertising and other revenue year-over-year growth rate by several percentage points. But as you saw in our strong results, we were able to more than offset this pressure with growth from emerging and midsized brand partners. In Q2, advertising and other revenue was 2.8% of GTV, which remained flat year-over-year even as we've scaled restaurants, which contributes to our GTV, but is not advertising addressable. Overall, profitability remains strong. GAAP net income was $116 million, up 92% year-over-year, and adjusted EBITDA was $262 million, up 26% year-over-year. We also generated operating cash flow of $203 million, a decrease of $41 million year-over-year, primarily due to fluctuations in working capital. On a trailing 12-month basis, operating cash flow was up 21% year-over-year. In Q2, stock-based compensation was $105 million, up $39 million quarter-over-quarter, which we expected due to the timing of our annual equity refresh grants. We anticipate stock-based compensation to be lower in Q3 versus Q2, primarily due to just over $20 million of reversals associated with previously announced executive departures. In Q2, we also bought back $111 million worth of shares and authorized a $250 million increase to our buyback program. We ended the quarter with $357 million of remaining buyback capacity and approximately $1.7 billion in cash and similar assets on our balance sheet. Looking ahead to Q3, we anticipate GTV to range between $9 billion and $9.15 billion, reflecting year-over-year growth of 8% to 10%. During this period, we expect year-over-year orders growth to continue outpacing GTV growth with some moderation compared to Q2 as we lap the first full quarter of restaurant contribution. We are also guiding to Q3 adjusted EBITDA of $260 million to $270 million. This reflects our expectation of advertising and other revenue growing year-over-year in line with anticipated GTV growth in the period, a solid outlook given the cautious approach some large brand partners are taking in today's macro environment. This also highlights our continued ability to deliver year-over-year adjusted operating expense leverage. We remain well on track to achieving year-over-year growth in adjusted EBITDA, both in absolute terms and as a percentage of GTV in 2025. Overall, our business continues to perform strongly, and we are well positioned for long-term success. With a solid foundation of operating and business fundamentals, we are making deliberate investments to further drive profitable growth and strengthen our leadership in the category. With that, we will open up the call for live questions. Operator, you may begin.

[Operator Instructions] Our first question comes from Eric Sheridan with Goldman Sachs.

Fidji, thank you for everything and wishing you the best in the roles ahead. I wanted to come back to some of the comments, Fidji, you made about the competitive landscape more broadly. When you think about the array of supply that the company is bringing into the ecosystem and widening out the experiences that consumers have, can you talk a little bit about improvement in conversion and frequency of behavior and some of the things that we should be thinking about in terms of LTV across the landscape as we look at how the company evolves in the years ahead?

Thank you so much, Eric. Yes. So we think of supply in many different ways. First is continuing to onboard more retailers, but also it's going deeper with existing retailers, and that has been a very, very large source of our growth, whether that's starting to power their enterprise sites, expanding with them into new categories like alcohol, enabling more services with them like EBT SNAP, all of these deepening of integrations is a way to unlock more selection and more services with retailers in general. In fact, this is very much working because with all of the technology improvements we've made to our enterprise platform, we are now able to onboard these retailers much faster, and we had 40 net new retailers this year alone compared to 30 last year. So that gives you a sense of the acceleration in bringing that supply not just online, but actually powering their own websites as well. This is a part of the market that we have access to that others don't, and that gives us a very, very strong competitive advantage. In addition to that, we have continued to add new categories to our supply. Obviously, the Uber Eats partnership is contributing a supply of restaurants, which is increasing the types of use cases on Instacart. We continue to grow in retail and in new verticals. And all of that combined is contributing to the strong user growth that we're seeing and higher order frequency. It's also contributing to better retention. We called that out, but we are seeing that especially with the new cohorts that we are acquiring in 2025, showing better retention than the 2024 cohort at the same time last year. That's also translating in paid Instacart+ members growing and deepening in engagement because as we unlock more supply, obviously, they have more selection and more things to do on the site. We are seeing that Instacart+ customers have shops at, on average, more than 5 different retailers, and that shows you that selection really matters and our selection lead continues to be a very critical advantage over competitors.

Our next question comes from Nikhil Devnani with Bernstein.

I had a couple on growth, please. Maybe for the first one, nice to see the acceleration in the quarter around order growth. Can you just help us understand the composition of that between grocery and restaurants? I appreciate you think of it as one ecosystem, but it would just be helpful to understand if grocery orders and GTV also accelerated this quarter? And then I'll follow up with my second one.

Thanks so much for the question. This is Emily. Yes, so as you mentioned, we really do think about the overall ecosystem driving performance, both in orders and GTV because there is a reinforcing effect that you get from a product like restaurants in terms of consumers coming to the platform ordering on restaurants. And when they do that, we see them come back and order more frequently from grocery. Now that all said, as we talk about the impact, if you look over the last several quarters in terms of order growth, what you've noticed is there has been a meaningful acceleration in orders growth. And that has been largely driven by 2 things. The first is the addition of restaurants, which has a higher order frequency is a higher frequency use case as well as more recently, the introduction of lower minimum basket size. So just in sort of acknowledging that, of course, what we're saying here is that those are factors that are definitely driving overall orders growth. We also mentioned earlier on the call that as we move into Q3, we would expect some moderation in orders growth. And that is, of course, driven by the fact that we are lapping the first full quarter of restaurants contribution from a year ago. So definitely playing a role. But again, what we're happy to be seeing is the fact that our suite of products is driving more engagement on the platform, more order frequency and then that flywheel back to grocery, where we're seeing more engagement on the grocery side as well.

And then just on the Q3 guide commentary there. So the Uber Eats lapping commentary is clear. On the grocery side of things, are you seeing any moderation or embedding any moderation there as well? Or is it predominantly just the comps in restaurants that you're flagging here?

From a guidance perspective, really, the main thing that we wanted to call out was on the restaurant side. I think from an underlying dynamics perspective, we're really pleased with what we're seeing really across the board, right? So MAU growth, we're seeing order frequency growth as well as, as Fidji mentioned, some really great dynamics around customer retention with customer retention in '25 stronger than what we saw in the same sort of time period in 2024. So overall -- and then maybe one more thing to add is just on the Instacart+ engagement and the penetration of Instacart+ as a percentage of overall MAU continuing to grow. So nothing to add really specific to grocery. Again, we do look at it on a platform basis. But as we think about the guide, the primary impact I would think about is on the restaurant side.

Our next question comes from Colin Sebastian with Baird.

And Fidji, best wishes, good luck and hope to cross paths again as well. I guess I'd like to talk about the Instacart platform. We hear a lot about Storefront Pro and priority delivery. But maybe you could talk about which parts of the platform are getting the most interest, how much cross-sell opportunity you have and how the enterprise pipeline looks like, including even outside of grocery?

Thank you for the question, Colin. So you are right. A big part of the focus is on Storefront because that's really the kind of first product you want to sell when you expand platform so that all of these retailers working with us can be powered by our technologies on their own and operated website. And that's why we've invested a lot in this platform. And now it's paying off both in terms of the ability to onboard more new retailers as well as go deeper and add more functionality for existing retailers and allow them to do more things on their own property, like adding priority delivery, which we added with Costco, for example, and Kroger recently. And so that's a very big part of what the platform does. But then once you have that, there's a lot more products that we can upsell. An obvious one is Carrot Ads, where we allow retailers to monetize their Storefront properties. And even when they're not powered by Storefront, in the case of Schnucks for example, we can also allow them to use Carrot Ads even if they're not using our Storefront technology. And that has been a very, very popular option for retailers who realize that they were going to be too subscale to really operate a retail media business on their own. But by joining our network, they are able to create a completely new profit line really overnight, and that has resulted in us having over 240 Carrot Ads partners in a really like short amount of time. Then on top of that, we see retailers asking us to expand beyond powering their online properties to powering their stores as well. And that's why we have invested in our in-store technology with Caper and Carrot Tags. And we are seeing a lot of virtuous circles between these 2 technologies. So for example, if you are deploying Caper inside your stores, you can tell customers after they've done purchasing in a Caper Cart to reorder all the items they just ordered in stores, you can like ask them to reorder them online on your website and maybe give them a coupon to be able to do that. So that drives the acquisition of multichannel customers, which are more valuable than online-only customers or in-store-only customers. Carrot Tags is another example where by powering pick to light and electronic shelf tags inside retailers' store, we are able to improve the quality of our online orders because it allows our shoppers to find these items a lot faster. And now we have Carrot Tags powering 10% of orders, which is really incredible knowing that it increases found rate and fill rate meaningfully. So very excited about all of that. Really glad for the question because enterprise is one of the most underappreciated parts of our business and a really critical advantage that other competitors are really not able to touch.

Our next question comes from Lee Horowitz with Deutsche Bank.

I wanted to spend some time on ad revenue. Appreciating the resilience you guys highlighted and the breadth of customers that are allowing you to deliver that. I guess ad penetration was stable. I think you guys have pointed to that being up. I just wonder if you could give any update on what the CPG ad environment looks like today versus what you had mentioned before? Are there still some concerns? And how do you think that maybe may evolve over the back half of the year and into next year?

Yes. Thanks for the question. Yes, we are very proud of the resiliency of our ad revenue and the fact that the diversification strategy is working. The investment rate has indeed remained stable. When it comes to the CPG environment, I would say it's similar to what we've talked about before, which is that there is a lot of uncertainty in the environment. That's not just tariffs, but I would say regulation at large, whether it's SNAP, food dyes, et cetera. And all of these puts additional pressure on companies to deliver on their profitability objectives. And that comes on top of other business-specific challenges, including ongoing changes in consumer preferences. Like, for example, we're seeing fast-growing interest in high-protein snacks and breakfast food, lower sugar and natural soda options, less processed food. So if you're a large CPG that is not -- doesn't have a portfolio that indexes heavily towards that, you are having to make a lot of decisions to kind of reposition your portfolio and really optimize for profitability. And that puts a dampen on your ability to invest. And so that's what we're seeing primarily with the large guys, I would say, who are taking a little bit more of a wait-and-see approach are really trying to figure out how to optimize profitability during a time of change. But the good news is that during this time, what we are also seeing is that when CPGs pull back some spend, it allows emerging brands and challenger brands to really rush in and gain share. And so large CPGs are realizing that that's not a good long-term strategy and that the right strategy is to continue capturing the online customers as these customers move online because it's much more expensive to regain them over time. And so we continue to remain focused on demonstrating that to the large brands, getting them to optimize for the long term, not just for their short-term bottom line, but really for continuing to maintain or increase our market share in the face of very aggressive emerging brands that are definitely determined to gain share on our platform.

And then maybe just one follow-up on the online grocery industry at large. It seems to us that over the past several quarters, sort of digital penetration rates of the industry have gone up quite nicely after being fairly stagnant for some time despite the fact that inflation has remained fairly sticky. I wonder from your CPG, what you're maybe seeing that's sort of supporting that for the overall industry where you're able to grow well, competitors and the like. Any shifts you're seeing in demographic trends, pricing trends, anything that you would maybe point to that's perhaps driving that shift more recently?

I think the biggest thing is the one you mentioned, which is kind of like price sort of stabilizing. That's always something that we look closely at. And certainly, during a time of inflation, we saw that dampen our ability to grow online penetration for the industry in general. Now that it has stabilized, that's certainly much more encouraging. At the same time, the TAM is like massive. This remains one of the industry that is the least penetrated online among all of commerce. So there's a lot of runway to go. And what we're seeing in particular with regards to CPG is that the brands are really seeing the next 5 years as the biggest opportunity to gain share or lose share depending on how they play their cards given that customers are moving online. And when they move online with a certain brands, they tend to that particular brand online. So it's really critical to capture the online customer as they move online. That's why it's so critical that we continue to have the leading ad performance in the market that really allows brands to capture that customer with the highest efficiency.

Our next question comes from Ross Sandler with Barclays.

Great. And Fidji, I know your first job over at the new place is going to be wiring up operators who can all order our Instacart through the new [indiscernible]. Just a follow-up on the advertising question. I think we all understand the macro weakness in large CPG. But if we look at stronger growth in emerging brands and then all this new kind of off-site retail media network stuff with like Pinterest and TTD, how should we think about those 2 areas, the emerging brands and the off-site data deals in terms of contributing to overall ad revenue growth? Like when are those going to be big enough to move the needle relative to the big CPG?

Yes. Thanks for the question. So the way I think about it is, one, diversification is working. We've been talking about it for a while, and we are seeing the results of that in what Emily was talking about at our intro. We saw one of the largest brands really pull back some of their spend, and we were able to more than compensate for that with strength in both emerging brands and midsized brands. So really a lot of strength across these segments, whereas a year ago, it would have taken us down by several points of growth. We have built a lot of tools for emerging brands and midsized brands for them to be able to ramp up on our platform, a lot of AI tools that are allowing them to operate their campaigns much more efficiently, whether that's AI-generated landing pages, whether that's AI optimization and new goals that they can specify that they can optimize for. So all of these new product innovation is really working in attracting emerging brands and allowing them to have very high-performing campaigns on a self-serve basis. On the off-platform side, I would say it's slightly earlier in its journey. Everything we've done to date has been more about establishing very strong foundations of partnerships, and you've seen that with Google, Meta, The Trade Desk, Pinterest. But we still have to really found the right scale motion to start really ramping up these businesses. We are seeing great performance. We are finally at the point where we have the right integrations. The integration we did with The Trade Desk was really industry-leading this quarter where any brand that advertise on The Trade Desk can now really specify a set of audiences using Instacart data and purchase programmatically directly from The Trade Desk. So we feel like we have all of the right capabilities in place, all the right measurements, right performance in place with these platforms now to be able to scale. And that's still small now, but we expect it to grow over the future, given that we feel like we have nailed the fundamentals down.

Our next question comes from Andrew Boone with Citizens.

You highlighted gains in batching on the letter. What I'm trying to understand is whether you guys have now more dollars to put towards promotion or customer acquisition or however you want to frame that today versus a year ago. So can you talk about the gains that you're getting from batching and then how you're deploying that and kind of the intensity of that? And then, Fidji, in your prepared remarks, you talked about the efficiency of AI that's coming across kind of the platform on the back end. Can you connect that either to headcount or OpEx? Or what should our expectations be as AI is just more broadly deployed across Instacart from a cost perspective?

Thanks so much for the question. So on the first part in terms of gains in batching. So what I'd say is we have had gains sort of broadly in shopper pay. Batching is one piece of the equation that we've talked about, but really finding ways to optimize the shopping journey really from beginning to end. So batching is a piece of the puzzle, but shopper pay broadly is an area that we've driven pretty meaningful leverage over the course of the last few years as we've really squeezed out efficiencies. As you pointed out, batching has been a key area where we've been able to do a number of things. That's increasing the number of orders per batch, but it's also increasing the types of orders that we can batch. So we mentioned that 25% of our priority orders are now batched, and we're still able to complete those in a way that gets those orders to our customers on the same time frame, which in many cases, is under 30 minutes, which is pretty incredible to see. In terms of what are we doing with those savings, we talked about this in the past. We really are looking for ways to reinvest that across a number of different areas. So you mentioned incentives. That's definitely something that we look at in and when it's the right opportunity when we think that we can meet the consumer at the right point in their customer journey to change the behavior and ultimately create a more retentive consumer. But actually, it's broader than that. So a couple of other examples of places you will have seen us invest. Obviously, we've talked earlier this year about reducing the minimum basket size. That is something that ultimately drives down -- is a negative to transaction revenue, but we can fund that because of the tremendous gains we're able to get on shopper pay. So that's just one example, but you can imagine a whole host of things that we've done over the course of last year, making pickup free as an example, as I just mentioned, reducing the minimum basket size, we are ultimately focused on trying to drive affordability for the end consumer. And so if we can drive gains in shopper pay and give that back to the consumer in forms of cheaper delivery as an example, or better targeted incentives, those are the kinds of areas that we're looking to double down. Sorry, can you repeat the second question?

AI efficiencies and anything to note in terms of headcount or OpEx that we should be thinking through as it's further deployed across the platform?

Great. So at this stage, nothing to call out. I think we are certainly very focused on AI adoption across the company. As Fidji mentioned earlier, definitely AI first in terms of how we think with greater than 80% of our code that we're generating today AI assisted. And really, it doesn't stop with the engineering team. We gave a couple of examples earlier, but all of our teams are looking for ways to become more efficient. Now we don't have immediate plans to have that have an impact from an OpEx perspective. But what you've seen us do to date is to be able to continue to grow this business while being incredibly disciplined from an OpEx perspective. And so from a first principle standpoint, I think that's the first way that you'll see it come through. Over time, as we're able to really translate these gains, maybe that's something we could see, but not something we're committing to at this point in time.

Our next question comes from Shweta Khajuria with Wolfe Research.

I have one on advertising. As you develop your ad tech stack and your advertising business in general, how are you thinking about on-platform advertising versus perhaps some of the partnerships that you are getting and expanding into for non-Instacart placed ads? And how should we be thinking about it in terms of contribution to your business?

Yes. Thanks for the question. So the way we think about it is that we really want to become the one-stop shop for all CPG brands, and we're well on our way to doing that. We are a top 5 retail media network. And what we're hearing from CPG brands over and over again is that 2 things matter, scale and performance. And we are able to reach maximum scale through 1,800 retailers on our marketplace more than 240 Carrot Ads partners, but also through the offsite partnership that I mentioned earlier and in the future, scaling in-store as well through ads and Caper Carts, which are really kind of the holy grail of advertising of combining the advantages of online advertising, but in an in-store environment. And so our view is that advertisers should come to us because we can actually optimize for their goals across our entire network. And that's why we've really invested in what we call universal campaigns and optimized bidding, which is a way for advertisers to tell us what their budget is and what their goals are and for us to optimize their campaigns across our entire network, across all of the pieces of the network, both on platform and outside of the platform. So we're not -- we're really thinking about it as like one network and advertisers are thinking about it as one network. They are telling us that they do not have the bandwidth nor desire to spend a lot of their energy on subscale retail media network, and they see us as the aggregator for the industry across all of the different retailers that we already have, and that's a very big part of our value proposition. Retail media is still very new. We feel like we're very well positioned by being that aggregator.

Our next question comes from Steven Fox with Fox Advisors.

I had 2 questions, too. From a big picture standpoint, you mentioned personalization in your letter. And I was just curious if there's any KPIs that you're tracking in particular that shows success there or anything you can describe as recent and future success? And then Emily, I was just curious, just on the cash flows, it looks like what you're describing for the second half of the year is sort of seasonal from a working capital standpoint. I don't know if that's correct or not, but if you could help on that.

I'll take the first one. So personalization is one of the biggest advantage of doing grocery online versus in store. So that's why we really want to lean into that. And all of the advances in AI are really helping us take the 13 years we have of proprietary data and nearly 1.5 billion lifetime orders and really put that data to use by personalizing the experience. I would say that customers who use Instacart frequently are seeing a ton of personalization across the board. It starts with the basics like Buy It Again, which is used by more than 3/4 of our customers to buy at least one item to the much more sophisticated things we've done more recently like AI pairings, where if you add avocados, we can surface items you may need for guacamole or SmartShop where we have created health stacks, personalized shopping aisles for like organic products, gluten-free products, all the way to like new recommendation models for substitution that take into account your dietary needs, all of your pricing and past preferences. And so when we look at kind of how to assess the success of that, we look at it both in terms of does it get existing customers to buy more, add more items to their cart, discover items that they weren't used to buying before, which is always a great sign of success, but also when we get new customers onboarded on the platform, can we do a better job faster at showing them things that are really relevant for them and help them build the basket as well as do the same for lapsed customers that we're redirecting. And I would say across the board, we are seeing that all of these personalization efforts are working and are driving more engagement across all of these segments. So we're really excited about what we're seeing.

I can jump in on the cash flow question. So what I'd say about cash flow for us is a little less about seasonality and more about there's -- there are certain elements to our business that can drive fluctuations quarter-to-quarter in terms of flow-through to cash flow. So what I mean by that is, occasionally, those are related to just delayed retailer payments. So we saw that, you may recall, in the back half of last year where we had a bit of an AR buildup that unwinded in Q1. So you saw some impact there. Some other areas of the business that just have longer payback periods include alcohol and EBT SNAP. So depending on the timing of launches and sales around those categories, those can result in some lumpiness to cash flow. So the way that I think about it is that we will likely expect to have lumpiness over time over sort of multi-quarter periods. We do sort of trend in line with EBITDA. From a flow-through perspective, if you think about 2024 flow-through, what I just commented on meant that our overall EBITDA to free cash flow rate was slightly depressed because of that AR buildup in the back half of last year. So I'd say that was sort of on the lower end of what we'd expect to see. But again, quarter-to-quarter, we will see fluctuations.

Our next question comes from Jason Helfstein with Oppenheimer.

I'll just ask one busy night. So I guess, what will it take for advertising to accelerate? Do you need a healthier CPG spending environment broadly? Or are there actions that CART can take to improve to drive more demand?

Thank you for the question. So I think it's a combination of things. First, I think we have planted all of the right seeds to make sure that advertising can continue to thrive in the future. And I touched on some of them, but obviously, continuing to have leading performance, continuing to invest in our measurement capabilities to demonstrate that performance, continuing to diversify the business. We're on a great trajectory there. And the more we diversify, so more we can lean into emerging and midsized brands, which are growing faster than the rest and investing more of their GTV into advertising than large brands. And then I also touched on gaining more scale through all of the actions we are taking to expand our network through Carrot Ads, Caper Carts and offsite partnerships. So we remain highly confident in our ability to reach the 4% to 5% investment rate that we had talked about. But on any given quarter, there's going to be some puts and takes. Sometimes, as Emily mentioned, we are seeing some large brands pull back. We are able to more than compensate for that with the strength in other segments. But obviously, if we were operating under a better macro, we would see more strength. We, in fact, saw that in Q1, where in Q1, we had higher advertising growth, and that's because we saw strength in both emerging brands as well as the large brands in parallel. So certainly, the macro would make things easier. But at the same time, we really believe that with all of the initiatives that we've put in the works, we have the levers to grow in the future.

Our next question comes from Michael Morton with MoffettNathanson.

I wanted to talk a little bit about affordability initiatives. We've heard a lot about that from the grocery delivery industry. And what we've seen this year is some of your direct competition has tried to get more competitive by following you into the fee reductions on small baskets, and it's clearly not impacting the momentum in the business. So what -- I would love to learn some more about is what you've learned in the first half of the year, watching this consumer behavior. Maybe you could talk about the stickiness about it and your ability to retain the kind of core customers, but also accelerate the business. And then while we are on the small basket topic, I would love any incremental details you could share about how a theoretical small basket unit economics compares to a traditional order, maybe in regards to some batching rates or asset intensity, take rate, anything would be great.

Great. I'll have Emily handle the second part, but I'll answer the first. So on our affordability initiatives, first off, I want to clarify that the change we made to small baskets is one factor, but our affordability strategy is much more broad-based. We are getting more adoption of flyers, of loyalty linking, of a variety of affordability initiatives. And we are working with our retailers to continue to dynamically adjust their markups and with some go all the way to price parity, and we've made some progress there with partners like Schnucks, with Pattinson Group in Canada launching at price parity and more. And we think that's incredibly important because price parity retailers are growing faster on the platform than non-price parity retailers. So really, what we see is that it takes a multipronged approach of delivering affordability through many different ways to the end customers, and we're very committed to all of these different levers. On the $10 minimum basket change specifically, what we have seen is that it has allowed us to grow GTV overall and grow frequency without cannibalizing large baskets, which is really important because that's something where we really wanted to address all of the needs and not shift the mix. And that's certainly what we've seen. It was very incremental and has allowed us to tap into the kind of top-up use case for these customers. So we're really excited about what we're seeing. That's why we're very committed to this change. But I would say, generally, our affordability changes go much broader than this particular change.

Yes. On the small basket unit economics, I think first and foremost, I would just say, before thinking about the unit economics, really, what we're trying to do is create a platform that is there for our customers for all of their shopping needs. And we know that the majority of shopping happens in large baskets, large weekly shops, but we also know that customers have use cases when they need to do a fill-in shop midweek or forget something or have a sick kid and need something from the pharmacy. And we want to be able to make sure that we're there for them. And so that's really a big part of the focus on lowering the minimum basket size and really lowering the threshold at which customers think of Instacart as a provider for all of their needs. So that's sort of the starting point. I think how is Instacart able to create a price point that is sort of best-in-class from a minimum basket size. And that starts with the fact that we have already an existing large network with density of orders at all of these stores. So when you reduce the minimum basket size, you layer on what are incremental orders to an existing dense network, that means we're able to serve these orders out of the gate at economics that are already much better than you would be if you're starting from scratch. So our starting point when we did this back in the earlier part of the year was, hey, we can do this out of the gate at economics we like. That doesn't mean that's where we're satisfied with. And you've seen that in some of our commentary around strategies like batching, right? So we've continued to drive up batch rate. We've increased orders per batch meaningfully over the last couple of years. And you've seen us talk about now batching 25% of priority orders, which we think is, again, really incredible because we're still getting these orders to customers in under -- median 50 minutes, in many cases, under 30 minutes. And that is really a key part of our success to driving the unit economics here. So we're seeing the engagement we like to see from consumers. We're seeing those incremental orders. We're not seeing trade down to these orders, which I think is really, really important when you think about the economics because as long as we can do these orders at economics we like, and we're not hurting our existing base of business, then we think of this as truly additive to the overall ecosystem. And we know that if we engage you more regularly throughout the week, ultimately, what we hope is that, that drives you back to Instacart for your weekly shop more regularly. So really focused on the overall use case, making sure that we're there for customers regardless, and we're very happy with being able to serve those use cases for customers.

Our next question comes from Deepak Mathivanan with Cantor Fitzgerald.

So Fidji, you now have a great view into how consumer experiences are going to emerge for the agentic world. How do you think this affects marketplaces like Instacart as maybe agents take a more prominent role in transaction activities directly on the marketplaces. Where would you say Chris and team should be focusing and putting their accelerated product development efforts for, say, the next 6 to 12 months as they get the tech and plumbing ready, potentially for a more independent agentic world? And then second question, another big picture one. I mean, we've now seen delivery growth pretty much accelerate across all 3 large players in the U.S., including you, Uber and Dash. I know there is a unique aspect for each. But do you think there is some kind of high-level theme on whether there is a new leg to user growth or consumer behavior for these services that we are finding right now?

Thank you. So on your first question, the main thing that I think is a good principle for Instacart to follow is that we should always be where users are. And as long as you can provide a better experience, you can always find a way to monetize that. So in terms of where to go with agents, I think integrating deeply with these agents so that we can make it easy for agents to browse off sites and actually pick the right items for the customer is going to be really critical. I happen to think that Instacart has really critical advantages in an agentic world, thanks to the selection that we bring to the table of 1,800 different retailers, 100,000 stores, a ton of different products and doing that with data sets that are incredibly rich that we've collected over 13-plus years. So I think we're really well positioned, and it's really a matter of figuring out the right integration, the right user experience, which I think is still very early in embryonic and then figuring out monetization once the user experience is nailed, but very optimistic about our position there. In terms of the delivering growth accelerating across the market. I would say it points to the fact once again that grocery is still very underpenetrated. Even with this wave of growth, we are still vastly behind other categories of commerce with lots of room to go. And I think our service is getting better and better, and that's why you're seeing this accelerated growth. We think that we are improving the experience across all aspects of selection, affordability, speed and quality and obviously, continuing to deepen our lead in our ability to deliver these orders with the best customer experience. We are also seeing that retailers are really leaning in and realizing that again, the next few years are going to be a really big opportunity for them to either gain share or lose share. And we're seeing them lean into their enterprise properties, which again gives us a very big advantage because we power those. And when retailers are leaning in, they're usually directing their dollars at owned and operated properties more than third-party marketplaces. And so we're benefiting from these retailers really wanting to accelerate their online growth and us powering that online growth. And in general, also these retailers leaning into affordability, as I mentioned, which is also accelerating market adoption.

And our last question comes from Justin Patterson with KeyBanc.

This is Miles on for Justin. I would like to go back to Instacart+ on your comments of penetration increasing there. You guys have added a lot of value to the membership over the last year. So curious if you could just provide any more information on how you're seeing adoption trend or behavior within members like retention or order frequency or anything on that? And then one follow-up on the Costco partnership. I thought that was pretty interesting. Should we be expecting more of these unique retailer offerings moving forward? Or is that just more of a one-off with Costco being such a big retailer?

I'll take Costco. I will say that we are doing these types of deep integrations with a lot of our retailers. With Costco, obviously, it takes a particular form because they have a specific business model, and we are very excited to be doing a partnership with them to offer a discount for executive members on any orders on Costco same-day or on Instacart. I assume that's the one you're referring to. So very excited to be able to get so much exposure to the tens of millions of executive members. But if you look back even at the history of our Costco partnership, there has been many times where we have done these types of integrations with them, whether that's powering their entire same-day site, expanding with Costco Business Center more recently in Canada, whether that's powering SNAP for them, whether that's doing all kinds of integration. And so I don't think it's -- we should consider that a one-off. These are things that we do with a lot of our retailers. Another example just this quarter is with Publix, we were powering their Storefront app for delivery, but now they integrated that directly into their main app. It's a very deep integration, very strategic for both companies and allowing us to drive more growth. So these are the kinds of things that you can do when you are not just simply a marketplace that retailers put their selection on, but you are actually a strategic partner at the table with their strategic leader, their IT department and really driving deep integration into the core business of these retailers instead of being just a very thin layer of integration.

On the Instacart+ question, I think a couple of comments that I would make there. So first of all, Instacart+ members continue to grow. The engagement with the platform has always been strong. So it's accounted for the majority of our activity for some time and continues to do so. And the reason it's critical to us and a big focus of ours is that these are the most loyal and high-spending customers that we have. And so for that reason, we find it attractive to continue to invest in the overall program because we know if you are an Instacart+ member that over time, you spend significantly more GTV on average than non-Instacart+ members. So those are a couple of factors. We are seeing now Instacart+ members represent more of our monthly users over time. And that's for a number of reasons. As you mentioned, making Instacart+ more valuable. We now have over the last roughly a year, launched our restaurants product for customers. We've reduced the minimum basket size to $10. We have reciprocal memberships, things like Peacock and New York Times Cooking, et cetera. And then we've also expanded it so that family accounts allow multiple people to participate in a single Instacart+ membership. And we know that when you shop with others, first of all, it's more convenient. You can shop and all be adding to the same cart, but you also end up spending more, too. So we love the Instacart+ membership. It's an area we'll continue to invest in, but overall has been a continued growing part of our portfolio.