Instacart Q3 Results Impress, But Weaker Q4 Guidance Sparks Profit-Taking

Instacart reported strong third-quarter results, surpassing expectations on key metrics such as Gross Transaction Value and adjusted EBITDA. However, shares of the grocery delivery platform took a significant hit following the release of guidance that suggests a slowdown in growth for the fourth quarter. This tempered outlook overshadowed an otherwise robust performance, leading to a sharp sell-off after the stock had surged over 40 percent since early September.

Highlights from Q3 Performance

Instacart demonstrated solid momentum in Q3, with Gross Transaction Value increasing by 11 percent year-over-year to $8.3 billion. This result exceeded the high end of the company’s guidance range of $8.10 to $8.25 billion. Growth was driven primarily by a 10 percent increase in orders, which totaled 72.9 million. Meanwhile, Average Order Value ticked up by a modest 1 percent as consumers maintained a cautious approach to spending amid a challenging economic environment.

The company’s ability to contain costs was another standout feature of its performance. Adjusted total operating expenses represented 5.1 percent of GTV, down from 5.6 percent in the same quarter last year. This improvement was attributed to reduced headcount and lower research and development expenses related to employee cash and equity elections. These efficiencies helped drive a 39 percent increase in adjusted EBITDA to $227 million, surpassing the guidance range of $205 to $215 million.

Advertising Business Gains Traction

Instacart’s advertising division continued to show strong growth, with revenue rising 11 percent year-over-year to $246 million. This segment remains a focal point for the company’s long-term growth strategy due to its higher-margin profile. Notably, Instacart has diversified its advertising customer base and the platforms on which its ads appear. Emerging brands have shown robust demand, offsetting some softness among larger consumer packaged goods companies. The consistent performance of the advertising segment underscores its potential as a significant driver of profitability.

Weaker Q4 Guidance Clouds Outlook

Despite the strong Q3 results, the market reaction was driven by Instacart’s less-than-stellar Q4 guidance. The company projected GTV of $8.50 to $8.65 billion, representing year-over-year growth of 8 to 10 percent. While this figure was slightly ahead of estimates at the midpoint, it reflects a deceleration from the 11 percent growth recorded in Q3. Management attributed this slowdown to challenging comparisons with last year’s holiday season and a web outage at a key retail partner, Royal Ahold Delhaize, which owns major grocery brands such as Food Lion and Giant.

Instacart also guided for Q4 adjusted EBITDA of $230 to $240 million, which fell short of analyst expectations. This shortfall added to investor concerns and fueled a profit-taking pullback.

Strategic Initiatives Bolster Resilience

Instacart’s ability to navigate current challenges reflects its focus on improving its value proposition for customers and retailers. Initiatives such as the integration of EBT SNAP benefits and the partnership with digital coupon provider Ibotta aim to enhance affordability and convenience, helping to mitigate the impact of delivery fees. These efforts align with Instacart’s goal of increasing penetration in the underdeveloped online grocery market.

Additionally, the company’s advertising business is becoming a cornerstone of its growth strategy. By expanding its reach among emerging brands, Instacart is positioning itself to capture greater value from the growing digital advertising space.

Conclusion

Instacart’s Q3 performance demonstrated the resilience and stickiness of its business model, underpinned by strong GTV growth, disciplined cost management, and a thriving advertising segment. However, the tempered Q4 guidance raised concerns about the sustainability of this growth trajectory, particularly as the company faces tough year-over-year comparisons and external disruptions.

With shares recently reaching all-time highs, the market’s reaction underscores the heightened expectations surrounding Instacart. While the company’s fundamentals remain solid, delivering on its long-term growth initiatives and managing near-term challenges will be critical to maintaining investor confidence.