A couple of years ago, I would have done an S-1 teardown of Klaviyo, but these days, great S-1 teardowns are often readily available. You can read the details about Klaviyo, a Martech company, here, here, here, here, and here.
I had never heard of Klaviyo until the S-1 was published last week. This ignorance is inexcusable, given Klaviyo’s numbers:
- $585 million in LTM revenue.
- 130,000 customers with an average ACV of $5k among its largely retail customers.
- The company grew revenue by 57% over the last 12 months.
- Gross margins are 75%.
- Klaviyo has 8% free cash flow margins.
- That’s a rule of 65% company for those of you scoring at home.
Those are gaudy numbers worthy of an IPO.
The second of our B2B SaaS IPOs is a company everyone has heard of, Instacart. Oddly, there are not yet many good teardowns of the Instacart S-1. (Maybe folks are resting from the Klaviyo experience?) But there is a lot of good data in this S-1, so I’ll provide an abbreviated review.
Here are Instacart’s topline numbers:
- For the six months ended June 2023, Gross Transaction Volume (GTV) was $14.9 billion. Growth of GTV over the same period a year earlier was 4%. This was a dramatic slowdown over prior periods, especially during Covid, as you can imagine!
- For the six months ended June 2023, Instacart’s revenue was $1.475 billion. Revenue grew 30% over the prior year, much faster than GTV.
- Revenue as a percentage of GTV, or the take rate, if you will, for the first six months of 2023 was 9.9% versus 7.8% for the year prior. (Note: Instacart does not use the term take rate.)
- Gross margin for the six months ended June 2023 was 75%.
- Adjusted EBITDA margin for the same period was 19%
As a result, Instacart is a Rule of 50 company, though with GTV growing much slower than revenue, it’s unclear whether this growth is sustainable.
Instacart’s Unit Economics
Instacart’s unit economics are fascinating. The waterfall chart below shows who gets what from the $110 average order Instacart receives:
Most of the fee naturally goes to paying for the groceries! After that, the gig worker who does the shopping and delivery (called Shoppers by Instacart) gets paid (including tips). Finally, Instacart starts making money. Instacart has two main types of revenue sources:
- Fees paid by retailers for each order completed (often as a % of order revenue)
- Delivery and service fees charged to consumers (often as a subscription)
- The total retailer and shopper fees are about 15% of GTV, but 8% of this goes to shopper earnings, and 7% goes to the company.
- Finally, a revenue share agreement with a third party that supplies payment cards to Instacart shoppers for in-store use also generates some transactional revenue. (Based on another S-1, that partner is likely Marqeta.)
Advertising and Other Revenue
- Sales of advertising revenue to brands to advertise on the marketplace.
- Subscription revenue from retailers who license Instacart’s enterprise platform.
As you can see from the chart above, advertising and other revenue is about 3% of GTV.
Instacart’s Four-Sided Marketplace
Instacart’s unit economics make clear that it is a four-sided market. The four participants are:
- Consumers (those of us ordering groceries online).
- Shoppers, the gig workers picking the products off the shelves, getting paid by Instacart, and receiving tips directly from consumers.
- Retailers licensing Instacart software or participating in the Instacart marketplace.
- Brands advertising on the Instacart platform to reach consumers.
It’s a complex ecosystem that Instacart must work hard to keep in balance and thrive. Examples of the tensions involved in maintaining the ecosystem are:
- Retailers want to own their customers, but so does Instacart. Instacart is mainly a marketplace, but it lets retailers use the software for their own e-commerce efforts. In that sense, it is trying to be like Amazon and Shopify. (To be fair, though, the subscription revenue is de minimis.)
- If Instacart provides too much compensation to shoppers, its margin will suffer. (In fact, most of the recent improvement in revenue has come from better efficiency and lower incentives paid to shoppers.)
- Too much advertising on the site will clutter it, and consumers and brands will be upset.
Instacart must keep a lot of plates spinning to make it all work. It’s going to be fun to watch.