Instacart’s Instaloss | USD wrecking ball continues

11 September 2023


Delivering food ain’t what it used to be

In 2021 everyone loved delivery services. Instacart and Doordash and Getir and so on. Instacart in particular was a hit — the idea is; you want stuff from the supermarket but you can’t be bothered going. Someone will deliver it to you! They expanded past that, even, to a sort of concierge service for the terminally lazy. You want a laptop from CostCo? Sure. And so on. At that point the received wisdom was that private-markets-are-the-new-public-markets; fundraising rounds were frequent and funds like Tiger Global piled onto all of them with unabated enthusiasm. It was a good time! It was a good time to be a VC; it was a good time to be a start-up with a hyped up product.

Anyway, gravity came back to private markets — mostly via the device of public markets. Instacart, for instance, was valued at $39bn in 2021. Now it is targeting an IPO of $8-9bn. That’s a 75% discount. You’ve got to be feeling the pain if you’re one of the sophisticated investors who took part in the last fundraising round — here’s an incomplete list: Andreessen Horowitz, Sequoia Capital, D1 Capital Partners, Fidelity Management & Research Company LLC, and T. Rowe Price Associates, Inc. 75% is a big write-down for those firms, who invested billions into the company. In 2023 having a money-burning company is not as exciting as it was in 2021.

Over in Turkey the analog of Instacart, Getir, is in talks to fundraise money at a valuation of $2.25bn. It was valued at $11.8bn just 18 months ago. This underscores the woes for the sector — it is really hard to make money in food delivery. There are drivers to pay and restaurants to pay and so much competition that it has become a race to the bottom. It also underscores the airy-fairy valuations of private equity (“$39bn? Sure! Why not!”). When you go to IPO, you need actual buyers, and those buyers don’t take kindly to cash burn. Listed delivery players, Ocado and DoorDash, are down ~70% from their 2021 peaks. Fun with numbers

Looking through Instacart’s S1 is interesting — it reports a profit of $428mn, but the footnote indicates it is a one-time tax benefit. So adjusted EBITDA looks more like $187mn. What is adjusted EBITDA for Instacart you might ask. Well – it is dizzying:

We define Adjusted EBITDA as net income (loss), adjusted to exclude (i) provision for (benefit from) income taxes, (ii) interest income, (iii) other income (expense), net, (iv) depreciation and amortization expense, (v) stock-based compensation expense, (vi) certain legal and regulatory accruals and settlements, net, (vii) reserves for sales and other indirect taxes, (viii) COVID-19 response initiatives, (ix) acquisition-related expenses, and (x) non-capitalizable expenses related to the public listing of our common stock and the settlement of certain patent infringement claims. As with most tech companies there is a lot of stock based compensation – $33mn, as well as deprecation ($34mn) and $50mn set aside for legal settlements. Actual net income looks like -$63mn. As Buffett likes to say, deprecation is a real expense (imagine if you accounted for all employees salaries for 10 years and then treated it like depreciation each year — a very real expense). Instacart is still in the red.


Intervention Fears, an invitation for Yen Shorts

The USD/JPY attracted new buyers last week, following the release of the final GDP report from Japan. The focus remains on he FED-BOJ policy divergence which has been a key catalyst to unprecedented bouts of Yen weakness.

The USD/JPY now trades at 147.21 (at time of writing) with a technical bias to push further higher this week, given a firm daily close above 147.98, as bulls eye 150 as the key psychological Resistance target, which has only previously been hit once before in the last 23 years.

Support sits firmly around the 144.50 mark should the position be in place for a short-term relief off, although bias is firmly towards the top-side of this trade.

Japan’s top currency diplomat Masato Kanda issued a warning against the recent JPY sell off and indicated that authorities won’t rule out any options if speculative market moves continue, this is also off the back off poorer China service data and further concerns about the deteriorating economic conditions in China and it’s direct impact of Japan, as one of the largest trading partners.

The USD index on the other hand, is a clear currency of choice as the FED are expected to keep rates high for an extended period, this continues to support US Bond yields and strong employment data from the US has also helped to provide a more defined position for USD bulls.


NZ/AU/US

NZ

The New Zealand (NZ 50,-0.7%) was down on Friday hitting a 9-month low.

Market heavyweight Fisher and Paykel healthcare continues to slide lower to a fresh 9-month low over concerns over demand for its obstructive sleep apnea device.

E-Road sitting at 80c post-capital raise. Interesting to see what happens here…in our opinion it is symptomatic of poor management…shareholders will be hurting here.

ASX

The Australian market (ASX 200, -0.2%) slipped further on Friday extending its loss for the week to-1.7%, the miners being the main culprit.

US Student loans which have had their repayments paused since the start of covid-19 pandemic, will see repayments commence from 1st October – this saw millennial-focused stocks trade lower. Adding extra pressure to 43m Americans with some form of student debt. Will be interesting to see where household savings sit by the end of the year. We see consumer spending at current levels as unsustainable, digging into savings which is rapidly declining – interesting to see when spending is a sustainable level which doesn’t deplete savings and how this flows through into the economy. Wary of 2024 retail spending and flow on affect of this.

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