WHEN: Today, Tuesday, September 19, 2023
WHERE: CNBC’s “Squawk on the Street”
Following is the unofficial transcript of a CNBC exclusive interview with Instacart CEO Fidji Simo on CNBC’s “Squawk on the Street” (M-F, 9AM-12PM ET) today, Tuesday, September 19. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2023/09/19/instacart-ceo-this-ipo-about-giving-employees-liquidity-on-stock-they-worked-hard-for.html.
All references must be sourced to CNBC.
DEIRDRE BOSA: David, this is an app that was launched way back in 2012, valuation shoot up to nearly $40 billion during the pandemic, now going public at around 10 billion. It’s a rare gig economy company IPO-ing with profits and that’s largely due to its advertising business. But growth this year has been flat. So I talked to Fidji Simo about why now was the time to finally go public and how she could reaccelerate growth. Have a listen.
FIDJI SIMO: We felt that it was really important to give our employees liquidity. As you know, this IPO is not about raising money for us. It’s really about making sure that our employees can have liquidity on the stock that they work very hard for. We weren’t looking for a perfect market window. We were just looking for, you know, supportive investors and the fact that we have had such, you know, good business results and five quarters in a row of profitability, including, you know, close to half a billion dollar in EBITDA over the last four quarters, gave us the confidence that we needed to, to go public and get support from investors that we hoped for.
BOSA: Right and you guys are going public at a very different valuation than where you were just a few years ago. How did you arrive at the decision to price where you did and the evaluation where you settled on?
SIMO: As you know, the markets have readjusted greatly between back then and now. But really what we focused on is our business performance and our business performance is undeniably stronger now than it was back in 2021 when I took the job. You know, — our transaction volume at the time was shrinking. Now we’re growing. We were, there were a lot of questions about whether Instacart would be just another pandemic fad. And we have now proven that we not only kept the Covid gains but grew on top of the Covid gains and grew sustainably and profitably which is really important. And so the price was, you know, very robust price discovery process, as you imagine, like in any IPO, but we feel like not focus on the price necessarily today or in the next 10 days, but really creating value for shareholders over the next 10 years.
BOSA: Right and part of what you’re referring to Fidji is that the business really did take off during the pandemic, you saw huge growth rates but since then, you know, and this year it’s been flat How do you return to growth?
SIMO: Well, I think there’s a couple things to keep in mind. First off, like you know, when I when I joined as CEO in ’21, a lot of people were actually wondering if the business was going to shrink and it was shrinking in the middle of ’21. And since then, we grew gross transaction volume 20% in 2021, 16% in 2022, still growing this year. This year, we’re seeing more of a slowdown because it is the first year that has no COVID impact. And it’s also a year where we weren’t impacted by pandemic staff benefits ending and then and so that’s that’s creating a slowdown in our business. But as for how we reaccelerate growth going forward, you know, we are going to continue to do the thing that sells us well to get to this point which are having absolutely unmatched selection, having great affordability options for all kinds of customers, having the absolute best quality so that you get the order to your door that you need and having the best convenience and that’s what has made us market leaders that’s what what is going to continue to carry our growth. And then we have also diversified the business and invest into new growth paths like, for example, connected stores where we are now building technologies not just for online grocery delivery, but also for in store because 90% of the transactions still happen inside our grocery store. So—
BOSA: Some of your gig economy, competitors like Uber and DoorDash they’re sort of facing the same backdrop. They saw growth slow after the pandemic, but they’re growing at a faster rate than Instacart is right now and they’re also trying to build up their advertising business. How do you remain competitive with them when you’re growing slower?
SIMO: Well, I think it’s two fundamentally different market, right, like restaurant delivery is a completely different market and skill sets than grocery delivery and that’s why you’re seeing these players try to enter the grocery market, which is a very large market. So it’s normal that it’s attracting a lot of new entrants, but we have a 11-year advantage on them because we have built all of the depths of integrations with our groceries, we have 85% of the grocery industry represented on Instacart so a very large supply advantage and not just you know retailers sitting on our marketplace, but actually retail is leveraging our technology, even for their owned and operated websites, whether it’s called Publix.com, Wegmans.com, all of these are powered in one form of another by Instacart. And that’s, you know, fundamentally the core recipe to our success and allowing us to deliver a much better superior customer experience.
BOSA: Right and you’ve built up an advantage and data over the years and something I’ve asked you also over the years, and the former CEO Apoorva Mehta before you is, if you would ever go vertical and build out your own grocery business given how much information you do have, similar to how DoorDash is building out its own line of DashMarts. The answer has always been no though. Is that still the case?
SIMO: That’s absolutely still the case. We see ourselves as an enabler for retailers when their business grows, we grow and when they win, we win. We do not compete with our retailers and to your point that is a very big differentiation between us and our competitors. We enable all retailers, we don’t compete with them.
BOSA: Is that always to your advantage though? Some might argue that DoorDash building out its own line of convenience stores and possibly grocery stores in the future gives them a better view of inventory, more pricing power. How do you think that plays out?
SIMO: I think what fundamentally matters in grocery is having massive supply and selection because customers are very loyal to the grocers. And so, the fact that we have again 85% of the industry represented on the platform is a core competitive advantage. As for inventory because we are so deeply integrated with grocers, we have a view into inventory and we have a view, thanks to AI and machine learning into what’s on the shelf at a given point in time and if it’s not on the shelf, we can suggest the absolute best replacement based on billions of data points that we’ve accumulated over the years and that’s what creates a much superior experience. So, competing with all retailers would not help us in any way. We already have the winning experience.
BOSA: Current indications for Instacart to open at about $39 So that would be a nice pop but remember very small float here guys, most people they know Instacart as a grocery delivery company, but really it is the advertising business that provided the sizzle for the IPO today. This is a higher margin business is growing faster and accounts for about 30% of total revenue. I did ask Simo if that’s in conflict with its grocery retail partners who also depend on advertising. She said that they liked the incremental customers and the technology that Instacart brings them, but you heard it from her when they win, her partners win, Instacart wins. That’s been the formula so far. We’ll see if that continues to hold but again, you know, she says every time I talk to her that they will not be competing with their partners which differentiates her from say a DoorDash.
