Instacart IPO on Tuesday! 🥕

Happy Sunday, tax nerds - I’ll be in San Diego this week for Sendlane’s Commerce Roundtable. If you’re here give me a shout, would love to meet in-person.

On the heel’s of the recent Arm IPO success, Instacart’s team expects the same this Tuesday. They’ve raised its initial price expectations by 7%.

Simultaneously, the government’s wreaking some havoc in the digital world. Let’s see what’s going on:

• Instacart’s IPO is here! 🥕

• States add pressure on digital, including Netflix, YouTube 🎥 

• What’s going on with vaping? 🚬 

• Meme of the week 😆 

• Q from you - “Do you need both physical and economic nexus? ?” 🙋‍♀️

INSTACART IPO IS HERE 🥕 

Instacart’s IPO filed its S-1 a few weeks ago and its public debut is Tuesday. Here’s what you need to know...

📈 Financial Performance:

LTM June 2023

• 263 million orders (+6% YoY)

• $29.4 billion GTV (+15% YoY)

• $2.2 billion gross profit (+53% YoY)

• $744 million net profit (2.5% of GTV)

1H 2023

• 133 million orders (+0.5% YoY)

• $14.9 billion GTV (+4% YoY)

• $1.1 billion gross profit (+44% YoY)

• $242 million net profit (1.6% of GTV, +210 bps vs. 1H'22)

👨🏼‍🌾 Wide Base of Retailers & Growing Number of Brands

• 1,400+ retail banners across 80K stores (~85% US grocery)

• For its Top 20 retail partners, Instacart is 5% of their sales

• 5,500 brands use Instacart Ads for discovery (~15-100% sales lift)

• Consumers discovered 180 million items via ads in Q2 2023 (15% total)

🛒 Highly Engaged Customers & Shoppers:

• 7.7 million monthly active orderers spend ~$317 / month at $113 AOV

• 5.1 million Instacart+ members (+11% YoY)

• Instacart+ members spend $461 / month, double vs. non-members

• 600,000 shoppers, earned $15 billion since inception

 🚀 Ops Efficiency and Growth:

• Advertising revenue (~27% of 1H'23 rev., +24% YoY) allows Instacart to charge lower fees to customer, driving higher usage

• Sustained AOV of $100+ for last 54+ months

• Decreased fulfillment costs with economies of scale

• Asset-light business with low CapEx <1%

• 2.4% GTV invested in customer acquisition (+30bps YoY) and growing profitability illustrates balanced growth

📊 Data Approach to Enhance Omni-Channel Experience:

• Processed ~900 million orders with ~20 billion items since inception

• Collects billions of data points each day across range of decisions & tasks

• Recommended 75 million replacements, ~95% satisfaction

• Launched “Ask Instacart” to drive shopper personalization & experimenting with “Caper Carts” to help shoppers avoid checkout line

💰 New Investors & Fundraising History:

• PepsiCo is purchasing $175 million in a private placement

• Raised ~$3 billion in total funding since 2012 over 19 rounds

• Norges Bank, TCV, Seqouia, D1, Valiant Capital will purchase ~$400 million in this offering

A massive digital transformation is underway in the grocery, a $1.1 trillion market in US with only 12% online. We can expect this to double or triple over time.

More broadly, Instacart’s IPO will likely open the door for other ecommerce platforms to enter the market.

STATES ADD PRESSURE ON DIGITAL 🍿 

Netflix, Hulu, Amazon, Youtube and 8 other video streaming services are in trouble... Each owes Illinois up to 5% of their gross revenue in the state i.e., tens to hundreds of millions of dollars.

Attention digital ads businesses: A recent Massachusetts legislation may impose additional taxes on you so be on the lookout.

Do you store products in multiple third-party warehouses?

A Kansas-based soap manufacturer went through a lengthy process to repeal Ohio sales tax on products initially stored at a primary warehouse in Ohio before being shipped to other warehouses across the US.

In better news…

Wisconsin is working on creating an exemption for baby supplies (e.g., cribs, safety monitors, safety gates, etc.). Excited to see more states move this way.

YOU VAPE, BRO? 🚬 

Apparently, vapor products are 95 percent less harmful than cigarettes.

Yet states like Minnesota impose a 95 percent excise tax, which deterred 32,400 smokers from quitting cigarettes.

However, not all states share the same philosophy.

Currently, 31 states and the District of Columbia have implemented excise taxes on vaping products.

On one hand, Minnesota and Vermont impose the highest wholesale taxes on vaping products at 95 percent and 92 percent, respectively.

On the other hand, Connecticut and Wyoming have the lowest wholesale taxes at 10 percent and 15 percent.

Vapor product taxation plays a vital role in public policy efforts to reduce cigarette consumption and promote harm reduction.

Learn how your product is taxed in the US → 

MEME OF THE WEEK 😆 

PARTNER SPOTLIGHT 🌟

Bookskeep is a small business partner that enables growing businesses to scale to the next level and move from startup to sustaining and thriving.

Bookskeep provides the complete package for planning, building and maintaining financial stability and growth.

Interested in chatting? Just reply to this email and I can make a direct intro.

YOUR QUESTIONS, ANSWERED 🙋‍♂️

Q (Karly): Do you need both physical and economic nexus?

A: If you meet one of the two, you have nexus in the state. You do not have to meet both to have nexus. Just one.

If you have a physical presence in a state (e.g., store, employee, inventory), you have physical nexus. Typically, if you exceed $100,000 in sales or 200 individual orders over a year in a state, you may have met the state’s economic nexus threshold.

DON’T UNDERSTAND SALES TAX? 🤔 

We can run a sample audit & nexus analysis to help you understand your liability exposure. Free for Trash Talk subscribers.

You can also check out a Free Sales Tax Guide here.

Thank you for reading along. I’ll be back next Sunday with more sales tax shenanigans.

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Until next week’s 🗑 …

Rohit