> Instacart has more than 500,000 customers and approximately $2 billion in revenue, according to Forbes estimates. (The company, which counts the full price of customer orders as revenue, declined to comment.)
What significance does the caveat of counting (recognizing) full price of customer orders as revenue have? Is it different from traditional retail business?
It's GMV (Gross merchandise volume or GMV is a term used in online retailing to indicate a total sales dollar value for merchandise sold through a particular marketplace over a certain time frame. - wikipedia) not revenue (fulfilling the order through their service). Companies use it to inflate the topline (revenue) figures.
Moses won't come down the mountain with stone tablets telling you what Instacart's "real" topline revenue is. You as a potential investor have to decide what you care about and how you want to compare it to other companies. Imagine Whole Foods sells an apple for $.70 that it bought for $.60 and paid a shipping company $.05 to ship it to them, and Instacart delivers that apple, with the customer paying them $.75. Whole Foods will count that as $.70 of topline revenue; the shipping company will count it as $.05 of topline revenue. You can see Instacart as being like Whole Foods, for $.75 of topline revenue. Or you can see that as Instacart being like the shipper, for $.05 of topline revenue. Neither of these is the objective truth; you have to judge which is more reflective of Instacart's future potential, whether their business is more like a seller or a shipper.
It is typical to include cost of goods a company onsells at a markup in their revenue figures. It's just worth noting in this case as they are effectively just a delivery service so it might be unclear.
> Adopting an asset-light model, Mehta first built an app that let customers shop from established retailers--charging a delivery fee and, at least initially, a slight markup. Instacart kept a cut for itself and paid the shopper.
So the implication is that they are not selling stuff at markups now.
> It's just worth noting in this case as they are effectively just a delivery service so it might be unclear.
In that case, wouldn't revenue be the "delivery service fee" instead and not the value of what was delivered?
Looking at the article their revenue streams seem to be: delivery fees, Instacart Express Membership fees, partnerships with stores and advertisement fees. In which case using GMV seems odd.
Yes - In my view revenue (and probably most accountants would also say this) is the delivery fee only. If you think about it, most marketplaces have this same issue. This isn't unique to Instacart, Enron did the same thing...(our accounting prof used them as an example). It's just not useful for analysis of the company.
Edit: Most marketplaces can charge you the "full price" to keep the transaction on the platform; however, they are only paid a small portion of that transaction as revenue -- e.g. Fiverr/Upwork/etc. don't keep the full amount the service provider charges their client, only a (hopefully) small fee.
https://a16z.com/2015/08/21/16-metrics/
#6 Gross Merchandise Value (GMV) vs. Revenue
"In marketplace businesses, these are frequently used interchangeably. But GMV does not equal revenue!" The rest of A16Z's explanation is worth reading.
What significance does the caveat of counting (recognizing) full price of customer orders as revenue have? Is it different from traditional retail business?