Instacart, the renowned grocery delivery company, made waves on Tuesday as it marked its highly anticipated debut on the Nasdaq stock exchange. The stock experienced a remarkable 12% surge, instilling optimism in investors and signaling a promising start for the company in the public market.
The excitement was palpable as Instacart’s stock initially skyrocketed by 40%, opening at an impressive $42 per share. However, as the trading day progressed, the stock closed at $33.70, reflecting a moment when investors opted to lock in their initial gains.
The IPO, which was completed on the previous day, priced Instacart’s shares at $30 each. This offering valued the company at approximately $10 billion on a fully diluted basis, a significant shift from its private market valuation of $39 billion during the height of the Covid-19 pandemic in early 2021. As of Tuesday’s closing, Instacart’s market capitalization has risen to slightly over $11 billion.
Instacart’s public market journey is being closely watched by venture firms and late-stage startups eagerly awaiting a return of investors’ appetite for risk. The Nasdaq, which endured a challenging 2022, has shown signs of recovery in the current year. Nonetheless, companies that went public before the market downturn continue to trade at a substantial discount compared to their peak valuations. The upcoming market entry of software developer Klaviyo is eagerly anticipated.
Founded in 2012, Instacart has become a household name by delivering groceries from renowned chains such as Kroger, Costco, and Wegmans. To appeal to public market investors, the company had to make significant adjustments to its stock price. In early 2021, during a period when consumers were confined to their homes, Instacart secured funding at $125 per share. Prominent venture firms including Sequoia Capital and Andreessen Horowitz, alongside major asset managers like Fidelity and T. Rowe Price, participated in the fundraising.
Instacart’s strategic shift towards profitability, necessitated to conserve cash and attract investor interest, has meant sacrificing some growth. In the second quarter, the company reported a 15% increase in revenue, amounting to $716 million. This contrasts with the 40% growth observed in the same period the previous year and the staggering 600% surge experienced during the early months of the pandemic. In 2022, Instacart streamlined its operations by reducing headcount and lowering costs associated with customer and shopper support. Notably, the company turned a profit in the second quarter of 2022, reporting $114 million in net income, a significant leap from the $8 million reported a year earlier.
With a market valuation of approximately $11.2 billion, Instacart is valued at approximately 3.9 times its annual revenue. Comparatively, food delivery provider DoorDash, listed as a competitor in Instacart’s prospectus, is valued at 4.1 times its revenue. While DoorDash recorded faster revenue growth in the latest quarter at 33%, the company continues to operate at a loss. Uber, known for its ride-hailing services and Uber Eats business (another Instacart competitor), trades at less than three times its revenue.
Instacart faces competition not only from rival delivery services but also from behemoths like Amazon and brick-and-mortar retailers including Target and Walmart, which have launched their own delivery services. Target, for instance, acquired Shipt for $550 million in 2017, strengthening its delivery capabilities.
In the recent IPO, only about 8% of Instacart’s outstanding shares were made available for purchase, with 36% of those being sold by existing shareholders. CEO Fidji Simo emphasized that the IPO was primarily aimed at providing liquidity to employees rather than raising capital. Co-founders Brandon Leonardo and Maxwell Mullen are among those selling shares, with former employees in executive roles and product and engineering also participating.
The IPO has injected over $420 million in cash into Instacart, bolstering its financial position. As of the end of June, the company boasted nearly $2 billion in cash and equivalents on its balance sheet.
Instacart’s Nasdaq debut signals a new chapter for the grocery delivery giant, as it navigates the challenges and opportunities of the public market. Investors and industry enthusiasts will be keen to track the company’s progress and strategic moves in the coming months, as it seeks to maintain its position as a leader in the rapidly evolving e-commerce and delivery landscape.
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