Instacart, the popular grocery delivery company, made its highly anticipated debut on the Nasdaq, with its shares soaring 40% on the first day of trading. The stock opened at $42, marking a significant increase from its offering price of $30 per share. This strong performance has boosted Instacart’s valuation to approximately $14 billion, a far cry from its peak valuation of $39 billion during the height of the Covid pandemic. This IPO is particularly noteworthy as it is the first major venture-backed company to go public in the United States since December 2021.
Venture firms and late-stage startups have been keenly observing Instacart’s performance, eagerly awaiting a return of investor confidence. The rebound of the Nasdaq this year has revived market optimism, but companies that went public prior to the downturn are still trading at a significant discount compared to their peak prices. Despite this challenging backdrop, Instacart managed to generate tremendous interest from public market investors by strategically adjusting its stock price. While its valuation may have been considerably lower than before, the decision to lower the price appears to have been the right move to entice investors.
Instacart’s deliberate focus on profitability rather than rapid expansion has been a pivotal strategy in attracting potential investors. By prioritizing sustainable growth and preserving cash, the company has managed to capture the interest of both venture firms and institutional investors. In the second quarter of 2022, Instacart reported a 15% increase in revenue, amounting to $716 million. Although this growth rate is lower compared to the prior year, it reflects the company’s concerted efforts to optimize operations and improve its bottom line. Notably, Instacart achieved a significant milestone in the second quarter, generating a net income of $114 million, a substantial improvement from the previous year’s $8 million.
When assessing Instacart’s valuation, it is crucial to evaluate it against the backdrop of its industry competitors. While DoorDash and Uber appear as Instacart’s rivals in its prospectus, the company faces the most substantial competition from Amazon, as well as traditional brick-and-mortar retailers such as Target and Walmart, which have built their own delivery services. Food delivery provider DoorDash, which Instacart considers a competitor, trades at a valuation of 4.25 times revenue, slightly higher than Instacart’s 3.5 times revenue. However, DoorDash is yet to achieve profitability, unlike Instacart. Uber, with its Uber Eats business posing competition to Instacart, trades at a valuation of less than three times revenue.
Instacart’s IPO was not solely about raising capital; it was also an opportunity for the company’s employees to gain liquidity on their hard-earned stocks. The company’s CEO, Fidji Simo, emphasized the importance of providing employees with an opportunity to cash in on their equity. In total, only about 8% of Instacart’s outstanding shares were offered in the IPO, with 36% of those shares sold by existing shareholders. Co-founders Brandon Leonardo and Maxwell Mullen each sold 1.5 million shares, while Apoorva Mehta, another co-founder, sold 700,000 shares. Former employees, including those in executive roles, as well as in product and engineering, collectively sold 3.2 million shares. The IPO raised over $420 million in cash for Instacart and added to the approximately $2 billion in cash and equivalents the company held as of June.
Instacart’s successful IPO marks a significant milestone for the company and its investors. With a valuation of $14 billion, the company can leverage its newfound capital to strengthen its position in the fiercely competitive grocery delivery market. Instacart’s focus on profitability has proven to be a prudent approach, attracting investors who value sustainable growth over rapid expansion. As the market continues to recover and investor appetite for risk returns, the success of Instacart’s IPO bodes well for other venture-backed companies and late-stage startups seeking to enter the public market. The future of Instacart looks promising, and it will be intriguing to see how the company utilizes its newfound resources to drive further growth and innovation in the grocery delivery industry.
Leave a Reply