Wednesday Sep 20 2023 08:27
5 min
Instacart shares surged by 12% in their debut on the Nasdaq (NDAQ) exchange on Tuesday, following the San Francisco-based grocery delivery firm’s highly anticipated initial public offering (IPO).
The stock, trading under the ticker CART, initially went up by 40% , surging to $42 per share from the initial opening price of $30. However, it eventually closed at $33.70 as investors opted to lock in their initial profits.
The Instacart IPO, which kicked off late on Monday at a price of $30 per share, valued Instacart at approximately $10 billion on a fully diluted basis. However, despite the initial increase in the Instacart stock price, the company's valuation still fell significantly short of the $39 billion valuation that investors assigned it in the private market during the height of the Covid-19 pandemic in early 2021.
As of the close of trading on Tuesday, Instacart's market worth has surpassed $11 billion.
Instacart is the first prominent venture-backed company in the United States to go public since December 2021. Its performance is closely monitored by venture capital firms and late-stage startups that have been awaiting a resurgence in investor risk appetite. Similar to the recent IPO of UK-based chip designer Arm Holdings, Instacart's offering serves as an indicator of investor interest in new stock offerings for the upcoming fall season and may prove encouraging for upcoming tech IPOs, as noted by the NYT.
The technology and financial sectors had been eagerly awaiting fresh IPOs with the expectation that they would pave the way for additional listings. However, concerns over inflation and rising interest rates, coupled with a broader economic downturn characterized by workforce reductions and cost-cutting measures, exacerbated investor doubt in technology firms. This doubt led to a virtual halt in IPO activity over the past two years.
Although the Nasdaq has rebounded this year following a challenging 2022, companies that went public before the downturn are still trading well below their peak valuations.
The software developer Klaviyo is expected to make its market debut this week.
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Founded in 2012 and incorporated as Maplebear Inc., Instacart has joined cohort of gig economy companies in the public market. This move follows the earlier IPOs of Airbnb (ABNB) and DoorDash (DASH) in 2020, as well as ride-sharing firms Uber (UBER) and Lyft (LYFT) the year before. Notably, among these companies, only Airbnb is currently trading above its IPO price.
Instacart dispatches personal shoppers to grocery stores on behalf of its clients, who use a mobile app to make their grocery selections and place their orders. The company’s services are available in more than 5,500 cities, serving over 40,000 grocers and other retail stores, as stated on its website. The firm experienced significant growth during the COVID-19 pandemic, as consumers opted for home delivery to avoid public places. However, like many players in the gig economy, profitability has consistently posed a significant challenge for Instacart, due to the high costs associated with compensating a large pool of contractors.
Instacart reported that its workforce headcount peaked in Q2 2022 and subsequently decreased over the following two quarters. This reduction in personnel contributed to a decrease in the company's fixed operating costs. As of the end of June, Instacart had 3,486 full-time employees.
Analysts at Evercore noted that Instacart currently holds approximately 22% of the $132 billion U.S. online grocery-delivery market. However, increased grocery prices have had an impact on demand. In the first half of 2023, the company processed a total of 132.9 million customer orders, a slight increase from the 132.3 million orders during the same period the previous year.
As part of its IPO, Instacart offered shares to investors even before formally presenting its "road show" pitches. PepsiCo, one of Instacart's advertising clients, participated in this pre-IPO offering by purchasing $175 million worth of stock. According to Instacart CEO Fidji Simo, this move "sent a strong signal” to the market.
Among Instacart's largest external shareholders are investment firms Sequoia Capital and D1 Capital, with Sequoia holding a 19% stake and D1 Capital holding 14%. Co-founder and former CEO Apoorva Mehta retains an 11% stake in the company, which is now valued at approximately $976 million. When asked about his plans for the substantial windfall, he replied: “That's the billion-dollar question.”
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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