Instacart closes up 12% in Nasdaq debut, after first-day rally sputters

Instacart closes up 12% in Nasdaq debut, after first-day rally sputters

Instacart, the popular grocery delivery service, made its long-awaited debut on the Nasdaq, with its shares soaring 12%. While the stock initially surged 40% to open at $42, it closed at $33.70 as investors secured their initial gains.

The IPO, priced at $30 per share, valued Instacart at approximately $10 billion on a fully diluted basis. This marked a significant drop from its private market valuation of $39 billion during the height of the Covid-19 pandemic in early 2021. As of the closing bell on Tuesday, the company’s market capitalization stands just over $11 billion.

Instacart’s IPO performance is closely monitored by venture firms and late-stage startups eagerly awaiting a return in investors’ risk appetite. It’s the first notable venture-backed company in the U.S. to go public since December 2021. Although the Nasdaq has rebounded in 2023 after a challenging 2022, companies that went public before the downturn still trade at a substantial discount to their peak prices. Software developer Klaviyo is expected to make its market debut soon.

Founded in 2012, Instacart partners with grocery chains like Kroger, Costco, and Wegmans to deliver groceries to customers’ doorsteps. To appeal to public market investors, Instacart had to significantly reduce its stock price from its peak in early 2021 when it raised funds at $125 per share from prominent venture firms like Sequoia Capital and Andreessen Horowitz, as well as major asset managers Fidelity and T. Rowe Price.

In pursuit of profitability and to attract investor interest, Instacart made sacrifices in growth. Its revenue increased by 15% in the second quarter to $716 million, a notable slowdown from the 40% growth recorded in the same period the previous year and the staggering 600% growth during the early months of the pandemic. The company reduced its workforce in mid-2022 and trimmed costs related to customer and shopper support.

Instacart achieved profitability in the second quarter of 2022, reporting $114 million in net income in the latest quarter, a significant increase from the $8 million in the same period the previous year.

At an $11.2 billion valuation, Instacart is valued at approximately 3.9 times its annual revenue. Notably, its competitor DoorDash, named as such in Instacart’s prospectus, trades at 4.1 times revenue. While DoorDash’s revenue in the latest quarter grew at a faster rate of 33%, the company continues to operate at a loss. Uber, another competitor through its Uber Eats business, trades at less than three times revenue.

Instacart faces stiff competition, particularly from Amazon and major brick-and-mortar retailers like Target and Walmart, which operate their own delivery services. Target, for instance, acquired Shipt for $550 million in 2017.

Only about 8% of Instacart’s outstanding shares were offered in the IPO, with 36% of those shares coming from existing shareholders. Instacart’s CEO, Fidji Simo, emphasized that the IPO was primarily aimed at providing liquidity to employees who hold company stocks, rather than raising capital.

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, product, and engineering, collectively sold 3.2 million shares.

The IPO successfully generated over $420 million in cash for Instacart, adding to the nearly $2 billion in cash and equivalents the company had on its balance sheet as of the end of June.

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