Instacart stock soars in debut, then pares gains

Instacart’s Strong IPO Debut Signals Hope for the Market

Instacart (CART) made a robust entry into the stock market on Tuesday, opening at $42 per share on the Nasdaq. This came after the grocery delivery app set its IPO price at $30 per share, giving it a valuation of approximately $10 billion. The stock soared by over 40% shortly after trading began, eventually settling with a 12% gain on its first day.

This IPO follows Arm’s (ARM) recent return to public markets. While Arm’s IPO initially saw a more than 20% rise on its debut, its shares have since declined by over 8%.

Instacart adjusted its pricing range for the IPO in response to Arm’s strong listing, sparking discussions about the potential revitalization of the IPO market, which had been relatively stagnant over the past year. In 2021, there were 1,010 IPO deals, a number that dwindled to 173 in 2022.

Experts in the IPO field suggest that Instacart’s debut could be a more accurate gauge of an IPO market resurgence, given its distinct business model compared to Arm. Valued at $54.5 billion, Arm’s IPO was the largest in 2023. The established chip designer, with a history of trading on public markets, boasts powering 99% of premium smartphones.

Conversely, Instacart is going public for the first time. Founded in 2012, its valuation reached $39 billion in 2021 amid the pandemic-driven grocery delivery surge. The company connects consumers with gig economy workers who shop for and deliver their grocery orders.

Unlike many companies that went public during the 2021 IPO frenzy, Instacart didn’t. Instead, it entered the market with a valuation over 70% lower than its peak.

Instacart sees itself at the heart of a “massive digital transformation,” as noted by CEO Fidji Simo in the S-1 filing. While grocery delivery has grown, it still represents only 12% of total grocery sales, leaving ample room for expansion.

“As even more people shop online, online penetration could double or more over time,” Simo stated.

Instacart views advertising sales as a significant growth driver alongside direct customer sales. In H1 2023, the company reported revenue of $1.48 billion, a 31% increase from the previous year, with advertising accounting for 28% of that revenue.

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