The leading grocery technology company
Instacart ( CART Quick Quote CART - Free Report) made its Nasdaq debut on Tuesday, with a 12% increase in stock price. However, this gain was short-lived, as the stock failed to maintain its intraday high of 43%. The debut came shortly after SoftBank's Arm Holdings made a successful debut on Wall Street. IPO Details
The San Francisco-based Instacart, legally known as Maplebear Inc, priced its initial public offering (IPO) at the upper end of its $28 to $30 price range, raising a total of $660 million. Of this, $237 million will go to investors who sold their shares in the offering. The IPO valued Instacart at nearly $9.9 billion, significantly less than its $39 billion valuation in its 2021 funding round.
Instacart's Journey to IPO
Instacart's IPO comes nearly three years after the company began preparations to go public. The company achieved profitability in its core business in 2022, and this trend has continued into the first half of 2023. In 2021, co-founder Apoorva Mehta stepped down after seven years, naming Fidji Simo, the former head of
Meta's ( META Quick Quote META - Free Report) Facebook app, as CEO. Should You Invest in Instacart? : Instacart, which joined the ranks of gig economy companies like Uber, Airbnb, Lyft and DoorDash in the public market, delivers groceries from renowned chains, including Partnership With Reputed Retailers Kroger (KR), Costco (COST), Giant Eagle, Wegmans and Sprouts Farmers Market ( SFM Quick Quote SFM - Free Report) . : Unlike many startups, Instacart has forgone growth in favor of profitability — a strategic move aimed at preserving cash and attracting investor interest. Its revenues rose 15% in the second quarter to $716 million, down from growth of 40% in the year-earlier period and about 600% in the early months of the pandemic. Profitable Company
Instacart expects higher order levels in the back half of 2023 due to back-to-school period and holiday season. The company alsolowered its headcount in mid-2022 and cut costs associated with customer and shopper support,
per a CNBC article.
Overall, all Instacart needs to do is strike a balance between fewer users and higher profits per user so that higher fees do not spoil the user base massively, as told by University of Florida professor and IPO expert Jay Ritter to Yahoo Finance.
: Another food delivery service provider — Compelling Valuation DoorDash ( DASH Quick Quote DASH - Free Report) — has seen its shares surge 63.8% this year. Hence, we expect Instacart shares to taste success. At $11.2 billion, Instacart is valued at about 3.9 times annual revenues, whereas DoorDash – apparently a competitor to Instacart, trades at 4.1 times revenues. Uber ( UBER Quick Quote UBER - Free Report) , whose Uber Eats business is similar in nature to Instacart, trades at less than three times its revenues.
In a nutshell, Instacart is currently trading at a justified valuation, rather at a cheaper valuation than DoorDash. Doordash is worth about $32 billion, about 37X its EBITDA for the 12 months that ended in June and 21X its 2024 EBITDA, as estimated by ISI Evercore analyst Mark Mahaney, and
quoted on CNBC. Meanwhile, Instacart’s valuation is 16X EBITDA for the 12 months that ended in June.
Low valuation lowers the risk that has been faced by peer DoorDash. This food delivery company went public in December 2020. DoorDash shares closed at $189.51 on their first day of trading, surged to nearly $250, and are now a bit below $80.
Any Wall of Worry?
Instacart will be facing stiff competition from industry biggies like
Amazon ( AMZN Quick Quote AMZN - Free Report) , Target ( TGT Quick Quote TGT - Free Report) and Walmart ( WMT Quick Quote WMT - Free Report) . These companies have their own delivery services. But then, which company doesn’t have competition?