Analyzing Instacart’s $11 Billion Valuation : From Pandemic Peak to IPO

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Following the long-awaited IPO of the grocery delivery service, Instacart shares increased 12% in their Nasdaq debut on Tuesday.

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The stock initially rose 40% to start at $42, then fell by investors who decided to lock in their profits, causing the stock to settle at $33.70.

Instacart Value

Instacart was valued at around $10 billion in the late-Monday offering at $30 per share, down from a private market estimate of $39 billion during the height of the Covid epidemic in early 2021. The company’s value at Tuesday’s close was little over $11 billion.

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Since December 2021, Instacart is the first significant venture-backed business in the United States to go public. Venture capital companies and late-stage startups that have been waiting for investors’ risk appetite to return are eagerly monitoring Instacart’s success. After a disastrous 2022, the Nasdaq has recovered this year, but businesses that went public before the slump are still selling at a significant discount to their high values. Klaviyo, a software developer, is anticipated to enter the market shortly.

Instacart, a grocery delivery service founded in 2012 that works with brands like Kroger, Costco, and Wegmans, had to drastically lower the price of its shares to attract investors on the open market. Early in 2021, with customers stranded at home and piling up delivery orders, Instacart secured capital from prestigious venture capital companies including Sequoia Capital and Andreessen Horowitz, as well as major asset managers Fidelity and T. Rowe Price, at a price of $125 per share.

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For the sake of profitability and to keep its cash flow strong, the company has sacrificed expansion. In contrast to growth of 40% in the same quarter a year prior and over 600% in the early months of the pandemic, revenue climbed by 15% to $716 million in the second quarter. Midway through 2022, the business cut staff and decreased support expenses for customers and shoppers.

Instacart began making money in the second quarter of 2022, and in the most recent quarter it recorded a net income of $114 million, up from $8 million the year before.

Instacart is valued at $11.2 billion, or around 3.9 times annual revenue. Instacart listed DoorDash as a rival in its prospectus, and DoorDash trades at 4.1 times revenue. Although DoorDash’s sales increased by 33% in the most recent quarter, the business is still in the red. The stock price of Uber is less than three times its revenue. Uber Eats, a division of the ride-hailing corporation, is listed as an Instacart rival.

Amazon and large brick-and-mortar shops like Target and Walmart, who have their own delivery systems, are the main competitors of Instacart. Shipt was purchased by Target in 2017 for $550 million.

Just 8% of Instacart’s outstanding shares were floated in the offering, with existing owners selling 36% of the shares that were sold.

CEO statement

According to CEO Fidji Simo, “We felt that it was really important to give our employees liquidity,” in an interview with CNBC’s Deirdre Bosa. “This IPO is not intended to raise capital for us. Making ensuring that all employees have access to the equities they have worked so hard to acquire is the main concern. We didn’t seek for the ideal market window.

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According to the business, co-founders Maxwell Mullen and Brandon Leonardo are each selling 1.5 million, while another co-founder Apoorva Mehta is selling 700,000. A total of 3.2 million shares are being sold by ex-employees, including individuals who held leadership positions as well as those in product and engineering.

Instacart received approximately $420 million in cash from the sale, bringing its total cash and equivalents on the books as of the end of June to little under $2 billion.

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