Instacart issued its long-expected initial public offering of stock on Tuesday, priced at $30 a share for a valuation of $10 billion, well below the $39 billion it was valued at after a fundraising round in early 2021, but at an offering price low enough to entice retail investors to join the party.
Of the 22 million shares of common stock offered, 14.1 million were being sold by Instacart and 7.9 million by major investors. On the opening day of trading, shares of Instacart hit a high of $41.38 but fell and closed at $33.70, dropping more in the aftermarket.
In its S1 registration filing last month, Maplebear Inc., dba Instacart, said it had $2.2 billion in gross profit in 2022, handled $29.4 in gross transaction value (GTV) and had adjusted EBITDA of $486 million. The company turned the profit corner in Q2 of last year even as revenue slowed, thanks to headcount and support reductions, CNBC noted. Instacart did report an accumulated deficit of $735 million as of June 30.
While it boasted 1,400 retail banners and 5,500 brands, the top three retailers accounted for 43% of Instacart’s revenue in 2021 and 2022, and the first six months of 2023, a significant risk factor.
The ceiling for the business is certainly high, given a $12 trillion retail grocery industry with just 12% of ecommerce penetration, according to Incisiv data. But while e-grocery is growing – up 8.7% to $9.3 billion in the U.S. last month vs. 2022, reports Mercatus/Brick Meet Click – the delivery portion has flattened out at $3.5 billion.
Instacart notes in the S1 it is playing a long game in e-grocery, investing heavily now in technology and its marketplace platform for what it expects to be a slow digital transformation. Last week it rolled out a conversational AI tool to its storefront for retailers, and smart carts have been a feature for some time.
“Every decision we make as a company stems from a fundamental belief that, in order to succeed, we need to work together across the entire grocery industry — supporting retailers and brand partners, giving consumers an affordable, accessible, and personalized experience they can’t find anywhere else, and creating flexible earnings opportunities for shoppers,” the company wrote.
While Instacart looks to advertising as a major growth area to shore up slow gains in e-grocery delivery, brand spending has been challenged by a variety of macroeconomic factors including inflation, higher interest rates and flagging consumer confidence. Ad revenue in 2022 was $740 million, up 29% from the prior year, but slowed significantly from a 94% gain in 2021.
Neil Saunders, managing director of retail for GlobalData, said Instacart’s $10 billion IPO valuation was reflective of a decreased risk appetite from investors and “more skepticism around the returns ecommerce businesses can generate.” Ad sales have helped the company drive profit, Saunders said. This is not unlike cloud computing remaining Amazon’s main profit engine among the far-flung empire.
“The big threat is Instacart’s reliance on a handful of grocers,” Saunders said. “As retailers are increasingly looking to internalize their own ecommerce operations, the threat to Instacart is quite material. Without big grocery players it has no business.”
Saunders didn’t see Instacart as a major threat to Target or Walmart’s e-grocery operations, with the differentiating moat being the fact that they have their own products. “It’s a business that is built off the back of the business of other retailers,” he said.
Interestingly, delivery from Target is offered by Instacart, at least in New York, even with its Shipt delivery business.