Instacart’s US$660 million IPO meets goal with market rebound

Grocery delivery business Instacart priced its initial public offering at the top of a marketed range to raise US$660 million in the second marquee listing in a week.

The San Francisco-based company sold 22 million shares for US$30 each on Monday, according to a statement. Instacart and current shareholders had offered the shares for US$28 to US$30, a range that was elevated after chip designer Arm Holdings rose 25 per cent in its trading debut on Thursday after the year’s biggest IPO.

At the IPO price, Instacart has a fully diluted valuation of US$9.9 billion. That is a steep plunge from its US$39 billion valuation in a 2021 funding round when its business boomed amid pandemic lockdowns, but still ranks it as one of the biggest companies to go public this year.

Instacart’s listing combined with Arm’s is also giving equity capital markets much-needed relief after the longest drought since 2009 in the depths of the financial crisis. As a venture-backed consumer startup, success in its trading debut could pry open the IPO market for other companies looking to go public.

Marketing and data automation provider Klaviyo is planning to sell its shares on Tuesday, with German footwear maker Birkenstock Holding also preparing to list.

Even with Instacart’s IPO and Arm’s US$5.23 billion listing, which now includes so-called greenshoe shares, only about US$21 billion has been raised this year on US exchanges, according to data compiled by Bloomberg. That’s finally catching up with the US$22 billion at this point last year but still less than a 10th of the US$250 billion total for the period in a record-setting 2021, the data show.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Instacart decided earlier on Monday to price its shares at US$30 or more, Bloomberg News reported. Like Arm, which also considered pricing its shares above the marketed range, Instacart chose in the end not to exceed the offered terms.

Taking another cue from Arm, Instacart had also lined up big investors to support its listing. PepsiCo is buying US$175 million of Instacart’s preferred convertible stock. It has also enlisted Norway’s Norges Bank, TCV, Sequoia, D1 Capital Partners and Valiant Capital Management as cornerstone investors that could take up to 60 per cent of the shares, according to its prospectus.

Instacart’s largest investors include Sequoia Capital and D1 Capital Partners, according to the filing. Other investors have included Tiger Global Management and Coatue Management, according to PitchBook.

The IPO is being led by Goldman Sachs Group and JPMorgan with Bank of America, Barclays and Citigroup also participating along with 15 other underwriters.

Instacart, which is incorporated as Maplebear, sold 14.1 million shares in the IPO, with existing stockholders selling 7.9 million, according to the statement. The company’s shares are set to begin trading Tuesday on the Nasdaq Global Select Market under the symbol CART.

Founded in 2012, Instacart has faced a rapid slowdown in the growth of its core business in the wake of the pandemic and has been searching for new ways to make money.

Orders on its platform rose 18 per cent to almost 263 million in 2022 but were virtually flat in the first half of 2023 compared with a year earlier, Instacart said in its filings. The company was able to become profitable in 2022, thanks in part to a boost in revenue from advertising, which now accounts for nearly a third of the company’s total revenue.

Despite a flattening of orders, gross transaction value increased 4 per cent to US$14.9 billion for the first half of the year. Instacart is also managing to keep more profits from each order. Net income grew as a percentage of gross transaction value, with a profit of 1.5 per cent in 2022 replacing a loss of 0.3 per cent in 2021.

Instacart chief executive officer Fidji Simo, a Facebook product veteran, took over from co-founder Apoorva Mehta two years ago and has helped Instacart move beyond grocery delivery to focus more on behind-the-scenes technology, taking advantage of the voluminous amount of consumer data it collects to help grocery stores sell more. Simo has reconfigured Instacart’s business model and fleshed out the company’s portfolio of products that it can sell to grocers, from analytics software to fulfillment services, promises of 15-minute delivery and advertising platforms.

By outfitting brick-and-mortar supermarkets like Kroger and Wegmans with e-commerce tech, coupled with Instacart’s existing footprint online, Simo is betting the company will grow whether people are perusing the app at home or hand-picking tomatoes in the store.

The company has also explored tapping new income streams such as catering and stocking food for small- and midsize businesses like preschools and corporate offices, as well as a health-care focus to deliver food and nutritional programmes through hospitals, medical providers and insurers.

While Instacart still commands the lion’s share of the market for large orders, over US$75, DoorDash has been making significant market share gains on orders under US$75, Instacart’s filings show. DoorDash, which went public in 2020, has a market value of about US$31 billion. Instacart also competes with Uber Eats and Amazon.com’s grocery delivery service that includes Whole Foods, and Walmart’s growing e-commerce capabilities. BLOOMBERG