Instacart Prices IPO at Top of Range, Aims to Raise $660 Million

Grocery delivery giant Instacart has priced its initial public offering at the upper end of its marketed range, with plans to raise a substantial $660 million. This move marks the second prominent IPO in a week, following chip designer Arm Holdings Plc’s successful debut. Instacart sold 22 million shares each at $30 each, indicating strong investor interest.

A Changing Valuation Landscape

Instacart commands a fully diluted valuation of $9.9 billion at the IPO price. This represents a significant drop from its valuation of $39 billion in a 2021 funding round, a period when the company experienced rapid growth due to pandemic-induced lockdowns. Despite this decrease, Instacart remains one of the largest companies to go public in 2023.

This IPO, along with Arm’s listing, offers a much-needed boost to equity capital markets, which have experienced a prolonged dry spell, the longest since 2009 during the financial crisis. Instacart’s successful trading debut could potentially revive the IPO market, making it more accessible to other firms seeking to go public.

Upcoming Listings

Klaviyo Inc., a marketing and data automation provider, is planning to sell its shares shortly after Instacart’s IPO. German footwear manufacturer Birkenstock Holding Ltd. is also preparing for its own listing.

However, despite Instacart’s IPO and Arm’s $5.23 billion listing (including so-called greenshoe shares), the total funds raised on US exchanges this year amount to approximately $21 billion, according to data collected by Bloomberg. While this figure is close to last year’s amount at the same time, it remains a fraction of the $250 billion raised during the same period in record-setting 2021.

Pricing Strategy and Investor Support

Instacart made the strategic decision to price its shares at $30 or above, reflecting strong confidence in investor demand. The company followed Arm’s lead in not exceeding the offered terms when determining its IPO price.

Furthermore, the delivery giant secured significant investor support for its IPO. Major investors, including PepsiCo Inc. and Norway’s Norges Bank, have pledged substantial investments in the company. This support, coupled with Instacart’s strong business model, has generated optimism among stakeholders.

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

Goldman Sachs Group Inc. and JPMorgan Chase & Co. are leading the IPO, with Bank of America Corp., Barclays Plc, and Citigroup Inc. participating, along with 15 other underwriters.

Instacart’s Evolving Business Model

Founded in 2012, Instacart experienced rapid growth during the pandemic but has since faced a slowdown in its core business. While the company saw an 18% increase in platform orders in 2022, growth was nearly flat in the first half of 2023 compared to the previous year. Instacart has actively sought new revenue streams, with advertising accounting for nearly one-third of its total revenue.

Despite the plateauing of orders, the company reported a 4% increase in gross transaction value for the first half of the year, totaling $14.9 billion. The company has also increased profitability, with net income growing as a percentage of gross transaction value.

Instacart’s CEO, Fidji Simo, has played a pivotal role in reshaping the company’s business model. Simo, a Facebook product veteran, has shifted Instacart’s focus to technology, leveraging consumer data to help grocery stores optimize their operations. The company now offers a range of products and services, including analytics software, fulfillment services, and advertising platforms.

The company has also explored diversification into catering, serving small- and midsize businesses, and expanding into healthcare by offering food and nutritional programs through hospitals, medical providers, and insurers.

Competitive Landscape

While the delivery behemoth maintains a significant share of the market for large orders over $75, it faces competition from DoorDash Inc., which has gained market share in orders under $75. Other competitors include Uber Eats, Amazon.com Inc.’s grocery delivery service (including Whole Foods), and Walmart Inc.’s growing e-commerce capabilities.

As the IPO market shows signs of revival, Instacart’s successful listing could set a precedent for other technology companies seeking to go public. The outcome of this IPO will likely shape the direction of future tech IPOs and contribute to ongoing discussions about the influence of Big Tech in the marketplace.

The delivery giant’s shares are scheduled to begin trading on the Nasdaq Global Select Market under the symbol CART. Instacart’s IPO, priced at the top of its range, signals a resurgence in the IPO market and reflects investor confidence in the company’s future. Despite challenges, including a plateau in order growth, Instacart’s diversified business model and strong investor support position it as a key player in the evolving grocery delivery industry. The outcome of this IPO will not only impact Instacart but also set the tone for future tech IPOs and the regulatory landscape surrounding Big Tech.