Instacart’s Strong Nasdaq Debut Sees 12% Stock Surge At Closing Yesterday

Instacart witnessed an impressive 12% surge in its stock price during its Nasdaq debut, marking the long-anticipated IPO of the grocery delivery giant.

The stock initially experienced a remarkable 40% increase, opening at $42, although it closed at $33.70 as investors decided to secure their initial gains.

The IPO, which took place on Monday with shares priced at $30 each, valued Instacart at approximately $10 billion on a fully diluted basis. This figure was notably lower than the private market valuation of $39 billion the company achieved at the height of the Covid pandemic in early 2021. As of Tuesday’s close, Instacart’s market capitalization has risen to just over $11 billion.

Instacart’s IPO has garnered significant attention, as it is the first prominent venture-backed company in the U.S. to go public since December 2021. Its performance is closely monitored by venture firms and late-stage startups eager to gauge investor risk appetite. While the Nasdaq has seen a resurgence this year following a lackluster 2022, companies that went public before the downturn are still trading well below their peak prices. Software developer Klaviyo is expected to enter the market soon.

Founded in 2012, Instacart partners with retail chains such as Kroger, Costco, and Wegmans to deliver groceries to customers’ doorsteps. To attract public market investors, the company had to substantially lower its stock price. In early 2021, when demand for delivery services surged due to the pandemic, Instacart secured funding at $125 a share from prominent venture firms like Sequoia Capital, Andreessen Horowitz, as well as major asset managers like Fidelity and T. Rowe Price.

To prioritize profitability and attract investor interest, Instacart made sacrifices in terms of growth. Its revenue in the second quarter of 2022 increased by 15%, a significant drop from the 40% growth experienced in the same period the previous year and the staggering 600% growth during the pandemic’s early months. The company reduced its workforce in mid-2022 and trimmed costs related to customer and shopper support.

In the most recent quarter, Instacart reported $114 million in net income, a substantial increase from the $8 million recorded the previous year.

With a valuation of $11.2 billion, Instacart is valued at approximately 3.9 times its annual revenue. In comparison, food delivery provider DoorDash, which Instacart identifies as a competitor, trades at 4.1 times revenue. While DoorDash experienced faster revenue growth in the latest quarter at 33%, it is still operating at a loss. Uber, which also competes with Instacart through its Uber Eats business, has a stock that trades at less than three times its revenue.

Instacart faces substantial competition, primarily from Amazon and major brick-and-mortar retailers like Target and Walmart, which have their own delivery services. Target, for instance, acquired Shipt for $550 million in 2017.

Only about 8% of Instacart’s outstanding shares were offered in the IPO, with 36% of those shares coming from existing shareholders. CEO Fidji Simo highlighted that the IPO’s primary goal was not to raise capital but to provide liquidity to employees who had worked diligently for their stock. Co-founders Brandon Leonardo and Maxwell Mullen each sold 1.5 million shares, while Apoorva Mehta, another co-founder, sold 700,000 shares. A combined total of 3.2 million shares was sold by former employees, including those in executive roles and in product and engineering.

Instacart generated over $420 million in cash through the offering, bolstering its already substantial cash and equivalents balance, which stood at nearly $2 billion as of the end of June.