Instacart, the largest online grocery delivery company in the US, is set to go public on Tuesday amid a challenging market environment and a slowdown in its core business. The company is seeking to raise up to $616 million in its initial public offering (IPO), which would value it at up to $10 billion, less than a quarter of what it was worth at the height of the Covid-19 pandemic.
Instacart’s Valuation Drop
Instacart was a pandemic darling, practically considered an essential service helping get food to people shuttered at home during lockdowns. The company saw its revenue surge 96% year-over-year to $1.9 billion in 2021, as it delivered groceries and other goods from more than 600 retailers to over 25 million customers across the US and Canada.
However, since then, Instacart has seen a rapid slowdown in the growth of its delivery business, as more people resumed in-person shopping and competition intensified from rivals like Walmart, Amazon, and DoorDash. The company’s revenue declined 23% year-over-year to $1.5 billion in the first half of 2023, while its net loss widened to $743 million from $313 million in the same period last year.
The expected valuation of up to $10 billion in its IPO is a significant decline from its last fundraising round in 2021, which pegged the startup at as much as $39 billion. The company also slashed its IPO price range from $32-$34 to $26-$28 per share on Monday, indicating weak investor demand.
Fed Meeting and Market Volatility
Instacart’s IPO comes at a time when the market for new listings has been choppy, as investors await the outcome of the Federal Reserve’s two-day policy meeting that begins on Tuesday. The Fed is widely expected to announce plans to taper its monthly bond purchases, which have supported the economy and the markets during the pandemic.
The Fed’s decision could have implications for the interest rate environment, inflation expectations, and the valuation of growth stocks like Instacart, which rely on future cash flows rather than current profitability. Investors may also be wary of investing in unprofitable companies amid rising regulatory scrutiny and tax uncertainties.
The Dow Jones Industrial Average fell nearly 300 points on Monday, while the S&P 500 and the Nasdaq Composite also closed lower. The volatility index, or VIX, which measures fear in the market, jumped above 25, indicating heightened anxiety among traders.
Instacart’s Future Plans
Despite the challenges, Instacart remains optimistic about its future prospects and growth opportunities. The company said it plans to use the proceeds from its IPO to invest in technology, expand its product offerings, enter new markets, and pursue strategic acquisitions.
Instacart has been diversifying its revenue streams beyond delivery fees and commissions from retailers. The company has been growing its advertising business, which allows brands to promote their products on its platform and reach millions of customers. The company said its advertising revenue grew 232% year-over-year to $171 million in the first half of 2023.
Instacart has also been expanding its partnerships with retailers and adding new categories such as alcohol, pet supplies, beauty products, and prescriptions. The company said it now delivers from more than 700 retailers across over 30 categories. Instacart has also been experimenting with new services such as self-pickup, express delivery, and Instacart Go, which is a membership program that offers unlimited free deliveries for a monthly fee.
Instacart is expected to begin trading on the Nasdaq under the symbol CART on Tuesday. The company will be one of the biggest IPOs of the year, possibly opening the door to a rebound in US listings after a sluggish summer.
