Instacart's IPO: What Investors Should Know Before Buying

Ordering groceries online is a relatively new phenomenon, and leading this change in consumer behavior is Maplebear, better known as Instacart. While it may not be the hottest IPO on the market, Instacart’s debut is one that is eagerly being awaited nonetheless. But what exactly does the company do? If an investor is interested in the IPO, what do they need to know? In this article, we’ll dive into those details and give you the scoop before deciding on investing.

What Is Instacart?

Instacart’s CEO Fidji Simo described what the company is succinctly in its S-1: “Instacart is a grocery technology company.” This is apropos and is repeated throughout the filing, but let’s expand on that definition. The company created an e-commerce platform for grocers designed to be easy to implement, intuitive for customers to order on, and rich in data and insights. The average consumer would consider Instacart’s mobile app as akin to delivery platforms like Uber Eats or GrubHub, and they wouldn’t be wrong. The similarities are striking, but the key difference is that Instacart’s true value is found at an enterprise and user level rather than just at a user level.

Consumers can use the company’s eponymous app to make their grocery purchases (on top of other non-food retailers), but many may not realize that Instacart is also behind grocers’ own ordering options. This is reflected in Instacart Enterprise Platform, one of the company’s three major revenue streams (the other two are Instacart Marketplace and Instacart Ads). The investment proposition is that grocery companies will find Instacart’s offering as a better alternative to building their own platform, they’ll use this tech to detect and capture insights that improve their sales, and then they’ll continue to spend more with Instacart as a result.

Instacart doesn’t break out the contribution percentage using these names, instead sharing ‘transaction revenue’ and ‘advertising and other revenue’ groupings. The former comprises roughly 70% of current revenue, a trend that’s been in place for at least the last few years. Likely, Instacart Marketplace still contributes the bulk of revenue at the moment, but Instacart Enterprise Platform is probably the future key driver. Instacart Ads is no slacker, but investors shouldn’t expect this part of the business to be at the level of Alphabet or Meta’s advertising revenue. Generally though, B2B dollars are much more preferable to B2C dollars for a company, given that the former usually involves large-magnitude, long-term contracts that allow both executives and investors to better predict a company’s financial future.

Arguably, consumers are more likely to be loyal to a grocery store within close proximity rather than a specific brand of food within them. Moreover, and especially in times of economic uncertainty, consumers tend to eschew brand loyalty for price flexibility. As a grocer, naturally you want to do whatever you can to keep your customers buying from you, but operating in an industry that’s volume-based with thin margins means pricing isn’t an easy area to compete in. Fortunately for Instacart (and its potential investors), this isn’t their problem, as the company’s platform is simply meant to connect consumers with whoever serves their needs best. Given the sheer number of store options available to these users (85% of U.S. grocers per Instacart), Instacart will likely make their money regardless of who ends up winning in each local economy. For investors who want to expand their portfolio into the grocery industry, they may be better off with a tech partner like Instacart rather than trying to predict a winner among store operators.

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Instacart Key Stats

Let’s start with Instacart’s income statement. The company is presenting a healthy topline, with a CAGR (compound annual growth rate) of 19.9% between 2020 and 2022. The first six months of 2023 is looking strong too, with $1,475 million in revenue already booked. As expected, the company’s cost of goods sold (COGS) is pretty much a straight-line growth trajectory. Its Instacart’s operating expenses have grown at a fast rate, with a near doubling from $954 million in 2020 to $1,769 million in 2022. However, there’s good news: the six-month 2023 figure is nearly identical to the six-month 2022 figure but with a much larger gross profit figure, indicating that Instacart’s 2023 costs are starting to stabilize, a good sign of the organization’s fiscal discipline. Investors should also pay attention to two special line items: “Provision for (benefit from) income taxes” and “Undistributed earnings attributable to preferred stockholders.” Last year, these effectively zeroed each other out, but it’s critical that investors understand now that Instacart is showing a net profit and is going public, income taxes need to be factored into projections as does the effect that preferred shareholders have on current and future common shareholders.

Instacart’s balance sheet looks as expected, which is to say it’s healthy and safe. The company is carrying more cash than it ever has at $1,838 million, and more of the other less liquid line items are being converted into this category relative to previous periods. Depending on your perspective, having this much cash may actually be a bad thing, since more aggressive investors would want the company to deploy that cash rather than hoard it. But frankly, it’s simply too early to start something like a dividend or share repurchase policy. There also isn’t enough meaningful debt to consider paying down or major PPE purchases that are needed, so holding cash is probably the best option for now. That said, cash flow from operating only recently turned positive in 2022. In the two years before, most of Instacart’s cash came from financing activities, particularly from issuing convertible preferred stock. So what’s being held by the company likely represents a “war chest” or “safety net” approach to cash management. While the balance sheet is in a healthy place now, investors shouldn’t ignore what Instacart’s cash flow statement reveals and should bear in mind how possible future dilution could impact their projections.

There are at least three key statistics that investors will encounter as they do their research on Instacart:

  • The company reaches 95% of North American households.

  • The company partners with approximately 85% of the U.S. grocery industry.
  • Instacart’s active users spend an average of $317 per month.

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Is Instacart a Good Stock to Buy?

Investors can examine this question from two perspectives:

  • Bull view: If investors take another piece of data, that only 12% of grocery orders are done online (per the company filing), one can assume that Instacart is poised to become not just the incumbent leader in the digital grocery order space, but easily its most dominant player. Its competitors like Walmart
    or Target
    don’t have the deep connection to the grocery ordering ecosystem or the focus on grocery-specific technology the way that Instacart does. The upside in the company’s stock is clear when considering this captive audience and room for growth that Instacart maintains.
  • Bear view: Instacart’s presence is saturated in its home market, so it’s close, if not at, its growth peak for the near future. Therefore, only foreign expansion or development of an entirely new revenue stream remains for future upside. These options may seem easy to scale into, but plenty of heavyweight tech firms have faced similar fights in the past and failed. Instacart’s rising GTV (gross transaction value) and monthly spending numbers can be explained as just a function of the overall trend in rising consumer spending on food; if this trend reverses, so would Instacart’s key performance indicator trends. Moreover, once Instacart’s average monthly order amount crests closer to the monthly average that consumers spend on groceries ($438 as of 2021), Instacart’s upside will be capped.

Instacart IPO: Stock Price And Valuation

Instacart’s future and potential value for investors is up for debate, but its current IPO plans are plain as day. The company is offering 22 million shares at a range of $26 to $28 per share, giving us a midpoint of $594 million in expected funding. Instacart also disclosed a private placement agreement with PepsiCo
for $175 in convertible preferred stock in its S-1 filing. Assuming a total of approximately 330 million shares outstanding (based on the company’s S-1 and planned offering), this puts Instacart’s valuation at a range of $8.58 billion to $9.24 billion.

When Is Instacart’s IPO Date

Instacart’s IPO date remains unannounced, but this article will be updated once a clear date has been established. There’s indication that September 20 would be the company’s first official trading day, but this is still speculation.

How To Buy Into Instacart’s IPO

Instacart expects to file under the ticker “CART” on the Nasdaq. So long as investors have access to this exchange and have no restrictions by their broker on buying into fresh IPOs, they shouldn’t have any problem purchasing shares. However, there’s always the possibility that trading is halted for any number of market “irregularities,” and investors should consider the possibility of their orders not being filled at their requested purchase price. Immediate upside is far from guaranteed, but investors can likely expect a fair amount of volatility.

Final Thoughts

It’s not a stretch to say that Instacart’s IPO is one of the biggest of the year. A company with its technology focus, solid financials and dominant positioning will draw interest from large and small investors alike. For a glimpse of what could happen on its first day of trading, you can take a look at chip designer Arm (ARM), a company we previously covered that just completed its listing. The company’s shares closed at $63.59, a nearly 25% surge in a single day of trading. Can the same happen with Instacart? Probably not, considering that Arm is far more critical to its industry and ecosystem than Instacart is, but the hunger for tech IPOs is clearly there in an otherwise quiet market. There will also likely be a post-IPO drift down for ARM, as traders take their profits from such a tremendous early move.

If you’re interested in Instacart, consider slowly buying in during the first day and week of trading, as you don’t want to catch the wrong end of the early volatility one would expect from a recent tech stock listing (we mentioned this in the previous section). Otherwise, be sure to always do your own diligence and approach any investing or trading with a clear plan in mind. Good luck!

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