Instacart: is it the right time to go public?

This month, Instacart filed an application with the US Securities and Exchange Commission to go public. The growing demand for online grocery ordering and, of course, the pandemic, have driven the company's business in recent years.

Yet Instacart has recently reduced its own valuation to bring it in line with real market conditions, which have become less than ideal for a company preparing to go public. Some investors even wonder if Instacart should wait for the current crisis to fade, but the company wants to move forward.

 

Introducing Instacart

Instacart is an American grocery delivery service in the United States and Canada. It is based in San Francisco and offers its services via a website and a mobile application.

Simply put, Instacart is the Uber Eats of grocery delivery. Its customers can order groceries from member retailers.

 

Growth boosted by the pandemic

Instacart, like many emerging technology companies, was spurred on by the pandemic's restraint measures.

According to eMarketer, Instacart had less than 11% of online grocery sales in 2019 and its market share doubled to nearly 22% in 2020. Its revenue grew nearly 2.5x between 2019 and 2021.

 

Instacart revenue

Instacart income (source: https://www.businessofapps.com/data/instacart-statistics/)

 

Today, the company has more than 600 national, regional and local retailers, and delivers from nearly 55,000 shops in more than 5,500 cities across North America. Instacart's platform is available to more than 85% of U.S. households and 90% of Canadian households.

 

The company decided to reduce its own valuation!

On the back of tremendous growth, Instacart's valuation tripled between 2020 and last year. Yet the company has proactively reduced its own valuation by nearly 40% to USD24 billion to adapt to challenging market conditions, including rising inflation, which is leading to a much tighter Fed policy, higher interest rate outlook, and lower liquidity.

 

Instacart valuation

Valuation of Instacart (source: https://www.businessofapps.com/data/instacart-statistics/)

 

What next?

According to eMarketer, Instacart's grocery sales will grow to USD35 million by 2023. Such a jump would represent an increase of nearly 50% over 2020. However, the company's market share could fall from 21.5% to 20%, due to increasing competition from Gopuff, Blue Apron, Grubhub, Postmates and DoorDash.

Uber Eats, on the other hand, which is a formidable competitor, is expanding into grocery deliveries in North America and Europe and has the potential to limit Instacart's expansion in the medium to long term.

Instacart wants to differentiate itself by using artificial intelligence

In October last year, Instacart acquired an artificial intelligence (AI) startup called Caper AI, known for developing a 'smart' shopping cart equipped with a screen and AI. The smart basket recognises products when they are placed in a shopper's basket, automatically charging customers for their purchases.

Instacart said the acquisition 'will help retailers unify the in-store and online shopping experience for customers, supporting their businesses regardless of how customers choose to shop'.
Users can also see personalised product suggestions on their screens based on what they have in their shopping cart. This latest extension will also help Instacart collect valuable consumer data to drive sales.

cart

Caper's smart basket (source: caper.ai)

 

Is now a good time to go public?

Instacart could go public by the end of the year, with no specific date. While the company expects the offering to be completed this year, it is also possible that the timetable could be moved.

But given the less-than-ideal market conditions, investors are wondering whether the company is choosing a good time to go public.

Probably not. Therefore, the number of IPOs has plummeted in 2022, compared to last year's peak.

 

IPOs

IPO down (source: https://stockanalysis.com/ipos/statistics/)

 

Price volatility and the prospect of Fed policy tightening threaten the strength of the post-pandemic recovery. Investors and companies are increasingly aware of the risk of a global recession, and less than ideal market conditions are convincing companies to delay plans to go public until the uncertainties dissipate.

However, Instacart does not necessarily want to delay its debut as the company wants to ride the pandemic momentum and wants the capital to continue to grow, no matter how difficult the actual market conditions are.

In this sense, Instacart may not have a breathtaking IPO like the tech startups did in 2021, amidst a bullish market euphoria.

But it is also worth noting that 70% of the companies that went public last year are trading below their IPO prices. In hindsight, an IPO last year was not as lucrative as one would think!

Moreover, Instacart will not be listed for several months, so the timing of the IPO might finally be ideal: just after a stock market crash.

 

Better hurry up!

Another grocery delivery app, Getir, has emerged from obscurity in recent years. The Turkish delivery group is expanding its operations in Europe and the US and was recently valued at nearly $12 billion. Getir is considering an IPO in New York as early as next year.

The growing competition in the grocery delivery industry will certainly put a strain on the profits of the latest entrants, as the most important thing in the delivery business is to reach the critical size to offer a competitive service.

Thus, future winners in the sector will need to grow quickly, which would justify Instacart's decision to move forward, while investors remain mixed on the timing of its IPO. 

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