Instacart IPO may slash value to $9.3 billion amid slowdown

Instacart and its backers set the stage for an initial public offering that may value the grocery-delivery business at as much as $9.3 billion, less than a quarter of what it was worth at the height of the COVID-19 pandemic.

The company is seeking to raise as much as $616 million in what could still be one of the biggest initial public offerings of the year, possibly opening the door to a rebound in U.S. listings at a time when the market for them has been choppy.

The expected valuation is a significant decline from its last fundraising round, in 2021, which pegged the startup at as much as $39 billion.

At the time, Instacart was a pandemic darling, practically considered an essential service helping get food to people shuttered at home during lockdowns.

Since then, Instacart has seen a rapid slowdown in the growth of its core delivery business, and startup valuations have fallen more broadly as interest rates rose, making riskier investments less attractive.

The largest U.S. online grocery delivery company will offer 14.1 million new shares for $26 to $28 each, it said in a filing Monday.

Existing shareholders are selling 7.9 million shares at the same price.

Including stock options granted to employees and other factors, the company’s fully diluted valuation is $8.6 billion to $9.3 billion, based on Bloomberg News calculations.

The value isn’t finalized and could still move higher based on investor demand.

“The conservative pricing is a cautious approach to launching a roadshow in an uncertain market,” said Kyle Stanford, U.S. venture capital research analyst at PitchBook. An initial price that was “too aggressive” could hurt the company in the end, he said.

Instacart and Klaviyo, a marketing and data automation company that’s also listing soon, “need to be realistic about the market they’re entering, too. This isn’t the best time we’ve ever seen to go public, but if they are able to price the listings appropriately, and drive interest in their businesses, they can still have a well-performing entrance into the public markets.”

Founded in 2012, Instacart has been preparing to go public for years, hoping to capitalize on its pandemic star status and pole position in grocery delivery in the U.S.

Instead, as the virus waned and investors weighed the prospect of higher interest rates, inflation and a potential recession, Instacart slashed its internal valuation three times last year, to about $13 billion in October.

Chief Executive Fidji Simo, who replaced Instacart co-founder Apoorva Mehta in 2021, will have to convince investors of her strategy to pivot the company to focus on grocery technology over grocery delivery, taking advantage of the voluminous amount of consumer data it collects to help grocery stores sell more.

She has reconfigured the company’s business model to prioritize enterprise offerings and, in turn, has multiplied Instacart’s portfolio of products that it can sell to grocers: analytics software, fulfillment services, 15-minute delivery and advertising platforms.

By striking deals with brick-and-mortar supermarkets like Kroger and Wegmans for e-commerce tech, coupled with Instacart’s existing footprint online, Simo is betting the company will grow whether people are perusing the app at home or handpicking tomatoes in the store.

The company has also explored tapping new income streams such as catering and stocking food for small- and midsize businesses like preschools and corporate offices, as well as a health care focus to deliver food and nutritional programs through hospitals, medical providers and insurers.

Orders on Instacart’s platform rose 18% to almost 263 million in 2022 but were virtually flat in the first half of 2023 compared with a year earlier, the company said in regulatory filings.

Instacart was able to become profitable last year thanks in part to a boost from advertising sales, which now account for nearly a third of the company’s total revenue.

San Francisco-based Instacart, which is incorporated as Maplebear and filed under that name, said revenue grew 31% to about $1.5 billion in the six months ended June 30.

It posted net income of $242 million for the first half of the year, compared with a loss of $74 million for the same period last year.

Profitability could bode well for Instacart as market sentiment has shifted and investors are less likely now to gloss over losses at startups chasing growth at all costs.

Instacart’s listing could help unstick the backlog of companies whose plans to go public have been stymied by the longest lull in U.S. listings since the financial crisis in 2009.

The largest of those is Arm Holdings, the semiconductor designer owned by SoftBank that’s planning to raise as much as $4.87 billion later this week.

That too is a steep reduction from the $64 billion SoftBank ascribed the business in filings and as much as $70 billion that Arm had been seeking earlier.

Others that have either already filed for IPOs or are pursuing them include Vietnam-based internet startup VNG and footwear maker Birkenstock.

In conjunction with Instacart’s IPO, PepsiCo is buying $175 million of its preferred convertible stock.

The company is considering pricing its listing Sept. 19, with trading starting the following day, Bloomberg News has reported previously.

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

The IPO is being led by Goldman Sachs and JPMorgan Chase, with Bank of America, Barclays and Citigroup also participating along with 15 other underwriters.

The company plans for its shares to trade on the Nasdaq Global Select Market under the symbol CART.

Instacart plans to use most of its proceeds to satisfy obligations related to settling restricted stock units granted to employees.

The company has about $1.9 billion in total cash and cash equivalents as of the end of June.