Online grocery startup Instacart has been considering an initial public offering for years and is finally preparing to take the plunge on Monday in another bellwether listing for a still-anxious market.

Instacart, formally known as Maplebear Inc., sought to raise $660 million on Monday at a valuation of more than $9 billion and began trading on Tuesday.

Following Arm Holdings Plc’s biggest IPO of the year, the San Francisco-based company struck while the iron was hot, with its shares rising 25% in its initial public offering last week. The chip design company’s shares fell on Friday but were still nearly 20% above the offering price. SoftBank Group still holds 90% of the chip design company.

If Instacart trades well, it will add momentum to other listings. Boston-based marketing and automation startup Klaviyo Inc. is expected to price its IPO on Tuesday and decided on Sunday to raise its listing target to $557 million, according to Bloomberg. German footwear maker Birkenstock Holding AG is also preparing to go public within weeks.

Inspired by Arm, Instacart took the safe route and united big investors to support its listing. It invited one of its partners, PepsiCo, to participate in the deal.

cornerstone investor

The company has also invited Norges Bank, TCV, Sequoia Capital, D1 Capital Partners LP and Valiant Capital Management as cornerstone investors, which could hold up to 60% of the shares, according to its prospectus.

That’s several times higher than what’s typically seen in IPOs, allowing Instacart to benefit from the scarcity of available shares when its stock starts trading.

Founded in 2012, Instacart is a pioneer in online grocery delivery and has risen to prominence with a $39 billion valuation as it became a household name during the coronavirus pandemic with shoppers stuck at home. But as the virus recedes and investors factor in rising interest rates and a potential recession, Instacart is struggling. The company cut its internal valuation three times last year, the last time in October, to about $13 billion.

On Friday, Instacart raised its IPO target to $28 to $30 per share. On a fully diluted basis, the company could be valued at up to $9.9 billion.

seamus pivot

Chief Executive Fidji Simo, who succeeded co-founder Apoorva Mehta in 2021, has tried to reinvent the business by turning to advertising and technology rather than grocery delivery, using the vast troves of consumer data it collects to help grocers boost sales.

Instacart turned a profit in the first half of the year, in line with current IPO candidates favored by investors disenchanted with loss-making growth companies.

The company’s net profit in the first half of the year was US$242 million, compared with a loss of US$74 million in the same period last year. Its revenue rose 31% to about $1.5 billion in the six months ended June 30, driven by strong growth in its higher-margin advertising unit, which follows its core grocery delivery service. The second largest revenue contributor.

Instacart is also now pushing to make more profit from each order. Net profit increased as a percentage of total transaction value, with profits set to rise 1.5% in 2022, replacing a 0.3% loss in 2021.

Sustainable growth?

Whether that growth can be sustained – especially with orders flat in the first half – is the key question for investors.

“The grocery business is not a high-margin business,” said Don Short, head of venture capital at InvestX Capital, a late-stage investor in Instacart. “It’s a very, very tough, very competitive industry, and if things get tougher , people are weighing on the one hand, do I use Instacart? Or do I just stop and pick up something on the way home from work?”

Short said that if Instacart’s business remained just the added cost of grocery delivery, that wouldn’t leave much profit margin.

“I think the fact that they’ve established themselves as a delivery pipeline, allowing for product placement, marketing partnerships with consumer packaged goods companies, etc., gives Instacart more options as a company,” he said.

Uber, DoorDash

Yet grocery chains that have partnered with Instacart to build delivery pipelines and reach app users are building out their own e-commerce and last-mile delivery capabilities, not to mention increasing commission payouts to other delivery platforms like Uber Technologies Inc. and DoorDash Inc. .

Instacart’s ability to continue to convince retailers, consumer brands and suppliers that it is a viable digital partner and platform on which to spend advertising dollars will depend largely on its app’s user retention and order growth , and how well it translates its understanding of shopping patterns into product placement.

Short believes PepsiCo’s investment legitimizes the transformation under Seamus. Since she joined Instacart from Meta Platform Inc.’s Facebook, the company has roughly doubled its brand partners to more than 5,500.

Instacart’s IPO was led by Goldman Sachs Group Inc. and JPMorgan Chase & Co., with Bank of America, Barclays and Citigroup also participating, along with 15 other underwriters. Instacart’s shares will trade on the Nasdaq Global Select Market under the symbol CART.

In addition to providing investment opportunities for retail investors, the listing will also provide Instacart’s existing investors, including Andreessen Horowitz, Tiger Global Management, and Coatue Management, among others, the opportunity to cash out when late-stage startups exit. .

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