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Shares of grocery delivery group Instacart surged on their first day of trading, the latest sign of investor interest in newly public companies.
Instacart priced its initial public offering at $30 a share, the top end of a price range that had risen late Monday in anticipation of strong demand.
The company’s shares rose 40% to $42 per share when trading opened on the Nasdaq exchange on Tuesday, valuing the group at $11.6 billion based on shares outstanding.
Still, the California-based company still has some way to go before it can regain its peak private market valuation. Investors including Sequoia Capital, Andreessen Horowitz and Fidelity invested $265 million in the company in 2021, valuing it at $39 billion.
Instacart CEO Fidji Simo told the Financial Times: “There is no doubt that the market has corrected quite a bit since 2021, but what I am focusing on is…”. . We are a stronger company now. “
The IPO will issue only 8% of Instacart shares and raise $660 million. A group of the company’s venture capital investors, including Sequoia Capital and Norges Bank, said they would buy about $400 million of shares at the IPO price, resulting in a free float of just $260 million.
“We don’t want to dilute the company at current prices,” said Simo, who took over the business from co-founder Apoorva Mehta in August 2021. Instacart has about $2 billion in cash in the bank, she added. So “it doesn’t make sense to raise major capital” at a much lower valuation.
“When I took over, transaction volume was shrinking and people thought Instacart was a fad. Two years later, we have proven that we can grow and be profitable from the benefits of COVID-19,” Simo added.
Instacart posted a profit of $242 million in the first six months of 2023, up from a loss of $74 million a year ago.
PitchBook analyst Alex Frederick said Instacart’s initial valuation “seems low if compared to a software company, but in line with other food delivery companies like DoorDash or Delivery Hero.”
Frederick said he thinks Instacart has done a good job of improving profitability in recent years, though he warned the company could be at risk if inflation remains high or the economy enters a recession.
“Consumers do highly value the convenience that online groceries offer, but as their purchasing power declines, they will look to save costs wherever possible . . . (and) Instacart does have higher fees and product markups.”
The IPO market has been slowly thawing after a period of heightened market volatility and plummeting tech valuations last year that froze IPO activity. Instacart’s listing follows a warm reception for British chip design company Arm, which raised about $5 billion last week in its largest IPO in nearly two years.
Shares of SoftBank-backed Arm jumped to $63.59 on its first day of trading, up nearly 25% from its IPO price of $51. However, the price has since fallen for three consecutive days, changing hands at $55.54 at noon on Tuesday.
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