Instacart Stock: Are You Ready to Invest in the IPO?

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Instacart

IPO Interest

8.5

Expected IPO Date:

Mid-2021

  • As of March 2021, Instacart is valued at $39 billion.
  • Instarcart’s stock is not currently publicly traded. However, the company has been adding to its executive suite to prepare for an IPO that is expected to take place in mid-2021.

Bull Case

  • Instacart has been one of the biggest beneficiaries from Covid as millions of consumers have moved online for grocery shopping.
  • Surveys of consumers show that 22% of respondents now buy their groceries online. Leading platforms in this space could be prepared for a decade of growth ahead.

Bear Case

  • Instacart competes with companies like Amazon that will fight tooth and nail to win the online grocery market.
  • Instacart has experienced friction with its delivery drivers. It recently laid off 2,000 workers. This caused a wave of bad press because the layoffs included drivers who had recently joined a union.

Legendary investor Peter Lynch once implored investors to “buy what you know.” If you’re like many during the pandemic, this could entail buying Instacart stock when it IPOs as you’re likely on a first-name basis with your delivery driver.

However, there’s more than meets the eye with Instacart’s business. Here’s what you need to know to get ready for Instacart stock’s IPO.

Instacart News and Analysis

Instacart Stock: Preparing for an IPO

If you’re a nonaccredited investor, meaning most of us, you can’t buy shares of Instacart until the company IPOs. So when is that? At this point, only management knows and they’re not telling, but many are predicting it will be soon. In November 2020, Instacart disclosed it was planning to file for an initial public offering and pegged an early 2021 timeframe. In March the company raised another round of funding at a $39 billion valuation. It’s reported Goldman Sachs will lead the company’s IPO.

Keep in mind, there’s nothing to be surprised about the lack of communication regarding Instacart’s stock debut. The IPO process is highly regulated by the Securities and Exchange Commission and Instacart must remain tight-lipped about its stock offering until shares are placed on the exchange.

The Bull Case: Why Instacart Stock Could be a Winner

Instacart is a grocery delivery service, pairing customers who place orders online or on its mobile app with an army of on-demand personal shoppers who shop for groceries.

What Instacart isn’t is a grocer – it’s a technology company. This critical difference is important for investors. The grocery industry is notoriously difficult to make a profit, as groceries are generally low margin and prone to spoilage, both bad for investors, and the grocery industry is labor-intensive and requires a lot of employees.

By contrast, Instacart is a platform business – a company that uses technology to connect its on-demand workforce to shoppers — and takes a cut of each transaction in the form of fees and markup on grocery items. Unlike the grocery industry, Instacart is a high-margin and highly scalable business.

Furthermore, Instacart is not a competitor to grocery stores. Instacart has a friendly relationship with a host of grocers and continues to grow its list of partnerships, which total more than 400 national retailers boasting more than 30,000 stores across the United States and Canada. Grocers like to partner with Instacart because it increases product turnover – the amount sold to customers versus being lost to spoilage – and increases revenue.

Finally, grocers understand how important Instacart is for future expansion. It’s been a lifeline for grocery stores during the pandemic and ecommerce is finally starting to disrupt the grocery experience like ecommerce disrupted nearly every other retailer a decade ago.

The Bear Case: Reasons to Avoid Instacart’s IPO

Before buying any stock, it’s important to understand the key risks. The biggest for Instacart is valuation risk. Private companies do not disclose financial information, but it’s likely Instacart stock will be considered expensive by traditional valuation metrics. Instacart had its most recent funding round in March 2021, fetching a valuation of $39 billion – which was 120% higher than its prior round of $17.7 billion, which occurred only five months earlier (see: chart below).

The second risk is slowing growth. There’s reason to believe Instacart management is looking to take advantage of a once-in-a-lifetime opportunity to offload shares on the public market. The extraordinary conditions have created significant demand for Instacart; order volumes have surged as much as 500% year-over-year during the pandemic.

Many technology companies are valued on multiples of revenue on the basis the companies can continue growing their top lines. If Instacart can IPO during a pandemic multiple, it’s possible it’s setting up public investors to buy an overvalued stock, and shares could struggle in future years even if the company is executing on its strategy.

This bearish thesis fails to account for human behavior. Once users become accustomed to the convenience of online grocery delivery, like ecommerce, they tend to stick around or at least adopt a hybrid delivery model.

Finally, Instacart faces a host of competitors from the likes of DoorDash and Uber Technology’s Postmates and from bigger retailers looking to build out their own delivery and ecommerce services, most notably Walmart and Target.

However, there’s reason to believe Instacart stock can do well. The pure-play delivery competitors mostly focus on restaurant delivery because it’s easier to execute, conceding the grocery space to Instacart and the bigger companies – Walmart through its Jet.com acquisition, and Target through its Shipt takeover — are initially focusing on non-perishables for their ecommerce growth strategy.

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Instacart Stock: Who Owns It Now?

Instacart is a private company, which means most investors are not allowed to currently own Instacart shares. There are generally three groups that can own private stocks — the first two are founders and employees. Instacart was founded by Apoorva Mehta in 2012 and he remains Instacart’s CEO. Forbes estimated Mehta has retained approximately 10% ownership of the company as of the June equity raise, making him a billionaire.

The third group of Instacart owners are people rich enough to be considered accredited investors, defined by the SEC as somebody who has earned income greater than $200,000 ($300,000 if married) in each of the prior two years or has a net worth value over $1 million (excluding their primary residence).

Venture capitalists are a part of this group and Instacart has quite a few VCs that own Instacart stock. Notable VC firms Andreessen Horowitz and Sequoia Capital are more than owners of Instacart stock; they’re also on the Board of Directors helping the management deliver on their long-term strategy.

There are secondary markets that will attempt to broker shares of Instacart for accredited investors, but keep in mind the minimum purchases are very high (generally $50,000 or more) and liquidity will be limited until an IPO.

Instacart Stock: What Price Should Investors Expect?

At this point, we don’t know what Instacart’s stock price will be, but we have an idea of what the total company will be valued at when it hits its initial public offering. Last year, soon after fetching a valuation of $17.7 billion in a round of private funding in November 2020, Instacart turned heads when it announced it had tapped investment bank Goldman Sachs to lead the forthcoming IPO. The company pivoted again in March 2021, taking another round of funding at $39 billion with no comment on a future IPO date.

However, it’s a private company and all reports are based on private data from unnamed sources, so you must treat them with a grain of salt. Additionally, because the company is not required to disclose any information until the final IPO documents, called the S1 registration statement, we are unaware of the total share count and that is needed to determine the share price at the time of the IPO.

Relax, that’s entirely normal. IPOs are heavily influenced by investor sentiment and total value, total share counts, and shares that will be offered at the IPO often change, even as late as the week of the IPO date. In the long run, investors should focus on total company metrics like enterprise value and market capitalization, and we have some data on that below.

However, it is likely we’ll see a significant bounce on the first day. Many IPOs explode on the first day as the float, or the number of shares available to trade is significantly low. However, companies and insiders tend to issue additional shares after a timeframe of typically 90 to 180 days, commonly known as a lock-up period.

What’s Instacart Stock Symbol?

Like the price, it’s too early for a stock symbol as this is generally disclosed about a week before the IPO date. However, it’s likely Instacart’s stock symbol, whatever that will be, will call the NASDAQ exchange home. NASDAQ has a history of being the desired exchange of technology stock listings. Initially, this was because of cost: it was cheaper to list on the NASDAQ than the New York Stock Exchange.

However, after many early technology companies listed on the NASDAQ and found tremendous success – notably, Microsoft and Intel – it became a badge of honor for tech to list on the then-smaller index and the NASDAQ became known as a “tech-focused” exchange.

These days the biggest companies in the world now are NASDAQ-listed, including Microsoft, Amazon, and Apple. Look for Instacart to follow suit, listing on the NASDAQ to burnish its tech-focused business model.

The key to a great stock symbol is to set you apart from other potential companies and is easy for investors with short-term memories to remember. Instacart has a few choices for its stock symbol, including INST and CART.

Instacart Stock Chart

Instacart stock has undergone nine rounds of funding, starting in June 2013 at a $23 million enterprise value to its recent round of $39 billion.

Instacart’s valuation has significantly benefited from the pandemic, posting a 29% valuation increase in approximately five months before the G and H rounds, then following that up with a massive 120% valuation increase in the subsequent five-month period. It’s likely an IPO would value the company in excess of $50 billion.

Instacart Valuation
Source: SharesPost, Crunchbase

It’s noteworthy that Instacart’s last three rounds came in such rapid succession. While that can be a cause for concern, they did not take a single funding round in 2019 and management has been direct in their goals to pour capital into growth to take full advantage during the pandemic.

Spending now to build out partnerships and capacity is a smart decision from management as Instacart’s structure of using an on-demand workforce allows it to quickly scale up when conditions warrant and then to pull back when conditions are less favorable. Right now, the most important thing for Instacart stock is to grow users and partnerships, and if it needs to tap the private markets and issue stock to do that it’s a wise long-term investment.

Instacart and Online Grocery Facts

While we’ll know far more about Instacart when the company files its S-1, here are some reported facts that paint a picture of the company’s health.

  • In April 2020, The Information reported that Instacart recorded its first profit, about $10 million in the month. Its grocery sales jumped 450% in the first two weeks of the month from their December rates.
  • Overall, online grocery sales grew from $2 billion per month in August 2019 to $8 billion per month in December 2020.
  • However, while those growth rates are impressive, online grocery sales peaked in June 2020 at $8.8 billion. This indicates Instacart will struggle to maintain its growth rates as the economy “reopens.”

Instacart Stock: Should You Buy the IPO?

It’s hard to answer this question without seeing the company’s financial statements or knowing what the final go-to-market price will be. It’s almost a certainty Instacart stock will have nosebleed valuations. Furthermore, these expensive valuations will be based on operational performance during one of the best environments for the company ever.

The pandemic evolved Instacart’s services from a nice-to-have to an essential and lifesaving service for many Americans. Management knows this, which is probably why they’re looking to go public before we return to normal.

The pomp and circumstance surrounding IPOs often obscure the fact that IPOs are often mediocre investments. A study from Bain & Company researched nearly 1,000 IPOs from 2010-2014 and found widespread underperformance versus other publicly traded companies in the five-year post-IPO period. Two-thirds of global IPOs underperformed the average stock return, and the median IPO stock underperformed their established peers by 46 percentage points. Yikes!

However, last year seemed to be a reversal of that trend for many high-profile technology-focused IPOs and SPACs, and many are significantly outperforming the market.

Instacart’s best bullish thesis is that the company is disrupting the final survivor of brick-and-mortar shopping: grocery. Due to the perishable nature of the grocery items, it has always been tough to disrupt the grocery industry through the digital channel. However, the pandemic has pushed forward adoption 3 to 5 years and this space should continue to grow even when we return to normal.

The “Big Three” ecommerce retailers  – Amazon, Walmart, and Target – continue to invest like they understand grocery will soon become another victim of ecommerce disruption, so Instacart is well-positioned for future growth from other grocers that will lose share if they don’t have a competing solution.

However, the online grocery disruption thesis is a long-term story. It’s likely Instacart stock will give investors quite a few opportunities to buy at cheaper prices as the initial ebullience from the IPO wears off and year-over-year revenue comps become tougher in a post-pandemic world.

Frequently Asked Questions

Is Instacart Public?

Instacart is not currently publicly traded. The company is preparing for an IPO, which Goldman Sachs will reportedly lead. It’s expected Instacart will go public sometime in mid-2021.

What is Instacart’s Share Price?

In private markets, Instacart stock was recently trading for $60 per share. Keep in mind, however, its share price could differ dramatically when it files to IPO and eventually hits the markets.

What is Instacart’s Stock Symbol?

Instacart is private and currently doesn’t have a stock ticker. Once it files IPO paperwork, it’s like the company will select a ticker symbol like INST or CART.

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