Instacart prices shares at $30 as IPO market warms up

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Instacart has priced its shares at $30 ahead of its initial public offering on Tuesday, as the US online grocery delivery company seizes on a warming market for new listings after the success of chipmaker Arm’s blockbuster debut.

The price is at the top end of the $28-to-$30-per-share range Instacart gave investors last week and values the San Francisco-based group at $8.3bn. On a fully diluted basis its stock is worth $10.2bn.

Instacart boosted its initial range by about 7 per cent after UK chip designer Arm’s successful first day of trading on the Nasdaq exchange last week, when shares rose 25 per cent. Arm shares, which were priced at $51 in the IPO, closed at $58 on Monday.

The Arm IPO, the largest IPO in nearly two years, raised about $5bn, providing a glimmer of hope for start-ups that have been forced to put listing plans on hold amid an economic downturn and high interest rates that have hit tech valuations.

However, Instacart’s new market value is just a quarter of what it was in 2021, when venture investors bought $265mn of shares in the company based on a valuation of $39bn.

The IPO will raise about $660mn from the flotation of 8 per cent of its stock. In an unusual move, some of Instacart’s largest venture backers, including Sequoia Capital, Norges Bank, TCV, Valiant Capital and D1 Capital, will purchase $400mn of stock at the IPO price as cornerstone investors, according to filings.

Ahead of its IPO on the New York Stock Exchange on Tuesday, Boston-based marketing automation group Klaviyo also increased its share price range by about 8 per cent to a range of $27 to $29. It is expected to raise approximately $557mn.

Instacart was co-founded in 2012 by Apoorva Mehta, a former engineer at retail giant Amazon who was born in India. Mehta stepped down as the delivery app’s chief executive in 2021. 

Mehta was succeeded by Fidji Simo, then an Instacart board member, who joined from Meta, where she had risen quickly over the course of a decade. 

Instacart took advantage of a jump in demand for home delivery services during the coronavirus pandemic, growing to 7.7mn monthly users and partnering with large US grocers such as Walmart. Shoppers spent a total of $28.8bn on the app in 2022, according to filings.

Earnings improved in the first half of this year to $242mn from a net loss of $74mn during the same period in 2022. Total revenue grew 31 per cent in the first half of 2023 compared with the previous period to $1.48bn.

However, weaker consumer spending has weighed on retailers in recent months. Analysts at Bernstein warned that Instacart’s business model could be threatened as large grocers build out their own home delivery options or partner with other platforms or logistics groups.

“Grocery is a concentrated market amongst the top 10 retailers, which begs the question of how valuable an aggregator will ultimately be,” Bernstein analysts wrote this month.

As well as making money from fees paid by retailers and shoppers, Instacart is looking to increase the amount it makes from the brands advertising on its platform. The group’s advertising and “other” revenue, which accounts for a third of its total sales, grew 29 per cent in 2022 year on year.