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In a recent regulatory update on Friday, Instacart, the grocery delivery service, adjusted its IPO (initial public offering) price band to $28 to $30 per share, targeting a valuation close to $10 billion.
For its Nasdaq debut, Instacart intends to introduce 22 million shares, inclusive of those from existing stakeholders, potentially raising up to $660 million. Pepsi (NASDAQ: PEP) has committed to a concurrent private investment of $175 million, as disclosed in Instacart's securities document. Instacart shares will be listed under the ticker symbol “CART.”
Even after revising its price band, especially following Arm Holdings' impressive introduction, Instacart's current valuation has seen a substantial dip from its 2021 figure.
Recently, the company's financials have turned favorable, disclosing a net gain of $242 million in the first half of 2023. This is a stark contrast to the $74 million net deficit it faced during the same period the previous year, as per its securities document.
Is Instacart stock a good buy today?
Instacart is a grocery technology partner to 1,400 retail banners that account for 85% of the grocery market in the U.S. In the last 12 months, it reported gross transaction volumes of $29.4 billion and cumulative orders of 263 million. Its gross profits stood at $2.2 billion, while adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $486 million.
Founded in 2012, Instacart aims to disrupt the legacy grocery market by moving the last-mile delivery process online. Its GTV, which is a metric for online sales, has grown by 80% annually between 2018 and 2022, which is much higher than the average industry growth rate of 50%. Given its GTV, Instacart is the largest online grocery platform in the U.S.
Instacart invented a new model for online grocery shopping by offering customers on-demand delivery from stores they know and trust. Its retail partners reach 7.7 million monthly customers each month who spend $317 on the platform on average.
As customer engagement continues to rise on the Instacart platform, the company is positioned to benefit from more orders and GTV, which in turn generates diversified revenue streams and improved operational efficiencies. Instacart’s revenue consists of transaction revenue, which is the fees paid on each order by retail partners and customers, and advertising, which is paid by brand partners.
As grocery is a recurring monthly household expense, Instacart has a high average order value, allowing it to keep transaction fees lower for retailers and customers compared to other on-demand delivery platforms.
By growing ad revenue and making fulfillment more efficient at scale, Instacart has been able to increase gross profits at a much higher pace compared to GTV, which has contributed to better unit economics.
Is Instacart IPO undervalued or overvalued?
In the last 12 months, Instacart has focused on reducing operating costs and improving the bottom line. In the first half of 2023, its sales were up 31% year over year at $1.47 billion.
Advertising sales grew by 24% to $406 million, accounting for 28% of total revenue.
Instacart has raised $2.9 billion to date and was valued at a peak of $39 billion in 2021. Priced at less than four times forward sales and 20 times forward earnings, Instacart stock is quite cheap, given its robust growth rates.
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