Instacart files for IPO, but should it?

Instacart said late Wednesday night that it had filed a Form S-1 with the Securities and Exchange Commission for a possible initial public offering.

According to Bloomberg, the delivery firm is working with Goldman Sachs and J.P. Morgan on the possible offering, which Instacart said is not a definitive choice as of yet.

An IPO was rumored last year, although there was some speculation that Instacart would forgo the traditional IPO route and go the direct listing route instead. In a direct listing, a company creates no new shares and simply sells existing shares to the public. There are no underwriters involved, so it reduces cost, but the company doesn’t generate any direct income from the sales of the shares. Those currently holding shares of the company can sell directly to the public and they receive the financial windfall, if any. There are usually no lockup agreements in this case.

Reuters reported that Instacart has yet to decide the route it may take to the public markets. The company, which in March 2021 raised $265 million in a funding round that valued the company at $39 billion, recently revised its valuation downward to $24 billion, citing market conditions.  

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Andreessen Horowitz, Sequoia Capital, D1 Capital Partners, Fidelity Management & Research Co. LLC, and T. Rowe Price Associates Inc. are among Instacart’s backers.

There has been no announcement as to the exact timing of when an IPO will take place.

Competition abounds for fast delivery

Instacart faces a stiff competitive landscape with major retailers such as Walmart and Target investing heavily in last-mile delivery, and Softbank-backed GoPuff is also preparing for an IPO and recently acquired Finland’s Wolt for $8 billion in a major expansion of its global footprint.

DoorDash (NYSE: DASH), GrubHub (NYSE: GRUB), and Uber Eats (NYSE: UBER) offer national competition, and smaller, regional firms such as Jokr and Gorillas have been moving forward with 15-minute delivery promises. Statista estimates the online grocery market will reach $135.2 billion this year, up from $112.9 billion in 2021, and grow to $187.7 billion by 2024, so there is plenty of market opportunity ahead, with convenience a major factor in consumers’ buying decisions. Consultancy Chicory said 46% of online grocery customers in a recent survey cited convenience as the primary factor in their buying decisions.

Should Instacart go public?

Writing for Forbes in early April, Forbes adviser staff members Taylor Tepper and Benjamin Curry laid out the case for and against an Instacart IPO.

The pair noted that Instacart continues to grow market share, moving from an 11% market share in the e-commerce grocery space in 2019 to more than 22%. They also pointed out Instacart’s ambitions to grow beyond grocery.

Arguing against an IPO, current market conditions were cited. Notably, competitor DoorDash has seen its share price drop more than 50% since November 2021. They also pointed to Shopify’s 60% drop in share price since November; Zoom, a big beneficiary of the pandemic, which has seen its stock drop 56% in the past year; and Peloton, which saw its share price drop from $150 per share to the $20 range.

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“These market reversals illustrate why Instacart’s leadership took the very unusual step of reducing their own valuation — and also suggest why now is not the right time for the company to aggressively pursue an IPO,” they wrote. “All four of the names above saw massive gains thanks to their ability to provide their customers with goods and services to improve the stay-at-home pandemic lifestyle. Today, the market is not impressed with their post-pandemic game plans.”

Instacart goes local

Last summer, Instacart announced it would begin building robotic fulfillment centers for grocers to handle their online orders.

“Our next-gen fulfillment initiative combines our robust technology suite and dedicated community of shoppers with robotics solutions to give retailers even more innovative ways to compete and serve their customers online,” Mark Schaaf, chief technology officer for Instacart, said at the time. “Our next-gen fulfillment work will also help reduce some of the things that make in-store shopping cumbersome for Instacart shoppers, like crowded store aisles, out-of-stock items and long checkout lines.”

Last month, Instacart and Publix announced the launch of 15-minute grocery delivery in Miami.

“Instacart’s model is to empower retailers to better serve their customers. We’re taking the same approach by building Carrot Warehouses, a network of nano-fulfillment facilities that we operate on retailers’ behalf, to help retailers deliver unmatched speed and selection to their customers,” Daniel Danker, vice president of product at Instacart, said in a press release. 

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