Instacart, the grocery delivery firm that reduced its valuation during last year’s market downturn, submitted its documentation for an initial public offering on Friday. This move marks the first significant IPO for a venture-backed tech company since December 2021. The company’s shares are set to be traded on the Nasdaq with the ticker symbol “CART.” According to the information provided in its prospectus, Instacart reported a net income of $114 million. Additionally, the company’s revenue for the most recent quarter reached $716 million, reflecting a 15% increase compared to the previous year’s period. Instacart has achieved profitability for five consecutive quarters, as stated in the filing. PepsiCo’s commitment to acquire $175 million worth of Instacart’s stock through a private placement is noteworthy.
Instacart emphasized its ongoing commitment to integrating artificial intelligence (AI) and machine learning features into its platform. The company anticipates it will “rely on AIML solutions to help drive future growth in our business.” Back in May, Instacart introduced Ask Instacart, a search tool rooted in the blossoming field of generative AI. This tool is designed to address customers’ inquiries related to their grocery shopping.
CEO Fidji Simo wrote in the prospectus, “We believe the future of grocery won’t be about choosing between shopping online and in-store. Most of us are going to do both. So we want to create a genuinely omni-channel experience that brings the best online shopping experience to physical stores, and vice versa.”
Instacart’s Path to IPO and Challenges Amidst Gig Economy Dynamics
Instacart is gearing up to make its mark in the IPO market, which has remained closed since late 2021. In December of that same year, HashiCorp, a software vendor, and Samsara, a company specializing in cloud technology for industrial firms, successfully went public. However, there haven’t been any significant IPOs for technology companies backed by venture capital since then. Notably, Arm, a chip designing company owned by Japan’s SoftBank, recently filed for a listing on Nasdaq.
Having been established in 2012 and known as Maplebear Inc., Instacart is set to join the ranks of gig economy companies trading on the public market. This move follows the IPOs of Airbnb and DoorDash in 2020 and ride-sharing giants Uber and Lyft the year prior. However, these companies haven’t proven highly lucrative for investors, with only Airbnb maintaining a stock price above its initial offering.
Instacart’s network of shoppers and drivers operates across over 5,500 cities, serving customers by delivering goods from over 40,000 grocers and various other stores. The company experienced substantial growth during the COVID-19 pandemic as people sought to avoid public spaces. Nonetheless, like many players in the gig economy, Instacart has faced persistent challenges in achieving profitability due to the substantial costs associated with compensating its contractor workforce.
In the second quarter of 2022, Instacart witnessed its highest employee headcount, which subsequently declined over the following two quarters. This reduction in staff contributed to a decrease in the company’s fixed operating costs. By the end of June, the company employed 3,486 full-time workers.
Instacart’s Valuation Fluctuations and Leadership Changes
In the previous year’s March, Instacart revised its valuation from $39 billion to $24 billion, attributed to a drop in public stock value. By the end of 2022, reports indicated a further 50% decrease in its valuation. Noteworthy competitors for Instacart include Amazon, Target, Walmart, and DoorDash.
The most significant area of cost reduction was observed in general and administrative expenses. These expenses dwindled to $51 million in the latest quarter, in contrast to the previous year’s $77 million and a peak of $102 million in the final quarter of 2021. Instacart explained this decline was due to reduced legal and settlement fees.
Simo assumed the role of Instacart’s CEO in August 2021, subsequently becoming the chair of the company’s board in July 2022. Previously, she led Facebook’s app at Meta, reporting directly to CEO Mark Zuckerberg. Following Instacart’s public market debut, Apoorva Mehta, the company’s founder and executive chairman, expressed intentions to step down from the board, as stated in a release from 2022.
The board of directors also features Peloton CEO Barry McCarthy, Snowflake CEO Frank Slootman, and Jeff Jordan from Andreessen Horowitz.
The Growth Trajectory and AI Integration of Instacart
Instacart is set to become one of the pioneering standalone grocery delivery companies to launch its IPO. Unlike Amazon Fresh, Walmart Grocery, and Google Express, all giant corporations’ divisions, Instacart remains independent. In 2017, Target acquired Shipt; in 2021, global food retailer Ahold Delhaize purchased Fresh Direct, another direct-to-consumer grocery delivery company.
Among the shareholders with at least a 5% stake in the company, Sequoia Capital and D1 Capital Partners stand out. Instacart revealed that these two firms, along with Norges Bank Investment Management, TCV-affiliated entities, and Valiant Capital Management-affiliated entities, have separately expressed interest in acquiring up to $400 million shares during the IPO at the offering price.
Acquisitions have primarily driven Instacart’s foray into AI over the last few years. Among these acquisitions are e-commerce startup Rosie, Oversight, an AI-powered pricing firm; Caper, a provider of AI shopping cart and checkout solutions; and FoodStorm, a software startup specializing in self-serve kiosks for in-store customers.
The company also highlighted its utilization of machine learning in predicting grocery availability, boosting consumer sales. Instacart’s algorithms now forecast availability for the “vast majority” of its 1.4 billion grocery items every two hours. Furthermore, in the second quarter of 2023, over 70% of customer purchases were made through Instacart’s recommendation algorithm.
Goldman Sachs is heading the offering. This is noteworthy because Instacart’s former finance chief, Nick Giovanni, who once served as the investment bank’s global head of the technology, media, and telecom group, was previously employed there.