Instacart, the grocery delivery business that thrived during the pandemic, announced on Friday its intention to conduct an initial public offering (IPO), which will serve as a test for investors’ interest in tech startups following a downturn in the industry. Unlike other gig economy companies, Instacart has managed to achieve profitability, although growth in its core grocery delivery business is slowing down. If successful, Instacart’s IPO could pave the way for many more tech startups to go public, as there are approximately 1,400 private tech companies valued at $1 billion or more waiting for a more favorable IPO market. In 2021, only 100 companies with market valuations over $50 million went public in the United States, compared to 397 in 2020. So far this year, there have been few new public listings, but chip maker Arm, owned by SoftBank, also announced its intention to conduct an IPO.
“Instacart and Arm are going to be ones that other tech companies eagerly watch because there is this pent-up demand to go public,” said Brianne Lynch, head of market insights at EquityZen, an online marketplace for private stock.
Like many other tech companies, Instacart experienced both growth and decline in parallel with the industry. The company had to lay off workers and reduce its valuation from $39 billion to $10 billion as it struggled to adjust. However, Instacart was able to turn a profit in 2022, earning $428 million compared to a $73 million loss the previous year. While grocery orders grew by 18% in 2022 compared to 2021, orders in the first half of this year remained flat. To improve its financials, Instacart has shifted its focus from low-margin delivery services to higher-margin online advertising. Ads and other revenue accounted for $740 million, or nearly 30% of its total revenue of $2.5 billion last year.
Instacart started building its ads business in 2019, allowing brands to pay for product placement within the Instacart app. It also began selling software to the grocery retailers it partners with. While this diversification into advertising was a smart move, some experts, like Brittain Ladd, a consultant for the grocery industry, doubt that there is much room for further growth in Instacart’s core grocery delivery business.
Founded in 2012 by Apoorva Mehta, Max Mullen, and Brandon Leonardo, Instacart has faced increasing competition from rivals like DoorDash, Gopuff, and Amazon, as it expanded into thousands of cities across North America. Additionally, the gig economy model employed by Instacart and other companies has drawn criticism from labor activists who argue that gig workers are exploited and underpaid. The COVID-19 pandemic significantly boosted Instacart’s growth, but the company acknowledges that it is unlikely to sustain the same level of growth in the future.
When Instacart’s growth started to slow down in 2021, its former CEO, Apoorva Mehta, explored the possibility of selling the company to Uber or DoorDash, or forming a partnership with them. Eventually, Fidji Simo, a former executive at Facebook, assumed the role of CEO. Instacart’s IPO prospectus lists various risk factors, including a history of losses, dependence on retailer relationships, strong competition, and the relative novelty of its advertising business. PepsiCo has also become a new investor, with plans to invest $175 million in new shares as part of the IPO. Sequoia Capital and D1 Capital are the company’s largest shareholders. Instacart plans to list its shares on the Nasdaq stock exchange with the symbol CART.