Instacart will soon deliver its shares to the public markets – at a huge discount to its 2021 valuation.
Photo: David L. Ryan/The Boston Globe via Getty Images
This week marks the unofficial start of IPO season, a veritable debutante ball of billion-dollar companies unveiling their IPOs to the investing masses. On Wall Street it took almost two years. The last time real money was made in the public markets was the SPAC frenzy in 2021, when bankers dumped a number of unprofitable, overvalued household names onto the market, only to watch them fizzle out and lose their luster. Since then, the economy has been virtually on the brink of recession due to rising inflation, rising interest rates, a war in Ukraine, and even a mild banking crisis.
But the door to an IPO could finally swing open again. Over the weekend, Treasury Secretary Janet Yellen said she feels “very good” about the economy, and the investing class appears to share her opinion. On Monday, two major companies that had long considered going public moved closer to selling their shares on the public markets, and Wall Street was eager to make some serious money again.
This year, many large private companies – particularly technology companies – will come to public stock markets, including semiconductor design giant Arm Holdings, Reddit and financial companies such as Chime and Stripe. But among the first to come to market will be Instacart, which has been a Silicon Valley poster child for years for missing out on the IPO. The San Francisco food delivery company has been eyeing an IPO since 2019, but it fell through due to a mix of bad timing and bad luck. In early 2021 — just before COVID vaccines became widely available, when the San Francisco company was effectively a lifeline for many in need of food — it reached a valuation of $39 billion, making it the second most valuable private company in the U.S. behind SpaceX Instead of seizing the moment to sell its shares to the public at a valuation near that level, it simply…didn’t. Without ever really explaining why. The company confidentially filed to go public in May 2022, but by then technology stocks were plummeting and investors were reluctant to accept new offerings.
Even though the financial environment has improved, the time and wait were still not pleasant for Instacart. Today, the company’s value is between $8 billion and $9 billion, according to securities filings – a discount of about 75 percent.
Even the company’s IPO sounds a little desperate. “Food has one of the lowest levels of digitization of all industries,” it says. This is intended to be a selling point – the idea that they are somehow at the beginning of the transformation of an industry that will surely be worth around $1.5 trillion. But of course the opposite could also be the case. Grocery stores could be an example of the so-called “third place,” a term coined by sociologist Ray Oldenberg for a place that is neither home nor work and where people can meet and interact. (This is probably more true than ever, as stores like Whole Foods and Wegmans have long used buffets and cafes to attract more customers.) While supermarkets themselves are only about 100 years old, grocery stores date back to ancient times. Almost all Americans shop for groceries in physical stores at least once a week, and according to the grocery industry, they like it that way.
This should be clear to everyone on Wall Street. Still, $9 billion is a lot of money, and with about 7.7 million people still using the app, there’s money to be made in the grocery delivery business. (Increasingly, that means advertising — the company now makes about 30 percent of its money from selling ad space on its app.) These IPO prices reflect what investors are willing to pay for company shares during roadshows, when Instacart’s bankers — in this case, Goldman Sachs – contact professional investors directly.
Stocks are typically sold again on the first day of public trading in the broader market, where hype for well-known companies can peak – which is why IPOs often “pop” when they take place on the Nasdaq or New York Stock Exchange. For example, when DoorDash went public in late 2020, its shares nearly doubled the IPO price on the first day of trading. Today they are worth less than half that. While it’s not clear exactly when Instacart will begin trading or what will happen when it does, it’s likely that the company’s shares will go public in a few weeks. The irony is that if the stock crashes, the people making money won’t be the Instacart employees, but the Wall Street middlemen who have been patiently waiting for the economy to restore optimism to investors.
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