Instacart IPO: Will Instacart Stock Surge Today?
September 19 2023 - 7:58AM
Finscreener.org
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 InstacartU+02019s securities document. Instacart
shares will be listed under the ticker symbol “CART.”
Even after revising its price
band, especially following
Arm HoldingsU+02019
impressive introduction,
InstacartU+02019s current valuation has seen a substantial dip from
its 2021 figure.
Recently, the companyU+02019s 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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