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Instacart priced its shares at $30 ahead of its initial public offering on Tuesday, as the U.S. online grocery delivery company capitalized on a market heating up for new listings following a successful debut from chipmaker Arm.
The price is at the upper end of the $28 to $30 per share range Instacart offered investors last week, valuing the San Francisco-based group at $8.3 billion. On a fully diluted basis, its shares are worth $10.2 billion.
Arm, a British chip design company, had a successful first day of trading on the Nasdaq exchange last week, with its shares rising 25%, followed by Instacart’s initial range gain of about 7%. Arm shares were priced at $51 in the IPO and closed at $58 on Monday.
The Arm IPO was the largest in nearly two years, raising about $5 billion, offering a glimmer of hope for startups that have been forced to shelve plans to go public as a sluggish economy and high interest rates hit technology valuations.
However, Instacart’s new market cap is only a quarter of what it was in 2021, when venture investors bought $265 million of the company’s stock based on a $39 billion valuation.
The IPO will raise approximately $660 million through the issuance of 8% of the shares. In an unusual move, some of Instacart’s biggest venture investors, including Sequoia Capital, Norges Bank, TCV, Valiant Capital and D1 Capital, will serve as cornerstone investors to buy $400 million of stock at the IPO price, the filing shows.
Boston-based marketing automation group Klaviyo also raised its stock price range by about 8% to $27 to $29 ahead of its initial public offering on the New York Stock Exchange on Tuesday. It is expected to raise approximately $557 million.
Instacart was co-founded in 2012 by Apoorva Mehta, an Indian-born former engineer at retail giant Amazon. Mehta resigned as CEO of the delivery app in 2021.
Meta’s successor is Fidji Simo, an Instacart board member who joins from Meta, where she rose rapidly over the past decade.
Instacart has capitalized on a surge in demand for home delivery services during the coronavirus pandemic, growing its monthly user base to 7.7 million and partnering with large U.S. grocers such as Walmart. In total, shoppers spent $28.8 billion on the app in 2022, documents show.
Profit in the first half of this year rose to $242 million from a net loss of $74 million in the same period in 2022. Total revenue for the first half of 2023 increased 31% from the same period a year earlier to $1.48 billion.
However, weak consumer spending in recent months has put pressure on retailers. Analysts at Bernstein warned that Instacart’s business model could be threatened as large grocers build their own home delivery services or partner with other platforms or logistics groups.
“The grocery market is concentrated among the top 10 retailers, which begs the question of how much an aggregator is ultimately worth,” Bernstein analysts wrote this month.
In addition to making money from fees paid by retailers and shoppers, Instacart also hopes to increase revenue from brand advertising on its platform. The group’s advertising and “other” revenue accounts for a third of its total sales, rising 29% year-on-year in 2022.
