Everything you need to know about the Instacart IPO

The first thing to know about the Instacart initial public offering (IPO) – which technically begins Monday as high-net-worth individuals and institutional investors obtain their shares but starts trading on Tuesday – is that common opinion is calling this a quite reasonably-priced IPO.

In the world’s top equity market, IPOs typically come to market for well-known firms at fierce valuations. E-commerce grocery delivery platform Instacart, however, appears to be an outlier. 

Even though the firm raised its share price range last Friday by $2 to a range between $28 an $30 per share, the IPO seems undervalued by comparison to other digital or tech companies. Instacart earned $114 million in net income in the second quarter that ended in June. If we use that figure to drive a $456 million annual run rate, then Instacart is going to market at a Price-to-Earnings Ratio of less than 22. 

If instead, you want to focus on revenue, then the second-quarter sales figure of $716 million (up 15% YoY) gives us an annualized sales expectation of $2.86 billion. This means the Instacart IPO, even at the top of its range, is valuing the firm at a reasonable 3.5 times revenue.

Instacart is expected to raise between $616 million and $660 million after selling 22 million shares on Monday. This will value the firm somewhere between $9.3 billion and $9.9 billion. That valuation could look a little higher if the Wall Street book runners decide to purchase an additional 3.3 million shares over the following 30 days.

With the company watching how Arm Holdings’s (ARM) IPO last week was oversubscribed somewhere around 10-to-1, it would be unsurprising if the price moved toward the top of the range on Monday or even higher. Arm Holdings returned over 19% in its first week of trading and at one point advanced as much as 35%. That is especially good for a mature company coming to market with a valuation above $50 billion, and Instacart’s backers hope they can outdo Arm Holdings by pricing itself less aggressively.

The valuation looks quite good when you realize that Instacart raised funding at a valuation of $39 billion just a few years ago when the market for Silicon Valley unicorns was at its height. On the worrying end of things, of the 22 million shares set to be issued, about one-third are existing shares from selling stockholders who bought stakes in the company during earlier funding rounds. It is not necessarily the case, but some of those sellers likely bought in at much higher valuations and are unenthusiastic about the long-term prospects of Instacart. 

Instacart was founded in San Francisco in 2012 and now works with 1,400 different retailers to deliver food via contract workers. Total order count grew from 223 million to 263 million between 2021 and 2022 but has flatlined in the first half of 2023 despite revenue growing. Instacart will trade under its parent company’s moniker – MapleBear – and debut under the ticker symbol CART.