What to know about Instacart’s IPO

May 18, 2022, 12:46 PM UTC

Last week was an interesting one for Instacart to start the process of going public.

Inflation is still soaring, and tech stocks have taken a beating this year—so much so that the grocery delivery unicorn decided to cut its own valuation by nearly 40% in March, citing market turbulence and potential future upside for its employees.

“The timing definitely doesn’t seem ideal,” says Alex Frederick, a senior emerging technology analyst at Pitchbook.

Riding on a pandemic that had tripled its revenue in 2020, Instacart appears to be pressing forward with its plans to go public anyway. Last week it confidentially filed a draft registration statement for an IPO. 

This, of course, doesn’t mean they have to go public. And it could take around six to nine months for the SEC to review all the relevant documents. But here’s a big question: Will the chaos starting to swirl in the private markets have subsided by the time Instacart is ready to hit the exchange, or is this just the beginning? That’s the thing: No one really knows when that will happen.

Instacart had notched $1.5 billion in revenue in 2020 and had raised $790 million in funding over three rounds in 2020 and 2021, per Pitchbook, hitting a $39 billion valuation in March 2021 before it slashed it a year later down to around $24 billion. In total, it’s raised more than $2.7 billion in private funding.

But as lockdowns have ended and people return to grocers in person, sales appear to have dropped off. Potential acquisition and partnership talks with Uber and DoorDash reportedly never panned out. And discussions with a group of board members led by Sequoia’s Michael Moritz got tense, per the New York Times. Instacart’s co-founder and then-CEO Apoorva Mehta stepped down from the position in July. (You can read Maria Aspan’s full feature in Fortune about the company’s moves here.)

Last fall, the Information revealed that Instacart was putting its plans to go public on pause in order to focus on growing its non-delivery services for retailers. Under its new CEO, the former Facebook executive Fidji Simo, the company has launched technology and tools for grocers to use to build websites and apps, as well as fulfillment services, advertising, and data insights. Simo has said she wants Instacart “to build the technologies that can power every single grocery transaction,” including the in-store shopping experience.

Numbers have continued to go up—though hardly at the pace of the early pandemic. Instacart reportedly raked in $1.8 billion in revenue in 2021. An Instacart spokesperson said that the company experienced all-time highs in orders, gross transaction value, revenue, ad revenue, and gross profit last year, but wouldn’t provide any specific figures.

Instacart is already operating in a challenging market—even if inflation wasn’t causing the prices of groceries to keep going up.

“My big concern for Instacart has always been that they’re adding fairly significant fees in an industry where margins are already very tight,” Frederick says. Margins tend to be 2-3%—so it can be difficult for grocers to shovel out any of those margins to pay third-party delivery fees.

During the pandemic, Instacart helped medium-sized chain grocery providers get online quickly when Walmart and Amazon were scaling up this service. It says it now works with 750 retail businesses and more than 70,000 stores. But many retailers that started to work with Instacart during the pandemic likely did so at a loss, Frederick explains. Players like Kroger have built out their own platforms. 

Until Instacart files an S-1, we can’t really see what the margins look like. We do know that Instacart’s cap table has big investments from late-stage investors that have slowed down their pace of dealmaking, including the hedge fund D1 Capital Partners and mutual fund manager Fidelity. Some of its longer-term backers, like Sequoia, Andreessen Horowitz, or Kleiner Perkins, have likely been waiting for an exit for a while. 

What now? Worst case scenario: Instacart may have to go back to market for capital. Frederick suggested Instacart might also be doing some kind of “dual track” fundraising process, essentially where it is fundraising while also laying ground to go public. Getting the IPO process underway could give the company leverage with investors who might want a quick exit, he says.

Or perhaps Instacart simply wanted to get on with it. A company spokesperson says Instacart has $1 billion in cash and marketable securities in the bank and is well-capitalized. We’ll see all the numbers ourselves when the S-1 is filed.

See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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