Instacart: grocery delivery service IPO will arrive in unwilling market  

On-demand services designed to ferry around passengers, takeaways and groceries have crashed this year. Instacart’s determination to join public markets is going to crystallise the scale of value destruction.

Instacart’s valuation reached $39bn in 2021 after the company said that orders had jumped 500 per cent during coronavirus lockdowns the previous year. Investors regarded the jump as a sustainable change in the company’s fortunes. But shoppers are returning to supermarket aisles. This year, Instacart reduced its internal valuation to $24bn. Its market cap could be much lower.

In an attempt to shore up the price, Instacart is reported to be limiting its offer to mostly employee shares. This will allow workers at the 10-year-old company to cash out before stock grants expire. Airbnb was pushed to list for the same reason. The decision may also be the result of a quiet word from banks about expected demand. A large share placement could mean the company is forced to accept a lower price. Opting not to raise additional capital can be presented as a sign of strength. Instacart will hope that working with banks for an IPO instead of listing shares directly will secure more institutional buyers too.

This is a tough moment to join markets. A brief rally in tech shares last month has come to an abrupt end as US interest rates continue to rise. The yield on benchmark 10-year Treasuries has reached a decade high.

Add to that a general distaste for overhyped online delivery companies. Even if shoppers continue to move online, Instacart’s margins are likely to be thin. Using workers to pick items from store shelves is a labour-intensive model. Warehouses would speed things up. But only a handful have opened.

How low could prices go? Listed food delivery company DoorDash trades at just 3.2 times trailing revenue. Uber trades on 2.7 times. Instacart’s reported revenue last year was $1.8bn. If valued on the same multiples, its market valuation would be somewhere between $4.9bn and $5.8bn.