Everything You Need to Know About the Instacart IPO

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Aja McClanahan is a personal finance writer who has a story of getting out of over $120,000 in debt. She's been featured in Yahoo! Finance, MarketWatch, U.S. News and World Report, Kiplinger and has written for publications like Business Insider, Credit Karma, Inc., and many others. Aja writes about investing and personal finance for Wealthsimple. In her spare time, she manages her own investment portfolios for herself, husband, and two kids. Aja double majored in Spanish and Economics and holds a Bachelor of Arts degree from University of Illinois at Urbana-Champaign.

Initial public offerings or IPOs allow a private company to sell its shares to the general public. This means you don’t have to be part of some exclusive hedge fund or venture capital firm to invest in such a company. Once a company goes public, it can often raise additional capital while providing value to shareholders in the form of stock appreciation, dividends, or both.

Instacart is a company that some expect to go public in 2021. The grocery delivery app has gained significant traction since the demand for delivery services increased substantially in 2020 due to shelter-in-place orders.

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For those familiar with the service and perhaps even use it, investing in the company might sound like a great opportunity. After all, who doesn’t love owning part of the companies they know and love?

As exciting as you might be about this or any IPO announcement, be sure to evaluate this investment like any other. Even for companies that have become household names, do your research and make decisions based on principled investing criteria.

Ideally, you’ve got your investing plan in place, and you’ll check to see if purchasing Instacart’s stock might fit that plan, rather than changing your investing strategy to accommodate Instacart’s stock-selling debut. If you are considering investing in Instacart, here’s what you should know before making the decision.

What is Instacart?

Instacart is an online delivery service launched with the motto, “Groceries delivered in an hour.” Users can access the Instacart platform via web browser or smartphone app to place an order for groceries delivered to their door in a timely fashion. These deliveries typically come from a variety of retailers based on the user’s location.

The company has an estimated 9.6 million active users, 500,000 shoppers, and partners with nearly 600 national, regional and local retailers. Instacart offers delivery and pickup services from more than 45,000 stores, with delivery areas covering over 85% of U.S. households and 70% of Canadian households.

Due to the pandemic, the demand for Instacart’s services skyrocketed and boosted earnings substantially. It’s important to know that the company was founded in 2012 but didn’t post profits until April of 2020, presumably because of the pandemic. Before April of 2020, the company reported losing up to $25 million per month.

The app-based service company earns revenue by charging delivery fees, service fees, and subscription fees. There are also revenue-sharing agreements in place for featured food items and revenues from advertising.

Major competitors include local grocers who also offer delivery services, Amazon Fresh, Uber Eats, DoorDash, and other meal delivery services.

Although a large part of Instacart’s model focuses on customers that use the app, it’s worth noting that it’s a massive part of the gig economy. It joins the ranks of Uber, Lyft, and Door Dash when it comes to providing work opportunities to hundreds of thousands of contracted shoppers. As you evaluate risk factors for your potential investment in the company, just know how these workers’ status could evolve and have a significant impact on Instacart’s profitability going forward.

What is Instacart’s Current Market Cap?

Instacart recently closed on a $265,000 million round of funding that now brings the company’s valuation to $39 billion, up from $7.9 billion in 2020.

In 2020, the company generated $1.5 billion in revenues with $35 million in grocery sales. Before April of 2020, its first profitable month, the company reported losing $25 million per month.

When is the Instacart IPO taking place?

Instacart had plans to go public in early 2021 but has since delayed that plan. According to some reports, company executives want the “pandemic frenzy” to die down to ensure that there are no inflated performance expectations for would-be investors.

Other rumors hint of a direct listing scenario. In this case, Instacart would not create new shares for an IPO. Instead, existing shares that are now privately owned would be available to the general public to purchase on an exchange. This process is much more straightforward and could potentially save the company both time and money while making shares publicly available much sooner.

So the short answer is, no one really knows when the Instacart IPO will happen. It’s probably safe to plan on a 2021 date, but there are no guarantees.

Why are people interested in buying Instacart shares?

Perhaps one of the biggest drivers in Instacarts’ shares is the idea that there’s tons of market share in the online grocery space, and the demand will only increase. In fact, as of 2019, the global market for online groceries was estimated to be almost $190 billion, with a projected annual growth rate of nearly 25% per year from 2020-2027.

Many potential investors could believe that Instacart has only scratched the surface of its potential as an online grocery service. It’s reasonable to believe that the company could increase revenues as grocery spending online continues to grow at or above industry analysts’ projected rate.

A large part of Instacart’s growth has come from expansion across several new categories, including prescriptions and over-the-counter medications, office supplies, electronics, health, beauty and wellness, home decor, sports equipment, and more.

The company also reports building out Instacart Enterprise, an end-to-end e-commerce solution for retailers. The goal is to power retailers’ e-commerce sites, digital loyalty programs, and online catalogs, which could, in turn, increase Instacart’s advertising business.

All in all, the outlook for Instacart seems optimistic, but of course, historical performance is not an indicator of future performance. For context, DoorDash, a similarly valued company in the same space, had an IPO price of $102 and closed up 86% on its first day of trading in December of 2020. However, DoorDash has yet to be profitable, even after the pandemic caused the demand for restaurant delivery services to skyrocket.

One issue shared between the companies is temporary profitability from consumer behaviors brought about by the pandemic. It’s unknown whether or not these levels of revenue and customer acquisition are sustainable as the shelter-in-place orders lift, and the economy opens back up. As a savvy investor, you’ll have to be the judge and invest accordingly.

How can I buy shares of Instacart?

Once the IPO is approved, and opening day arrives, you can trade Instacart’s stock like any other. If you’ve got access to an online investment platform, you can place an order for the number of shares you desire to buy (or sell).

What else should I know about investing in Instacart?

Many times, an IPO for a well-known, popular company can seem like the ultimate investing opportunity. While it can be a source of pride to own a company you patronize, it doesn’t take the place of research and analysis. At the end of the day, you want to meet your investing goals with success. If an IPO stock works well within that framework, even better. Often, IPO prices can start out pretty expensive, typically adjust according to the company’s value, profitability, revenue growth, etc.

If the company doesn’t meet your personal investing criteria, you may choose to either stay away or wait until the stock reaches a price you are comfortable with. If you’ve got a budget for “fun investments,” or money you could stand to lose, then you might purchase for diversion or as an experiment if you find Instacart doesn’t meet your criteria. If it does, you can always plan to buy and hold to see if your predictions about growth and profitability come true after all.

Last Updated May 31, 2021

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