San Francisco-based online grocery delivery firm, Instacart, is poised to debut on public markets under the ticker "CART" on Tuesday, September 19, 2023. The move comes as a litmus test for investors' interest in gig economy companies. The company, formally known as Maplebear, will disclose its pricing on the eve of its trading commencement.
Instacart's recent filing suggests a valuation of $9.6 billion, with unit prices expected to range between $28 and $30. This valuation significantly trails the company's self-assessed value of $24 billion in March last year, which followed a $39 billion valuation in a late-stage venture capital round the previous year.
The final price that investors are willing to pay for Instacart will be determined by their confidence in the future growth and profitability of the gig economy. The company, which relies on contractors for home grocery deliveries, is seeking between $3.64 to $3.9 per dollar of sales based on stock pricing and projected 2022 revenue.
In comparison, DoorDash, a similar gig economy company, has a price-to-sales ratio of 4.2 times future sales. Other companies in the sector hold lower ratios: Uber (NYSE:UBER) at 2.8 times sales and Lyft (NASDAQ:LYFT) at one times sales. These ratios are often used to value startups whose bottom lines are still maturing.
Founded in 2012, Instacart reported revenue of $2.55 billion last year, marking a 39% increase from the previous year. Approximately three-quarters of this revenue came from fees paid by retailers and customers, including those for its premium membership program, Instacart+. The remaining revenue was generated by Instacart Ads, an essential service developed under CEO Fidji Simo, who joined the company in 2021 after leaving Meta Platforms (NASDAQ:META).
Instacart's advertising business grew roughly 30% last year. Retail partners typically enter into contracts of less than one year with Instacart, paying based on clicks, ad views, or a fixed fee over the contract term. Despite describing its advertising as "highly profitable," Instacart noted in its filings that future ad revenue may vary, as it hinges on the company's ability to attract new brands and customers and expand into new markets.
Despite its revenue growth, Instacart reported losses in 2020 and 2021. Last year's net income was $428 million, but over three-quarters of these profits were attributed to a tax benefit.
The recent success of IPOs, such as chip designer Arm Holdings (NASDAQ:ARM), which saw its stock rise by 10% upon opening, might boost investor confidence and help Instacart achieve or even surpass its asking valuation.
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