What We Know About The Instacart IPO

The onset of the COVID-19 pandemic created a need for many new, personalised services. In an attempt to slow the spread of the contagion, businesses deemed "non-essential" closed their doors, employees began working from home and food vendors developed creative new ways of catering to their clientele. One industry that gained significant marketshare during the COVID-19 pandemic was online grocery services.

Among the largest players in the online grocery sector is Instacart. Throughout the COVID-19 era of 2020/2021, Instacart saw demand for its services explode. The result was a vast uptick in the company's value, growth prospects and a desire to transition from being private to publicly held.

What Is Instacart?

Founded circa 2012 in San Francisco, CA (USA), Instacart has evolved into North America's largest online grocery delivery service. Over the course of its existence, the company has raised over US$2.7 billion in capital from private investors. As of May 2021, Instacart earned a valuation of US$39 billion^[1] and created a significant media buzz over potentially going public.

Instacart is an online grocery service that allows people to order foodstuffs and other goods while scheduling deliveries online. As the self-proclaimed "world's largest online grocery service," Instacart offers access to 500 million products, service to 40,000 stores in 5,500 cities across the United States and Canada.^[2] The company facilitates millions of orders per year for delivery or pickup services, the majority of which is conducted via the Instagram app. Corporate partners include Costco, Natural Grocers, Target, CVS Pharmacy and Walgreens.^[3]

The business model for Instacart is multi-faceted, with subscription, flat-fee payment structures and advertising sales used to generate profits. Below is a brief look at each revenue stream.^[4]

Delivery Fee

Standard delivery fees begin at US$3.99 for same day delivery on orders US$35 or more. Duties increase on orders under US$35 and for expedited deliveries. A minimum order of US$10 is required to be eligible for delivery. Also, a "heavy fee" is assigned to orders that weigh in excess of 50 pounds.

Service Fee

Service fees are assigned to each order and vary according to the types of items, number of items and location of the delivery.

Instacart Express

Customers have the opportunity to subscribe to the Instacart Express program. Members enjoy US$0 delivery fees on orders US$35 or more, reduced service fees and additional order options. Instacart Express memberships cost US$99 per year and are billed monthly or in one lump-sum.

In-App Advertising

The company sells ad space to parties interested in advertising their products directly on the proprietary Instacart platform.

Instacart Business Model

The Instacart business model can be described as a combination of the Uber or Lyft ride-share structure and traditional grocery delivery services. Instacart hires people as "shoppers" as independent contractors and pays them a percentage of each order. While this amount varies, some gig-economy experts estimate that Instacart shoppers earn upwards of US$20 per hour (5%-20% of the orders) and 100% of any tips.^[5]

2020 proved to be a bountiful year for Instacart as the company benefited from widespread COVID-19 lockdowns. For the year, revenue and profitability metrics reached all-time highs^[6]:

• Instacart posted US$1.5 billion in revenue stemming from US$35 billion in aggregate sales.
• The company posted its first ever profitable month, measuring US$10 million.
• Instacart usership grew to 9.6 million active users and upwards of 500,000 shoppers.
• As of March 2021, the company's estimated value swelled to US$39 billion.

Instacart IPO

With a history of just over a decade, Instacart was developed by Apoorva Mehta, Max Mullen and Brandon Leonardo. Currently, Mehta serves as the company's chief executive officer (CEO) as he has since the company's initial 2012 launch.

Originally, Instacart was conceived as being solely an iOS application, designed for iPhone users.^[1] Over time, the software platform expanded its scope to be available on Android and desktop operating systems. The result has been increased usership, revenues, profitability and a much-anticipated initial public offering (IPO).

Revenues And Profitability

The onslaught of COVID-19 in North America prompted significant growth in the online shopping and grocery delivery industry. As a result, business analysts viewed the upside for Instacart as being potentially lucrative.

As of this writing, Instacart remains a privately-held company and does not publish official profitability metrics. However, industry estimates indicate that the company went from losing US$300 million in 2019 to a profit of US$50 million in 2020. Further, gross revenues of Instacart have grown from US$10 million in 2013 to US$1.5 billion in 2020.^[7] Given the boost in profitability and revenues, many in the financial industry have estimated the company's value to be in the neighborhood of US$39 billion.

The Case For Going Public

Since its inception, Instacart has had few issues in raising venture capital. In total, the company has raised US$2.7 billion in funding from 35 separate investors.^[8] Several of the most prominent shareholders are Sequoia Capital, Fidelity Management, T. Rowe Price and Andreesen Horowitz.^[9]

Late 2020 and early 2021 proved to be a key time for Instacart and its fundraising operations. In a five month period, the company held two rounds of funding, the first being worth US$200 million and the second generating US$265 million in capital.^[10] The massive capital injections boosted Instacart's valuation to nearly US$40 billion, earning it the moniker "unicorn."

In the world of finance, a unicorn is defined as being a privately-held tech startup that boasts a worth of more than US$1 billion. For 2021, Instacart's lofty valuation has made it the second largest unicorn to Tesla CEO Elon Musk's SpaceX, which is priced at US$74 billion.^[10]

IPO Structure

A combination of the online grocery sector's growth and Instacart's standing within the industry has brought 2021 IPO talk to a fevered-pitch. In fact, the first half of 2021 was an extremely active period for tech IPOs. Several of the featured listings came from Bumble (BMBL), Vlant Technology (DSP), Poshmark (POSH) and Affirm (AFRM).^[11] Other unicorns such as Stripe, Robinhood and UiPath are reportedly planning to launch IPOs later in 2021.^[11]

The timeline and details of Instacart's IPO remain ambiguous as of early June 2021. However, there has been a flurry of industry reports that shed some light on the company going public. Here are few key stories in this area:

Goldman Sachs

In November of 2020, Instacart reportedly chose the Goldman Sachs Group to take the company public.^[12] Goldman Sachs is one of the largest investment banks in the world and a prominent figure in the IPO arena. Additionally, Instacart appointed Goldman Sachs' lead internet banker Nick Giovanni as its chief financial officer (CFO) in January 2021.^[13]

Board Member Acquisitions

In February 2021, Instacart added two new board members in anticipation of the IPO offering. The executives were Fidji Simo, head of the Facebook app and Barry McCarthy, former Spotify and Netflix CFO. According to CEO Mehta, "We [Instacart] wanted to bring in people that we think will be transformational. We are being very deliberate about this."^[14]

The commissioning of Goldman Sachs and leadership acquisitions suggest that Instacart is gearing up for a public offering sometime in 2021. However, it remains unclear whether the company is going to conduct a traditional IPO or elect to pursue a direct listing.

Reports from March 2021 suggest that a direct listing is possible due to leadership not wanting to "leave money on the table."^[15] This hypothesis is furthered by the addition of Barry McCarthy to the company's board of directors. McCarthy has a reputation as being the "architect of the direct listing,"^[14] which may be a hint that Instacart is considering going the direct listing route. If so, the company will follow in the footsteps of Coinbase (COIN), which went public via direct listing in April of 2021.

Summary

2021 has been an active year for tech IPOs, with many "unicorns" planning to go public. One of the largest is Instacart, which boasted a spring 2021 valuation of US$39 billion. Given the company's lofty pricing and the growth potential of the online grocery sector, Instacart's pending IPO is one of the more anticipated in recent history.

At press time, the type of IPO and timeline for its launch remain unknown. However, Instacart's commissioning of investment banking giant Goldman Sachs and a collection of high-profile executive hires suggest that a public offering is imminent. Ultimately, a traditional IPO or direct listing is expected sometime in 2021.