The online grocery delivery company, Instacart, is making waves in the retail brokerage accounts as it prepares for its initial public offering (IPO). Set to trade under the ticker symbol “CART,” Instacart’s valuation is set at approximately $9.6 billion, according to a recent filing. This valuation represents a significant increase from its previous assessments, reflecting the changing dynamics of the market.
Investors will undoubtedly consider the future prospects of the expanding gig economy and its profitability when determining Instacart’s value. As a company that relies on contractors for home grocery deliveries, Instacart is seeking an estimated price range of $28 to $30 per share, corresponding to a price-to-sales ratio of between $3.64 and $3.9 based on projected 2022 revenue.
Comparing Instacart to its closest peer, DoorDash, which has a price-to-sales ratio of 4.2 times future sales, we can see that Instacart’s valuation remains competitive. Other gig economy companies, such as Uber and Lyft, boast lower price-to-sales ratios of 2.8 and 1 respectively. This metric provides valuable insight into startups’ potential value as their profitability is still in development.
Matthew Tuttle, CEO of Tuttle Capital Management, expressed his confidence in Instacart’s valuation. As an avid user of the app himself, Tuttle sees Instacart benefiting from the increasing prevalence of retail theft in physical stores and the potential resurgence of Covid-19. He believes this IPO could be a home run for investors.
With its upcoming IPO, Instacart is poised to make a significant impact on the grocery delivery market. The result will ultimately hinge upon investors’ faith in the gig economy’s future growth and profitability. Only time will tell whether Instacart can deliver on its potential.
Instacart: Revolutionizing Grocery Delivery
Instacart, an innovative company established in 2012, has experienced remarkable growth in recent years. With a revenue of $2.55 billion in 2021, it saw a substantial increase of 39% compared to the previous year. The primary sources of revenue for Instacart are the fees paid by both retailers and customers. This includes income generated from its premium membership program, Instacart+, which contributed to nearly three-quarters of the company’s total revenue. In addition, Instacart Ads, a relatively new but essential service developed under the leadership of CEO Fidji Simo, have played a vital role in driving the company’s growth. Fidji Simo, previously an executive at Meta Platforms (formerly known as Facebook), assumed the role of CEO in 2021.
The advertising business of Instacart experienced a remarkable 30% growth in the past year. Retail partners usually enter into short-term agreements with Instacart, involving payment based on clicks, ad views, or a fixed fee for a specified duration. Instacart views its advertising division as highly profitable; however, it acknowledges that future ad revenue may be subject to fluctuations. The company’s ability to attract new brands, customers, and expand into other markets will be critical in determining the success of its advertising efforts.
Wharton management professor David Hsu weighed in on Instacart’s prospects, stating, “The ad business is just starting to ramp up, and it remains to be seen how well it does.” He described Instacart as “an ambitious play with a lot of uncertainty.”
Despite impressive revenue growth, Instacart reported losses in both 2020 and 2021. While the company’s net income was $428 million in the previous year, more than three-quarters of this figure came from a tax benefit.
Instacart anticipates that recent successful IPOs, such as chip designer Arm Holdings, may positively impact its own valuation in the market. The stock experienced a 10% jump during its trading debut last week. As new listings continue to gain traction, Instacart remains hopeful that it will achieve its desired valuation or potentially even surpass it.