What Is Instacart and How Does It Work? Here’s What You Need to Know Ahead of IPO
Key takeaways
- Instacart is going for an IPO, having confidentially filed for one in May last year
- The transaction value and new ad revenue streams both look promising
- But the company’s valuation has been slashed due to the uncertain economic environment
Instacart has finally gone public with its news about… going public. That’s right — the online grocery shopping app and pandemic darling has filed for its market debut. While it seems inevitable such a popular service would eventually go for an IPO, there are storm clouds on the horizon that could hamper Instacart’s overall valuation. Here’s the latest.
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What is Instacart?
Founded in 2012, Instacart is a grocery delivery service with over half a million personal shoppers to deliver items in a flash. The app has expanded past its core grocery business to include access to all kinds of stores including beauty, crafts and pet supplies.
The business model fills the gap of fulfilling grocery orders where certain chains don’t offer it. New competitors have popped up, such as Fresh Direct, GoPuff, and restaurant delivery services like Uber Eats expanding into the grocery sector.
Is Instacart going for an IPO?
It’s official: Instacart has filed for an IPO. It made the news public last week after filing for a market debut in May 2022.
The figures look good for an IPO, with the platform snowballing in recent years, fueled by the pandemic. Gross transaction value jumped from $5.1 billion in 2019 to $28.89 billion in 2022; the company also reported $428 million in net income on $2.55 billion in revenue. The company’s ad revenue has also grown 24% in the first half of 2023 to $406 million.
On the flip side, Instacart is facing the same problem many other businesses are dealing with — a slowdown in consumer demand as inflation and high interest rates continue to bite. The company’s gross transaction value has only grown 4%, while customer acquisition costs have ballooned 60% in the last year.
As a result of the gloomy economic picture, Instacart’s internal valuation has been slashed from $39 billion to just $12 billion. This steep drop might put off investors who had been holding out hope the company would continue to soar.
The bottom line
With a drastically reduced valuation and slowing growth, Instacart’s IPO might not get the reception the company hopes for. Nonetheless, Wall Street will want a bite of the cherry while the app is still hot and faces the risk of grocery stores taking online delivery in-house.
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