The beginning of a U.S. initial public offering comeback was marked this month by grocery delivery platform Instacart making its public debut on the Nasdaq Stock Exchange on Sept. 19 and SoftBank-backed chipmaker Arm Holdings' public listing in the U.S. earlier this month.
Backed by Sequoia Capital and D1 Partners, Instacart became the first venture capital-backed company to go public since December 2021.
"I think we're going to see more companies kick off their (IPO) process in 2024, which is when a healthy IPO market will return," said Mike Bellin, PwC U.S.'s IPO services leader.
Instacart canceled its initial IPO after its valuation took a hit resulting from the tech market rout that's occurred since late 2021. Founded in 2012, the grocery-based tech firm was valued at $39 billion after raising funding from venture capital firms at $125 per share in 2021. But pandemic-driven headwinds caused the platform to slash its valuation multiple times.
Instacart was valued at $10 billion during its IPO after it sold 22 million shares at $30 each. The company is valued at 3.5 times its annual revenue, which is lower than its primary competitor DoorDash Inc., which trades at about 4.25 times its annual revenue.
But Instacart CEO Fidji Simo said the primary driver behind the company's IPO was to ensure liquidity for existing shareholders rather than raising funds. The offering made available around 8% of Instacart's outstanding shares, and of that portion, approximately 36% were sold by existing shareholders.
"We felt that it was really important to give our employees liquidity," Simo explained. "This IPO is not about raising money for us. It's really about making sure that all employees can have liquidity on stocks that they work very hard for. We weren't looking for a perfect market window."
Sequoia holds the largest investment stake in Instacart, amounting to 15% upon total dilution. Although the Silicon Valley firm has seen its overall investment in Instacart generate a paper profit exceeding $1 billion, the $50 million worth of shares it acquired in 2021 have depreciated to approximately one-fourth of their initial value.
Instacart's public debut renewed investor optimism regarding initial public offerings, which has remained stagnant since late 2021 amid market jitters.
Instacart began turning a profit in the second quarter of 2022, reporting a net income of $114 million in the most recent quarter — a substantial increase from the $8 million reported a year earlier. In comparison, DoorDash, has incurred losses.
In the second quarter of 2022, revenue grew 15%, reaching $716 million. This marks a decrease compared to the 40% growth observed in the same period the previous year and the 600% growth seen during the initial stages of the pandemic. The company streamlined its workforce in mid-2022, leading to reduced expenses related to customer and shopper support.
Game-Changing AI Integration
Instacart has emphasized its commitment to integrating artificial intelligence (AI) and machine learning capabilities into its platform, underscoring its intention to use artificial intelligence markup language (AIML) solutions as a catalyst for future business expansion. In May, the company also embraced the burgeoning field of generative AI with the introduction of Ask Instacart, a search tool designed to address customer inquiries related to grocery shopping.
"We believe the future of grocery won't be about choosing between shopping online and in-store," Simo said. "Most of us are going to do both. So we want to create a truly omni-channel experience that brings the best of the online shopping experience to physical stores and vice versa."
Instacart's foray into AI has primarily occurred through acquisitions over the past two years. The acquisitions include e-commerce startup Rosie; Eversight, a company specializing in AI-powered pricing solutions; Caper, a provider of AI-driven shopping cart and checkout solutions; and FoodStorm, a software startup specializing in self-serve kiosks for in-store customers.
The company also highlighted its use of machine learning in the prediction of grocery item availability for retailers and the enhancement of consumer sales. Instacart says its algorithms predict the availability status of the majority of its 1.4 billion grocery items every two hours. In the second quarter, more than 70% of customers made purchases based on recommendations generated by Instacart's algorithm.
As the company focuses on expansion, Instacart is expected to face tremendous competition from Amazon.com Inc., Walmart Inc. and Target. Nonetheless, seamless AI integration could help Instacart gain an upper hand over its competitors.
