Instacart’s Value Comes Down to What Matters: Growth or Profits

Instacart Inc. will be holding its much anticipated IPO in a matter of weeks. So what’s the grocery delivery company worth? That’s up for debate, but the guessing game is on.

(Bloomberg) — Instacart Inc. will be holding its much anticipated IPO in a matter of weeks. So what’s the grocery delivery company worth? That’s up for debate, but the guessing game is on.

Bloomberg Intelligence analysts put its market capitalization somewhere between $10 billion and $12 billion, below an internal valuation that was reportedly slashed multiple times last year. Bullish investors point to five consecutive quarters of profitability as evidence that it will tilt toward company expectations.

The calculations are complicated because it’s expected to be the first sizable initial public offering by a venture capital-backed technology firm in months, and marks a rare gig-economy company to come to the market with a stretch of profitability. Chief competitors such as Uber Technologies Inc. and DoorDash Inc. are losing money on an annual basis.

“They need to walk a thin line between being over ambitious in terms of valuation and satisfying initial shareholders,” said Josef Schuster, founder and chief executive officer of IPOX Schuster. “I’m in the $12 to $15 billion range with them probably selling 9% or 10% of the company, but they’ll need to leave some money on the table to set some demand for the stock.”

Whatever happens, the online grocery-delivery platform will be worth far less than the $39 billion valuation it nabbed in a March 2021 funding round, back when investors were focused on growth and the economy was juiced by low interest rates. That “hyper growth phase” when its sales were boosted by the pandemic is long gone, write Bloomberg Intelligence analysts Mandeep Singh and Damian Reimertz.

Rare Case

Using price-to-sales ratios for Uber, DoorDash, Lyft Inc. and Airbnb Inc. — seen as the best comparisons given their positioning in the so-called gig economy — Instacart would be worth around $10.3 billion based on 2022 revenue of $2.55 billion.

That’s lower than the $13 billion Bloomberg reported it slashed its internal valuation to in October after reducing it to $24 billion in March of last year. 

But Instacart has already drummed up some demand. The company said PepsiCo Inc. will buy $175 million in preferred convertible stock and cornerstone investors including Norges Bank and entities affiliated with TCV, Sequoia Capital, and D1 Capital Partners indicated an interest to buy up to $400 million. The pacts may firm up Instacart’s debut, but competition from the likes of Walmart Inc. Uber and DoorDash and will be top of mind.

Looking at a broader group compiled by Bloomberg Intelligence and their enterprise value compared to expected sales for the next year, the average is 2.3, though it ranges as high as Airbnb at 6.6.

When looking at expected blended forward price-to-earnings ratio across Uber, Lyft and Aribnb, Instacart would need to generate about $310 million of income to justify BI’s estimated $10 billion valuation. That number jumps to $406 million for the $13 billion it was worth last year, or $1.22 billion for it to get back to its peak private valuation of $39 billion.

Among the concerns investors must consider when evaluating Instacart: the total value of orders across its platform, called gross transaction volume, has stagnated with a modest 4% rise in the first half of the year compared to the same stretch in 2022. It also saw order growth become flat around 133 million over the same stretch.

“Without expansion into new categories, similar to rivals DoorDash and Uber, we believe Instacart will remain a niche player in online grocery delivery,” Singh and Reimertz wrote.

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