Instacart stock jumps 40% in the first day of trading, giving the grocery delivery app a $14B valuation

Instacart delivered its stock market debut for investors.

Shares of the grocery delivery app soared as much as 43 percent when they began trading on the Nasdaq under the ticker CART on Tuesday, giving the company a valuation of more than $14 billion.

At Instacart’s San Francisco headquarters, CEO Fidji Simo and other executives celebrated the IPO by ringing a bell in the shape of the company’s carrot logo. About 1,000 employees attended, the company said.

The public stock offering is a long-awaited move for Instacart, which was founded in 2012, and was also a sign that the long drought in the IPO market is coming to an end.

The company privately filed for an initial public offering in May 2022, but postponed those plans last fall as markets roiled over fears of a recession.

The San Francisco-based company’s IPO was priced at the high end of the $28 to $30 price range, rising to $42.95 before closing the session at $33.70.

There were only 71 IPOs in the US last year, the lowest number since 2009, according to Renaissance Capital.

However, a rebounding market is seeing more IPO activity this year as the Federal Reserve appears ready to pause its rate hikes and fears of a recession subside.

Last week, shares of British chipmaker Arm Holdings rose almost 25 percent in their stock market debut on the Nasdaq, the largest IPO in almost two years.

Joe Endoso, president of Linqto, an investment platform, said a successful listing by Instacart could prompt others, especially tech companies, to consider IPOs in the coming months.

“Global financial markets are buzzing with optimism about a possible revival of the IPO market,” he said.

The company, officially known as MapleBear Inc, raised a total of $660 million in proceeds from the IPO, with $237 million of that going to investors who sold their shares in the offering.

The San Francisco-based company’s IPO was at the top end of the $28 to $30 price range, rising to $42.95 before closing the session at $33.70, a gain of 12.3 percent.

The $30 IPO price gave Instacart a market value of about $10 billion at opening, significantly lower than the $39 billion valuation placed on it after a 2021 fundraising round.

Several startups have seen their valuations shrink since 2022 as inflation, geopolitical tensions and the Fed’s rapid rate hikes reduced appetite for riskier investments.

Instacart provides delivery and pickup from 85 percent of U.S. grocers, or more than 80,000 stores, using a network of 600,000 freelance shoppers.

Shares of Instacart soared as much as 43 percent when they began trading on the Nasdaq under the ticker CART on Tuesday

It also provides in-store technology, such as smart carts and electronic shelf tags, and sells online advertising to food companies and retailers.

It says it has 7.7 million active customers who spend about $317 per month on the platform.

A letter to investors earlier this month said grocery delivery has huge potential. The US supermarket market is $1.1. trillion industry, but only 12 percent of sales are realized online. She expects this to at least double over time.

“We demonstrated our ability to help our retail partners achieve strong growth and remain competitive in a complex and increasingly digital industry,” wrote Simo, a former Facebook executive who became CEO of Instacart in 2021. Simo grew up in France and is the daughter and granddaughter of fishermen.

The market for grocery delivery services boomed early in the pandemic. Growth has stabilized, but the market is still about four times larger than in 2019, said David Bishop, partner and principal researcher at Brick Meets Click, a consultancy specializing in online grocery shopping.

That market is also becoming increasingly competitive. Instacart is facing increasing pressure from companies like Uber Eats and DoorDash, both of which started delivering groceries in 2020.

As of August, Instacart had 70 percent of the U.S. grocery delivery market, according to YipitData, a market research firm.

DoorDash owns about 10 percent. This week, DoorDash added more U.S. grocers to its lineup, including Cub, Lowe’s Markets and Eataly.

Instacart also faces pressure from grocers themselves, who sometimes push back against the higher prices Instacart charges or the pricing rules it imposes on grocers who use the software to run their own websites.

Instacart orders can cost consumers 15 to 20 percent more than shopping in stores due to delivery fees and product surcharges, Bishop said.

Some grocers have ended partnerships with Instacart or built their own delivery capacity.

HEB, a Texas-based chain, is encouraging customers to shop on its own site, not Instacart’s, if they want cheaper delivery, Bishop said. Other major grocers, such as Walmart and Target, also do their own deliveries.

Instacart shopper Vanessa Bain shops for a customer at the Safeway in Menlo Park, California

Bishop said Instacart needs to keep its customers coming back because it depends on them to sell ads.

“It’s becoming increasingly difficult to see how Instacart can do that as its competitors expand into grocery and grocers increasingly look at how to improve the profitability of online sales,” he said.

Food price inflation has also dampened demand for delivery over the past two years in favor of curbside pickup, which is cheaper.

U.S. grocery pickup orders rose 3 percent to $10.5 billion in the April-June period this year, compared to the same period a year ago, Bishop said. Grocery delivery orders grew just 1 percent to $7.8 billion.

Instacart’s orders also slowed in the first half of this year after growing 18 percent from 2021 to 2022, the company said in its IPO filing.

Still, Instacart’s revenue rose 31 percent to $1.47 million in the first six months of this year, largely due to increases in advertising fees it collects from retailers and food companies.

The company reported net income of $242 million in the first six months of this year.

Among those optimistic about Instacart’s prospects is PepsiCo, which agreed to buy $175 million of convertible preferred stock in a private placement.