Update 1: On July 28, 2022 the Wall Street Journal reported that Instacart has responded to SEC comments on its filing, and intends to proceed with an IPO by the end of the year. The report also claimed that the Company was profitable in Q2 2022, holds over $1 billion in cash and equivalents, and has added 10 new states to its EBT and SNAP coverage.
Update 2: On April 1, 2022 Forbes reported that Instacart has proactively dropped its own valuation to $24 billion, a drop of almost 40% from the $39 billion valuation established during its last funding round.
On July 18, 2022 Instacart Investor Capital Group cut its valuation of the Company to $14.7 billion. This represents a significant potential loss for existing shareholders and illustrates the risks of pre-IPO investing.
Update 3: On May 11, 2022, Instacart announced that it has filed a draft registration statement with the SEC, opening the door for an IPO. The draft is not yet public, so we have no new details, and it does not commit Instacart to an IPO date or to carry out an IPO.
Instacart has also announced new services: The Instacart Platform, a software suite designed to help grocers enrich both online and in-store customer experiences, and a storefront and fulfillment system designed to help grocers move to an online ordering and delivery model.
Instacart was one of the household names of the COVID-19 pandemic. The delivery service was in the right place at the right time, registering 229.7% growth in 2020 as home-bound shoppers snapped up delivery services. That success has led to anticipation of an IPO and to questions about how to buy Instacart stock.
Instacart is no longer a new player: it’s one of the best-known delivery services in the country. But can we expect a public listing any time soon, and do the Company’s fundamentals justify investment even as the pandemic that pushed Instacart to prominence fades?
Let’s take a closer look.
What is Instacart?
Instacart is a remote shopping service. Customers select items from their preferred stores. Personal shoppers select the items and remain in contact with the buyers for updates and potential changes. Instacart provides same-day delivery at a time the customer selects.
Instacart was originally developed for grocery shopping but has expanded to include additional categories, including these.
- prescriptions and over-the-counter medications
- office supplies
- health, beauty and wellness
- home decor
- sports equipment
Instacart charges a 5% service fee with a minimum service fee of $2, along with a delivery fee of $3.99 for orders of $35 or more and $7.99 for smaller orders. A membership service called Instacart Express charges $99 a year and waives the delivery fee for orders over $35. Customers are also encouraged to leave tips for their personal shoppers.
Instacart has also introduced advertising on its website and app, producing an additional revenue stream. Instacart has detailed information on customer preferences and shopping histories, making it a highly sought-after ad venue.
Ad revenues hit $300 million in 2020 and the Company expects them to hit $1 billion in 2022. The high-margin ad business is expected to balance out the higher volume but lower margin delivery business.
💡 Instacart was founded in 2012 by former Amazon supply chain engineer Apoorva Mehta, a Canadian of Indian descent.
When Will Instacart Hold Its IPO?
Ever since Instacart rose to prominence an IPO has been expected. Many investors and analysts who followed the Company were expecting a filing in the 4th quarter of 2021, but Instacart announced in November 2021 that the Company was postponing IPO plans “until next year” to focus on expanding its service offerings.
That “until next year” suggests that the IPO is planned sometime in 2022, but there’s currently no projected IPO date and no S-1 form has been filed with the SEC.
The IPO schedule will probably be affected by overall market conditions. Markets are currently weak and “pandemic stocks” that gained prominence offering services that were boosted by COVID-19 are not performing well, so Instacart may choose to wait for more suitable conditions.
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What Do We Know About Instacart’s Fundamentals?
Until a formal S-1 is filed and publicly available we will have no fully verified information on Instacart’s finances. The Company has released some information on revenues and analysts have offered some projections.
We can see that revenues surged in 2020, driven by the surge of online purchasing during the pandemic. Growth is not expected to go negative after the pandemic ends but is projected to continue at much more moderate levels. Insider Intelligence expects digital grocery sales to rise 12.3% in 2021, on top of a 63.9% surge in 2020. Third-party delivery sales are expected to reach 28.8% of total grocery sales in 2021.
Instacart revenues have increased consistently.
Source: Business of Apps
Instacart does not publish profitability figures, but some analysts state that the Company reached profitability in 2020, with estimated profits of $50 million.
Instacart states that its services are currently available in over 65,000 stores in 5,500 American cities, representing over 700 national, regional, and local retailers.
Instacart has raised $2.9 billion in venture capital funding. The most recent round, in March 2021, raised $265 million and left the Company valued at $39 billion, making it the 8th largest US “unicorn”.
Instacart Funding History
Venture capital firms with investments in Instacart include T. Rowe Price, Andreessen Horowitz, Fidelity Management and Research, Sequoia Capital, and Manhattan Venture Partners.
How Can I Buy Instacart Stock?
Instacart stock does not trade on any public exchange. It is a privately held company. You will not be able to buy shares in a conventional broker transaction until after Instacart holds an IPO.
It may be possible to acquire Instacart stock from pre-IPO marketplaces that acquire shares from early investors or from employees who have received stock options as part of their compensation.
Pre-IPO Secondary Markets
These pre-IPO marketplaces make privately held shares available to selected investors. There is no guarantee that Instacart stock or shares in any other privately held company will be available at any given time. These marketplaces may have investor qualifications and other requirements.
- Forge Global is now the world’s largest private share marketplace, since its merger with Sharespost. There’s a $100,000 minimum investment, and the minimum may be higher for some shares. There may be a qualification process.
- EquityZen acquires pre-IPO shares early investors and employees who have received stock as part of their compensation. EquityZen states that they cooperate with the companies to assure recognized transactions. There’s a $10,000 minimum investment, with some companies having higher minimums. You will need to meet the revised SEC “accredited investor” criteria.Forge Global merged with Sharespost in 2020. The combined company is now the world’s largest marketplace for private company shares. Investors must make a minimum purchase of $100,000 worth of shares. The minumum may be higher for some companies. Investors may need to meet qualification requirements.
- EquityZen acquires shares from early investors or from employees who have received stock as part of their compensation. They work with companies to assure that transations will be recognized, and sell the shares to investors who meet the revised SEC “accredited investor” criteria. There’s a minimum investment of $10,000, which may be higher for some companies.
- Nasdaq Private Market provides access to private-company shares for investors who meet the SEC’s accredited investor criteria.
- EquityBee is a marketplace that allows investors to fund an employee’s stock options in return for a share of the proceeds.
⚠️ There are serious risks that come with investing in any pre-IPO shares. An IPO may not take place when inspected. It may not take place at all. That would leave you with shares that could be difficult or impossible to sell at any price. Learn more about pre-IPO investing before considering a purchase.
📚 Review this guide to how to buy pre-IPO stock before you start!
Invest in the IPO
If pre-IPO shares are not available or if the minimum purchase or qualification requirements are prohibitive, you can consider investing in the IPO itself.
Most IPO underwriters allocate set numbers of shares to specific brokers for their clients. You’ll need an account with a broker that has a share allocation. You will tell your broker how many shares you want and they will tell you how many you can get. There is no assurance that you will be able to get a share allocation.
Many brokers have requirements for IPO participation, which you will have to meet.
- Charles Schwab requires a history of at least 36 trades and an account balance of $100,000 or above for IPO participation.
- E*Trade has no minimum account balance or trading history requirements for IPO participation. An eligibility questionnaire may be required by the underwriters of the IPO.
- Fidelity allows IPO participation for clients who meet a minimum household asset requirement or are in their Private and Premium client groups.
- TD Ameritrade offers participation in IPOs if they are part of the selling group. You will need a minimum account balance of $250,000 or 30 trades in the last calendar year to qualify for an IPO share allocation.
IPO shares may come with a lockup period, often 60 or 90 days. You will not be able to sell your shares until the lockup period expires.
IPO shares will cost more than pre-IPO shares. That cuts your potential gains, but you’ll also have less risk. If you buy at an IPO you know there will be a market for your shares when the lockup period expires, even if there’s no assurance of profit.
Invest After the IPO
The easiest and safest way to buy Instacart stock is to wait until after the IPO. You can use your usual broker and there won’t be any special requirements or lockup period. You’ll be able to sell whenever you want.
If you buy after the IPO you won’t get in as cheaply as you would with an IPO or pre-IPO purchase. On the other hand, you’ll be able to buy as few or as many shares as you want, and you’ll have a chance to observe the stock’s market reception before you pull the trigger. That’s especially important if the company makes its debut during a generally weak market.
Getting in before the IPO is not a guarantee of quick profit. Not all stocks spike in value after an IPO. Some, even shares in quality companies, may sputter or even drop immediately after the IPO.
If you buy after the IPO you won’t get the rock-bottom prices that you would get from a pre-IPO purchase or the somewhat higher price you’d pay for participating in the IPO. On the other hand, you will be able to gauge the market’s reception to the IPO before you buy. Not all IPOs soar out of the blocks. Some of them crash.
For long-term investors, the price difference between a pre-IPO and a post-IPO purchase may not be large enough to justify the greater complexity and risk of buying early. If you’re in that bracket, a post-IPO purchase is probably the best way to go.
Are There Any Concerns About Instacart?
Every investment has risks, and early-stage companies often have substantial risks. Here are some things to consider before investing in Instacart stock.
- Competition is growing. Instacart has the advantage of being an early player, but there are a host of upcoming competitors, including major players like Amazon Fresh, Door Dash, and Uber. There are also ambitious startups like Jokr, Gopuff, and Gorillas, and even Instacart partners like Kroger and Walmart are building stronger delivery capacity. Instacart will have to hustle to stay ahead.
- The pandemic boost will fade. Instacart’s business and its profile with investros received a huge boost from the COVID-19 pandemic. Pandemic stocks (think Zoom, Shopify, and Netflix) have seen severe drops in value as the pandemic momentum fades, and the same loss of momentum could affect Instacart.
- Valuation risk. Instacart is currently valued at more than Kroger and Albertsons combined. That valuation is based on enthusiasm from venture capitalists, but investors might not share their enthusiasm.
- Labor relations and legal risks. Many of Instacart’s personal shoppers are classified as independent contractors, a practice which has attracted regulatory scrutiny in several states. Instacart is also facing pressure from employees seeking to unionize in several locations. These trends could substantially increase costs and decrease profits.
These may not be the only risks, and there is no certainty that these risks will significantly obstruct the company’s growth, profitability, or stock price. They are still elements that potential investors should keep in mind.
An investment in Instacart stock – like any other investment – carries real risks, and you’ll have to weigh those risks against prospective rewards to determine whether Instacart shares are the best use of your money. It’s always worth consulting a qualified investment advisor!
Instacart is a remote shopping service that allows consumers to shop from home, with the purchasing done by personal shoppers who remain in contact with the buyer throughout the process. The Company also generates revenue from targeted advertising, using its detailed records of buying patterns to anticipate customer desires.
Instacart revenues spiked almost 230% in 2020, driven by pandemic restrictions. Revenues are projected to keep growing at 12% to 16% per year over the next 3 years. High-margin ad revenues are expected to reach $1 billion in 2022.
Instacart is a private company. Shares do not trade on any public exchange. Shares may be available through private equity marketplaces like Forge Global and EquityZen, or your broker may be able to allocate IPO stock when an IPO is scheduled. There may be requirements and minimum purchases for pre-IPO or IPO purchases.
Instacart shares, like all investments, carry risks. The Company’s growth is heavily associated with pandemic restrictions and both growth and its public profile may be reduced as these restrictions are lifted. Instacart operates in a highly competitive marketplace with narrow margins. Labor relations have been an issue and investors may consider the target valuation unrealistic.