Instacart filed paperwork to go public earlier this year, and while there was no timeline for it to happen, The Wall Street Journal recently said the third-party delivery app was looking for its initial public offering to occur before the end of the year.
While there are headwinds to face in going public, Instacart was reportedly profitable in the second quarter on a GAAP basis, something most third-party delivery stocks have found difficult to do on a regular basis. Yet its peers have not lived up to their pre-public debut hype, and there are doubts about Instacart's own valuation.
Although Instacart was once the market leader in grocery delivery by far, let's see whether it can still deliver the goods for investors if it goes public, or if you should steer clear of a potential car wreck.
Market devaluation
This is a difficult market to go public in. Data from FactSet says there was $317 billion raised by 1,073 companies IPOing in the first half of 2021, but only 92 companies have IPO'd over the first six months this year, raising just under $9 billion.
Instacart itself is having difficulty coming up with a valuation that could be satisfactory to the market, with Bloomberg reporting the delivery service slashed its own estimates this past May from $39 billion to $24 billion -- a 38% drop, but not enough to please its investors.
Capital Group went even further and cut its valuation of the delivery app to just $14.7 billion, or $45.84 per share, down from $119.96 per share in March. Fidelity Investments cut its valuation to $48.43 per share at the end of May, a 25% devaluation from its $64.85 per share price applied just a month earlier.
T. Rowe Price Group, another investor, still has a $96 per share valuation that it set in March. These investor groups bought shares in Instacart through private placements over the past few years.
Slowing growth
Instacart isn't alone in getting thrashed by the market. Uber Technologies (UBER 3.08%) is down 26% so far in 2022, while DoorDash (DASH +2.01%) has seen its stock cut in half. And JustEatTakeaway.com (TKAY.F +0.00%), which owns Grubhub, has lost nearly three-quarters of its value this year.
It's because grocery delivery growth is slowing. Market researchers at Brick Meets Click e-grocery dropped about 13% from the first tto second quarter this year.
While inflation, higher energy costs, and rising interest rates are taking a toll on consumers, delivery actually represents a somewhat larger percentage of the total sales because retailers are providing more ways to receive their orders. It's a problem for services like Instacart, as the field is a crowded one.
That helps explain why its growth has slowed after the boom of the early pandemic era. According to Bloomberg's Second Measure, Instacart's year-over-year sales growth has steadily declined every single quarter since the first quarter of 2021 as average sales per customer have fallen, even though they remain above pre-pandemic levels.
No room to move
It's hard to recommend the Instacart IPO. The IPO market is not favorable right now, so there will be a lot of money left on the table, and because even its internal valuations are so elusive, it's possible investors will be burned right out of the gate.
Because grocery delivery growth is so anemic, Instacart (and its rivals) have had to resort to branching out into other areas, such as launching Instacart Platform to give retailers a suite of tools and services. It also delved deeper into advertising, allowing other consumer product brands to market their products, but at a time when advertisers are reining in their spending.
Instacart has also launched a line of clothing and accessories, as if someone would want to be a walking billboard for a food delivery app.
While anything can change by the time Instacart finally lists its shares, an IPO for the food delivery stock right now looks like one that investors should avoid at all costs.
