The long lull in the IPO market is finally over.

Shares of chipmaker Arm Holdings soared last week in their debut, and grocery maven Instacart (CART -3.89%) followed with a warm welcome this week as it went public.

The grocery delivery specialist surged out of the gate, opening up 40% from its $30 IPO price at $42 per share. After peaking with a 43% gain in the session, it steadily declined over but still finished the day up 12.3%, showing ample investor demand for the stock. Instacart closed its opening day at $33.70 per share, giving it a market cap of $11.2 billion.

While that valuation is well below the $39 billion it reached during a funding round in the middle of the pandemic when online sales boomed, the stock has the potential to get back there if the business performs well. 

Investing in Instacart is still an option for those bullish on in the massive online grocery market, and the stock looks reasonably priced as it's still growing rapidly with revenue up 39% last year to $2.6 billion. And it's profitable.

However, there's another way to gain exposure to the online grocery market if the Instacart IPO has caught your attention.

A shopper at a supermarket.

Image source: Getty Images.

A hidden winner

Instacart's successful debut signals an opportunity for its peers as well. The company named competitors like DoorDashUber Eats, and Shipt, which is now owned by Target (TGT 2.19%).

Of those three companies, Shipt is the closest peer to Instacart as it functions as a grocery delivery platform, while DoorDash and Uber Eats are typically used for ordering from restaurants. 

Shipt was acquired by Target in 2017 for $550 million and has long played second fiddle to Instacart in the grocery delivery space.

As a part of Target, Shipt helps the retail giant with its same-day fulfillment, but it also continues to operate as it traditionally has, serving as an ordering and delivery platform for grocery retailers like Kroger, Giant Eagle, Meijer, Publix, Costco, and others.

It's difficult to compare Shipt and Instacart now since Target doesn't report separate financial information for Shipt. However, Instacart's debut could convince Target to think more creatively about how to unlock the value in Shipt, whether it be through a spinoff or some other strategy.

Like Instacart, Shipt's top line also boomed during the pandemic as sales more than quadrupled in fiscal 2021, and one analyst estimated its valuation reached $15 billion at that time. Meanwhile, its pool of shoppers, the contractors who pick and deliver food, more than tripled to 300,000.

Shipt hasn't received many mentions in Target's recent earnings reports, but it shouldn't be overlooked in the valuation calculus. It has the potential to move the needle on Target's $55 billion market cap, especially if Instacart's success serves as a proxy for Shipt's own prospects.

A new revenue stream emerges

One of the biggest surprises from Instacart's prospectus was that the company brings in a significant percentage of its revenue from advertising. Last year, it generated $740 million in ad revenue, or 29% of the overall top line.

Instacart is the latest online marketplace to tap into the power of advertising as it has a desirable position at the bottom of the marketing funnel as customers come to its site knowing that they want to buy groceries.

Both Target and Shipt could also benefit from increased investment in their digital advertising capabilities as online retailers like Amazon and MercadoLibre have shown the potential of building out this part of their businesses.

Keep an eye on Instacart stock in the next few months. If its valuation moves significantly higher, Target could be a beneficiary as investors are likely to give Shipt a closer look too.

Target currently trades at a price-to-earnings valuation of just 16.5, a discount to the broad market. It looks even cheaper when you factor in its ownership of Shipt. Given that hidden potential, you may want to pick up some shares of Target if you're bullish on Instacart.