Founded in 2012 by entrepreneur and former Amazon employee Apoorva Mehta, Instacart is a US-based grocery delivery and pick-up company.
The company started via an app which enabled customers to order from retailers. Using Mehta’s network of Silicon Valley contacts, it was initially funded with help from the American start-up accelerator company “Y-combinator” (known for getting AirBNB NASDAQ:ABNB, Coinbase NASDAQ:COIN, and DoorDash NYSE:DASH off the ground), through which it raised $120,000.
The company then grew by positioning itself as a speedier grocery delivery choice than rivals who also offered same-day deliveries.
The first major funding rounds of $2.3mln and $8.5mln followed, helping Instacart develop a presence in 20 major cities within two years of start-up. This also led to the signing of deals with giants such as Whole Foods and PepsiCo.
Instacart’s S-1 (an SEC filing used by companies planning on going public) revealed that as of 2023, they are the technology partner for more than 1400 retailers across 85% of the US grocery market – including big brands such as Kroger, Costco and Albertsons.
What do we know about the Instacart IPO?
The Instacart IPO is now expected in September 2023. The company filed its S-1 with the Securities and Exchange Commission (SEC) on Friday 25 August, marking the first clear step toward the IPO.
The filing also revealed that PepsiCo NASDAQ:PEP pledged to invest $175mln. Norges Bank Investment Management and venture capital firms TCV, Sequoia Capital, D1 Capital Partners and Valiant Capital Management have also agreed to participate as cornerstone investors.
How does Instacart make money?
Instacart makes money in two ways, the first is through delivery fees charged on each of its grocery and pick-up orders. Fees may increase for customers who want quicker delivery or busier timeslots and the second way sees Instacart also providing space for brands to advertise on the platform.
Additionally, there is also a subscription offering for customers giving you the option of subscribing to an annual membership of $99 or a monthly service of $9.99. This gives the customers a range of benefits including waived delivery fees in certain conditions, reduced service fees, and a more accommodating price structure during busy hours.
In its S-1 filing, Instacart revealed it had processed 263mln orders totalling $29.4bln in gross transaction value (GTV) in 2022. This marks an annual increase of 80% between 2018 and 2022.
Instacart also makes money through advertising revenue, where brands can advertise products to the monthly active users.
Ad revenue hit $740mln in 2022, which was an increase of 29% year on year. The revenue stream makes up 29% of the company’s total revenue.
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What is Instacart’s business strategy?
Instacart’s strategy has always been built around facilitating the online grocery ordering process to enable consumers to benefit from doorstep delivery of their shopping, as well as helping smaller grocers gain exposure to online ordering.
In 2016, a partnership with Whole Foods gave Instacart exclusive delivery of the grocer’s products. However, this didn’t last long as Amazon’s purchase of Whole Foods nullified the Instacart-Whole Foods relationship. But as supermarkets became concerned that Amazon would undercut their prices, many decided to partner with Instacart instead. Whilst initially, but cutting links with Whole Foods was seen to be a negative, 200 retail partners soon increased to 350.
The coronavirus outbreak then threw up its own challenges,(in a positive way) as the company saw a 500% jump in order volumes. Following the rapid increase of business seen during that period, Instacart has sought to expand into new geographical markets and has launched new products to tempt consumers into the world of e-commerce.
The care team has grown, the number of consumer-packaged goods partners increased, and the range of products bolstered, now catering for alcohol and prescription delivery as well as beauty and general merchandise.
Is Instacart profitable?
Yes, according to the figures posted in their S-1 filing ahead of the IPO, the company delivered a net income of $428mln in 2022 – compared to a loss of $74mln in 2021. This came off the back of a 39% increase in revenue for the year, generating $2.55bln.
How much is Instacart worth?
Valuations have varied considerably over recent years. According to its internal valuation in December 2022 the firm is worth around $10bln, that’s down from $24bln in May 2022, and way below the $39bln valuation seen during the pandemic.
The most recent valuation has seen the company exercise some sensibility, as they have suggested a price range of between $26-$28 on the share price. Indicating an overall market value of between $8.6bn – $9.3bn. With the firm steering well clear of the lofty valuations due to the tech market struggles, it means investors may have the option of picking the shares up at a favourable price.
This article is been compiled with the help of Atlantic Capital Markets, a multi-Asset broker offering clients the ability to buy the shares either in a traditional fashion with standard shares or taking advantage of leverage and purchase via a CFD. For more information, please visit Atlantic Capital Markets.
