Instacart’s mixed bag has valuation opportunities

Oddity Tech

28/08/2023 17:53

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Anita Ramaswamy
       NEW YORK, Aug 28 (Reuters Breakingviews) - After nixing
plans to go public last year, grocery-delivery platform
Maplebear, better known as Instacart, is poised to take the
plunge again. The company filed paperwork on Friday, following
recent public listings of restaurant chain Cava  CAVA.N  and
online makeup seller Oddity Tech  ODD.O , to list shares on the
Nasdaq. The company run by Fidji Simo is boasting some ills
typical of a late-stage venture firm. But in other ways,
Instacart has ripened nicely. If it doesn’t push valuation too
hard, a public listing could be seamless. 
    More than 7.7 million people place grocery orders on
Instacart’s app each month, according to the filing, from some
of the largest U.S. food retailers, such as Kroger  KR.N , Aldi,
and Costco Wholesale  COST.O . The 263 million orders it
fulfilled in 2022 were over 81% higher than before the pandemic,
and the habit-forming has been good for profitability. Instacart
booked net income in 2022, a rarity for a growth company hitting
the public market. 
    Maturity always comes at a price. As with videoconferencing,
growth in food delivery was supercharged during the pandemic.
While revenue per order grew in 2022, the number of orders
placed stayed flat from the year prior. That suggests fee hikes,
which aren’t sustainable, played a role. And the company may
have already enticed the customers most willing to come on the
platform. Indeed, it says customer acquisition costs have
started to rise, and this is expected to continue. 
    Still, two things could make up for challenges. First, under
Simo, who took the reins in 2021 from founder Apoorva Mehta,
Instacart has expanded into the advertising business, and in
some ways, it’s more resilient than Google parent Alphabet
 GOOGL.O , say, or Amazon.com  AMZN.O . Companies pay Instacart
for placement on a virtual grocery aisle, which makes sense even
in a weak economy. Small wonder the company made almost 30% of
its revenue last year from selling ads, up from almost nothing
in 2020. 
    Second, Instacart can be reasonable with valuation. The
business is like DoorDash  DASH.N , but profitable and growing
more quickly. On Domino's Pizza’s  DPZ.N  enterprise
value-to-forward sales multiple of roughly 4 times, a quarter
higher than DoorDash's, Instacart’s delivery business would be
worth around $12 billion, assuming growth in the next 12 months
is at the same rate as 2022. The advertising business is worth
another $5 billion on Alphabet’s multiple of 5 times sales. 
    That brings Instacart’s enterprise value to roughly $17
billion, less than half of what it was worth in 2021 but still
higher than the internal valuation it inked last year. As the
initial public offering market opens up, investors’ appetite
might be whetted enough for Instacart. 
    Follow @AnitaRamaswamy on X
    
    CONTEXT NEWS
    Grocery-delivery business Instacart filed paperwork to go
public on Aug. 25 under the formal name Maplebear. The company,
which did not share its target price range in the filing, grew
revenue by 39% in 2022 to $2.6 billion. It reported positive net
income for the first time in its history last year, bringing in
$428 million. 

 (Editing by Lauren Silva Laughlin and Sharon Lam)
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