Instacart’s mixed bag has valuation opportunities

Instacart employee Eric Cohn, 34, navigates a Safeway grocery store while preparing a delivery order while wearing a respirator mask to help protect himself and slow the spread of the coronavirus disease (COVID-19) in Tucson, Arizona, U.S., April 4, 2020. Picture taken April 4, 2020. REUTERS/Cheney Orr Acquire Licensing Rights

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.

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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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