Early public offerings again, warts and all.
After a two-year dearth of new listings, shares of grocery delivery company Instacart closed the first day of trading Tuesday at $33.70, up 12 percent from their initial public offering price of $30. Performance investors are eager to take a chance on young tech companies — but only at the right price.
Instacart’s market capitalization, including all outstanding shares, totals $11.1 billion. But even with the early share price gains, the company’s valuation was far from the $39 billion investors had earmarked for the private market in 2021. It was a painful loss, sending a harsh reality to investors who bought at that peak. Check out other startups that have raised money at inflated valuations.
Fiji Simo, chief executive of Instacart, said the rating reflects changes in public stock prices, although the company has improved its performance over the past two years, including turning a profit.
“Markets always ebb and flow,” he said, adding that he focused more on what he could control.
The technology and financial sectors eagerly awaited the new IPOs. Inflation and rising interest rates, along with a broader downturn marked by layoffs and other cutbacks, have deepened investor skepticism about tech companies, leading to a virtual freeze on IPOs over the past two years.
Just 144 companies went public in the U.S. during that time, up from 397 IPOs that raised $142 billion in 2021, up $22.5 billion, according to Renaissance Capital, which tracks new listings.
Things started to change last week when SoftBank-owned chip designer Arm went public. Its stock was priced above its proposed range and rose 25 percent on its first day of trading. Many hoped that Arm’s IPO would encourage more investors to pour money back into the technology.
Many companies are eager to tap the public market. According to EquityZen, a marketplace for private equity, there are more than 1,400 private startups worth more than $4.9 trillion that could be potential candidates. They include social media company Reddit, SeatGeek and car rental company Touro.
Clavio, a marketing software start-up, is also set to go public this week. Investors valued the company at $9.5 billion when it was privately held.
Investors are often skeptical that the most valuable tech companies of the past generation — dubbed “unicorns” for their rare billion-dollar valuations — can turn a profit.
Both Instacart and Clavio have exceeded that expectation. Instacart posted a profit of $428 million on revenue of $2.5 billion last year as it expanded beyond its core grocery delivery business into ads and software services. Clavio lost money last year, but made a profit of $15 million on revenue of $320 million in the first half of this year.
Taken together, they show that a company is exceeding the bar for what investors expect in going public. “Profitability will be key,” said Kyle Stanford, an analyst at Pitchbook, which tracks start-ups.
Public market investors have raised questions about Instacart’s future growth, but Ms. Simo said they have placed a huge premium on its profitability.
“The turnaround we’ve made in the last couple of years is very significant,” he said.
Instagram’s path has not been easy. Founded in 2012, the service, which connects customers with contract workers who shop and deliver their groceries, has faced scrutiny — along with other gig companies like Uber and DoorDash — over whether its contractors should be considered employees and whether they are fair. compensation.
Customers flocked to Instacart’s app in the early days of the pandemic lockdowns, but its growth slowed in mid-2021 as people returned to grocery stores, prompting questions about the business’s long-term sustainability.
Apoorva Mehta, Instacart’s co-founder and chief executive, stepped down that summer, and Ms Simo, a former Meta executive, took over. Under Ms. Simo, Instagram has focused more on its advertising and grocery software businesses, which have helped the company make money.
When the company’s shares started trading, Mr. Mehta reflected on the company’s ups and downs. “In the first few years of the company, it wasn’t clear to the industry that Instacart was here to stay,” he said. “I don’t think that’s a question anymore.”
As part of its IPO, Instacart sold shares to investors before its formal “road show” pitches. One of them, PepsiCo, bought $175 million worth of stock as one of its advertising clients. That move “sent a strong signal” to the market, Ms Simo said.
Investment firms Sequoia Capital and D1 Capital are among Instacart’s largest outside shareholders, with Sequoia owning 19 percent and D1 Capital 14 percent. Mr. Mehta holds an 11 percent stake and is now worth approximately $976 million. “It’s the billion dollar question,” he said of his plans for windfall.
Meredith Kobit Levien, chief executive of The New York Times, sits on Instacart’s board.
Instacart celebrated its listing by ringing the NASDAQ opening bell with more than 1,000 employees and “lots of food” at its San Francisco office. Mrs Simo said.