Instacart IPO: Bargain tech stock or pricey top-shelf share?

San Francisco-based Instacart followed in the footsteps of British chipmaker Arm, and made its shares available on the higher end of the targeted price range at $30 yesterday.

The grocery delivery company took advantage of the buzz around initial public offerings (IPOs), and floated its shares on the Nasdaq stock exchange under the ticker symbol “CART”.

This values the company at $8.3 billion (about £6.7 billion) or $10.2 billion (around £8.2 billion) on a fully diluted basis. Fully diluted means the total outstanding shares if all sources of conversions take place. For example, current Instacart employees exercising stock options.

Was the Instacart IPO successful?

It was a positive short-term result for Instacart, considering the initial price range for the shares was $26 to $28. This was lifted to $30 at the last minute due to the bullish interest around Arm (ARM) shares last week.

Selling 22 million shares for $30 each means that Instacart raised $660 million – far more than the $616 million projected just a week ago.

However, it’s worth putting this in perspective. In 2021, Instacart raised $225 million in a round of fundraising from existing institutional investors, which gave the grocery delivery firm a lofty valuation of $39 billion (roughly £31.5 billion).

How the Instacart IPO compares

Although there are plenty of upbeat takeaways from this latest IPO, market sentiment is still far from the positivity of just a couple of years ago.

Comparing Instacart to a similar business in the UK that went public in 2021, there are some stark differences in how the companies are valued.

Deliveroo (ROO) listed its shares on the London Stock Exchange (LSE) in 2021 with an initial valuation of $10.46 billion (about £7.6 billion at the time).

In 2021, Deliveroo’s revenue reached £1.74 billion, and net income was a negative £330.5 million. Whereas in 2022, Instacart generated revenue of $2.5 billion (just over £2 billion) and a positive net income of $428 billion – yet they hit the market with a similar valuation.

Since 2021, Deliveroo’s valuation has dropped and is now just over £2 billion. So plenty of investors will wonder if Instacart will have a similar fate, or if the shares are being priced fairly with room to grow.

Initial reaction to the Instacart IPO

It’s still too early to tell how the market will value Instacart shares.

However, during the first few hours of trading on the Nasdaq, the shares were up by 30%, breaching $40 before coming back down and finishing up around $33 at market close.

It will likely be a volatile few weeks and months for buying Instacart (CART) shares. It will probably be a year or so before we get a realistic value as the market decides a fair price.

Even though the value is much lower than in 2021, this could be a rare opportunity to invest in Instacart at a decent price. But if it’s anything like Deliveroo, long-term investors may end up disappointed.