An Instacart IPO (Initial Public Offering) could be on the way. The shopping service app is talking to bankers about an Initial Public Offering.
Meanwhile, it has gotten another $200 million in private funding which values it at $17.7 billion. The latest round brings total investment to $2 billion.
Instacart has been one of the pandemic’s big winners. It sends gig workers to stores on behalf of shoppers, then delivers the groceries to peoples’ doors. “Instacart has gone from a convenience to a lifeline for millions of people,” the company crowed in announcing the funding from Valiant Peregrine Fund and D1 Capital Partners.
The news leaves two key questions. Can you get in on this, and should you get in on this?
The Instacart Story
If you are an accredited investor on a site like EquityZen, which specializes in pre-IPO listings, you may be able to buy some Instacart now. You’ll need to prove a net worth over $1 million, or income over $300,000, and will have to hold the shares until after the IPO.
Instacart was founded in 2012 by a former Amazon (NASDAQ:AMZN) engineer, Apoova Mehta, and some friends. It now serves 500 retailers and 40,000 locations. During the pandemic it has hired 750,000 “shoppers,” gig workers who pick orders, stage them, or deliver them to customers. The company’s valuation has more than doubled in 2020.
Instacart has given stores like Publix, Sprouts and Bed, Bath & Beyond (NASDAQ:BBBY) the ability to compete not only with Amazon and Alphabet’s (NASDAQ:GOOGL) Google Express, but with chains that have stood up their own delivery services, like Walmart (NYSE:WMT), Kroger (NYSE:KR) and Target (NYSE:TGT). Walmart is currently the market leader.
In reporting on Instacart’s latest funding round Bloomberg estimated sales made through the site will exceed $35 billion this year. That puts it third behind Amazon and Walmart. Second Measure, which tracks credit card data, estimates the company’s volume rose 234%, year over year in August.
Even if growth slows, the company has other ways of making money. It’s working with packaged goods companies on advertising, and continuing to add delivery partners like 7-Eleven and RiteAid (NYSE:RAD).
Instacart charges $6-8 per delivery, depending on how fast you want it, and offers a $149 membership plan with free two-hour delivery on orders over $35. Instacart is also offering a deal with MasterCard (NYSE:MA), 14 months of membership when you buy 12. The company also launched a phone-based “senior” service for consumers over 60, although today’s 60 year-olds were 35 when the Web was spun in the mid-1990s.
The Instacart Risks
Will Instacart continue to grow after the pandemic?
The company’s valuation is now equal to that of AirBnB, but the latter’s post-pandemic growth trajectory may look better.
There are also labor risks. Instacart’s delivery people are gig workers. They lack the benefits of real employees. The company is fighting to maintain that advantage, pushing literature on those workers for California’s Proposition 22, which would maintain the fiction.
How many gig workers will be available after the labor market opens back up? How much will Instacart eventually have to pay workers to keep them loyal? What will Instacart’s pricing look like after that happens?
The Bottom Line
Investors looking to profit need to look beyond the pandemic. Instacart, like other gig companies such as Uber (NASDAQ:UBER) and Lyft (NASDAQ:LYFT), is going to have labor problems. The gig economy creates a permanent underclass, and November’s election looks likely to go against that kind of two-tier economy.
While Instacart promotes “smaller” businesses like Rite Aid, it’s not supporting small business. That could be a huge opportunity when the economy comes back. We will know much more when the S-1 emerges, and after the fire of the pandemic ebbs.
On the date of publication, Dana Blankenhorn held a long position in AMZN.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn.