business news in context, analysis with attitude

by Kevin Coupe

Couple of interesting stories this morning that point to how Instacart has changed over the years.

First, from The Information:

"By far, the two biggest winners of Instacart’s long-awaited initial public offering next week will be the grocery company’s largest individual shareholder, co-founder and former CEO Apoorva Mehta, and its largest venture backer, Sequoia Capital. Mehta’s profit from the listing stands to be more than $780 million, while Sequoia could make more than $1 billion."

However, the story says, "More than two years ago, the relationship between Mehta and Sequoia’s former boss Michael Moritz soured. Their disputes, which also embroiled other investors and elicited dramatic internal debate about the company’s leadership, helped delay the realization of those riches - and potentially undercut them."

The Information writes that "one reason Mehta frustrated investors was his reluctance to go public. Moritz and other investors urged Mehta to take Instacart public as stock markets roared and the pandemic accelerated the startup’s grocery volume growth to 300% a year. Other pandemic darlings like Airbnb and DoorDash had already held IPOs, and Instacart’s private valuation hit $39 billion. Mehta, however, pushed back, five people with direct knowledge of the discussions said. He didn’t want to go public yet, even after the company had already drafted an IPO filing."

The story also notes that "the reduced valuation at which Instacart is going public in a tougher IPO market - about $9 billion - has pushed several firms’ Instacart investments underwater in whole or in part. Investors likely to be under water on some or all of their investments include hedge fund D1 Capital, venture capital firms General Catalyst and DST Global, and mutual funds Fidelity Investments and T. Rowe Price, according to an analysis by The Information. T. Rowe, for instance, is on track to lose about 59% on its roughly $200 million investment, an analysis of public mutual fund filings shows. Some investors close to Instacart, like Sequoia, Andreessen Horowitz, D1 and Valiant Capital, plan to buy more shares in the IPO, backing Instacart’s new guard."

Now, a lot of this is way beyond my pay grade, and of course, we'll never know what might have happened if Instacart had gone public several years ago.  It is entirely possible that the stock would've cratered as demand slowed post-pandemic.  It is fair to suggest that if Instacart's current valuation is appropriate, accurate and sustainable - and that the path the company has taken, especially under its new leadership, is better for the business and its customers.

There's also an interesting piece in the New York Times this morning that makes the point that one of the ways that Instacart is distinguishing itself is by embracing advertising as a revenue stream and profit center.

An excerpt:

"As Instacart prepares to go public next week, it is a markedly different company. Envisioned in 2012 as a service that matched people at home with contract workers who would shop for them and deliver groceries, it has increasingly focused on advertising and software products as its delivery business has slowed.

"Last month, Instacart revealed in an offering prospectus that the ads and software sales had allowed it to do what skeptics considered impossible — turn a profit. Other so-called gig economy companies that use contract workers to deliver goods via apps have typically failed to do so.

"Nearly a third of Instacart’s $2.5 billion in revenue last year came from its 'highly profitable' ads and software division, according to its prospectus. In the first half of this year, Instacart’s $406 million in revenue from ads and software helped propel it to $242 million in profit.

"Instacart shows that one way for a historically unprofitable gig business to get to the public markets is to diversify into more lucrative areas and move away from its gig-economy roots."

It is an Eye-Opener.  

By the way, I assume that Instacart's retail customers are getting a piece of the action - that they are seeing the financial benefits of ads that Instacart is selling to their customers.