2023-09-11 13:55:40 ET
Summary
- Instacart has filed for an IPO to raise $594 million, offering grocery delivery services in the U.S. and Canada.
- Maplebear Inc. has shown impressive revenue growth and profitability, with high free cash flow and strong investor interest.
- The IPO appears reasonably priced, given the firm's growth and free cash flow generation, so my outlook is a Buy at around $27.00 per share.
A Quick Take On Instacart
Maplebear Inc. ( CART ), known as Instacart , has filed to raise $594 million in an IPO of its common stock, according to an SEC S-1/A registration statement .
The firm provides grocery delivery services in the U.S. and Canada.
I previously wrote about Instacart’s initial filing here .
CART expanded rapidly through the pandemic period, but more recently, its order volume growth has declined, though revenue has continued to grow impressively.
Given the IPO’s reasonable valuation assumption, the firm’s revenue growth prospects, profitability, high free cash flow and a very strong existing and new institutional and strategic investor interest in the IPO, my opinion is a Buy at around $27.00 per share.
Instacart Overview
San Francisco, California-based Instacart delivers online grocery orders from the store to consumers in the United States and Canada.
Management is headed by president and CEO Fidji Simo, who has been with the firm since 2021 and was previously Head of the Facebook App at Meta and as Strategy Manager at eBay.
The company’s primary offerings include the following:
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Product discovery
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Merchandising
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Personalization
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Multiple payment models
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Range of fulfillment options
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AI-powered smart carts.
As of June 30, 2023, Instacart has booked fair market value investment of $3.75 billion from investors, including Sequoia Capital and D1 Capital Partners.
Instacart Customer Acquisition
The firm counts more than 1,400 grocery stores, chains and independent grocers throughout the United States and Canada.
CART primarily interfaces with users through its mobile app to aid their product discovery and its system integrates with grocer IT systems to automatically process orders.
Sales and Marketing expenses as a percentage of total revenue have moved higher as revenues have increased, as the figures below indicate:
Sales and Marketing | Expenses vs. Revenue |
Period | Percentage |
Six Mos. Ended June 30, 2023 | 22.2% |
2022 | 25.9% |
2021 | 21.5% |
(Source - SEC.)
The Sales and Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing expense, remained stable at 1.1x in the most recent reporting period, as shown in the table below:
Sales and Marketing | Efficiency Rate |
Period | Multiple |
Six Mos. Ended June 30, 2023 | 1.1 |
2022 | 1.1 |
(Source - SEC.)
Instacart’s Market & Competition
According to a 2022 market research report by Grand View Research, the global market for online grocery purchases was an estimated $286 billion in 2021 and is forecasted to reach $2.18 trillion by 2030.
This represents a forecast CAGR of a very substantial 25.3% from 2022 to 2030.
The main drivers for this expected growth are consumers adapting their purchasing behaviors to online environments, better fulfillment capabilities and improved last-mile delivery services.
Also, below is a pie chart showing the global online grocery market by product type in 2021:
Global Online Grocery Market (Grand View Research)
Major competitive or other industry participants include the following:
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Veeve
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Criteo
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Quotient
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Amazon
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Target
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Walmart
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Uber
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Blue Apron
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Misfits Market
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Fresh Direct
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Getir
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Gopuff
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DashMart
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Others.
Instacart Financial Performance
The company’s recent financial results can be summarized as follows:
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Increasing topline revenue
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Growing gross profit and gross margin
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Much higher operating profit and cash flow from operations.
Below are relevant financial results derived from the firm’s registration statement:
Total Revenue | ||
Period | Total Revenue | % Variance vs. Prior |
Six Mos. Ended June 30, 2023 | $ 1,475,000,000 | 31.0% |
2022 | $ 2,551,000,000 | 39.1% |
2021 | $ 1,834,000,000 | |
Gross Profit (Loss) | ||
Period | Gross Profit (Loss) | % Variance vs. Prior |
Six Mos. Ended June 30, 2023 | $ 1,109,000,000 | 44.2% |
2022 | $ 1,831,000,000 | 49.3% |
2021 | $ 1,226,000,000 | |
Gross Margin | ||
Period | Gross Margin | % Variance vs. Prior |
Six Mos. Ended June 30, 2023 | 75.19% | 6.9% |
2022 | 71.78% | 7.4% |
2021 | 66.85% | |
Operating Profit (Loss) | ||
Period | Operating Profit (Loss) | Operating Margin |
Six Mos. Ended June 30, 2023 | $ 269,000,000 | 18.2% |
2022 | $ 62,000,000 | 2.4% |
2021 | $ (86,000,000) | -4.7% |
Net Income (Loss) | ||
Period | Net Income (Loss) | Net Margin |
Six Mos. Ended June 30, 2023 | $ 27,000,000 | 1.8% |
2022 | $ 97,000,000 | 3.8% |
2021 | $ (73,000,000) | -4.0% |
Cash Flow From Operations | ||
Period | Cash Flow From Operations | |
Six Mos. Ended June 30, 2023 | $ 242,000,000 | |
2022 | $ 277,000,000 | |
2021 | $ (204,000,000) | |
(Source - SEC.)
As of June 30, 2023, Instacart had $1.96 billion in cash and $774 million in total liabilities.
Free cash flow during the twelve months ending June 30, 2023, was $387 million.
Instacart’s IPO Details
CART intends to sell 22 million shares of common stock at a proposed midpoint price of $27.00 per share for gross proceeds of approximately $594 million, not including the sale of customary underwriter options.
New investor PepsiCo (PEP) has agreed to purchase $175 million worth of the firm’s Series A stock at the IPO price in a concurrent private placement.
Additionally, Norges Bank Investment Management, TCV, Sequoia Capital (an existing investor), D1 Capital Partners (an existing investor) and Valiant Capital Management have indicated a non-binding interest in purchasing up to an aggregate of $400 million of the offering at the offering price.
The firm is selling 14.1 million shares and selling shareholders will offer 7.9 million shares.
The S&P 500 Index (SP500) no longer admits firms with multiple classes of stock into its index.
The company’s enterprise value at IPO (excluding underwriter options) will approximate $5.4 billion.
The float to outstanding shares ratio (excluding underwriter options) will be approximately 7.97%.
Per the firm’s most recent regulatory filing, Instacart plans to use the net proceeds of the offering to fund its RSU tax obligations and for general corporate purposes.
Management’s presentation of the company roadshow is available here until the IPO is completed.
Regarding outstanding legal proceedings, the firm booked a total reserve balance of $65 million relating to the potential of losing a California lawsuit "alleging unfair competition claims related to contractor misclassification' or the 'San Diego Action.' The firm settled with the city for $46.5 million, pending the outcome of a challenge to Proposition 22 regarding the classification of 'gig workers."
The company is also the target of other would-be class action lawsuits related to the same contractor classification assertions.
Should the company lose these lawsuits, it could raise the firm’s costs, resulting in a material adverse effect on its financial condition and operations and to unionization efforts by previously classified "gig workers."
The listed bookrunners of the IPO are Goldman Sachs, J.P. Morgan, BofA Securities, and several other investment banks.
Valuation Metrics For Instacart
Below is a table of the firm’s relevant capitalization and valuation metrics at IPO:
Measure [TTM] | Amount |
Market Capitalization at IPO | $7,452,738,288 |
Enterprise Value | $5,394,738,288 |
Price / Sales | 2.57 |
EV / Revenue | 1.86 |
EV / EBITDA | 13.35 |
Earnings Per Share | $0.71 |
Operating Margin | 13.93% |
Net Margin | 6.83% |
Float To Outstanding Shares Ratio | 7.97% |
Proposed IPO Midpoint Price per Share | $27.00 |
Net Free Cash Flow | $387,000,000 |
Free Cash Flow Yield Per Share | 5.19% |
Debt / EBITDA Multiple | 0.00 |
CapEx Ratio | 12.73 |
Revenue Growth Rate | 30.99% |
(Source - SEC.)
As a reference, a potential public comparable would be DoorDash ( DASH ), although it is more focused on restaurant delivery than grocery delivery; shown below is a comparison of their primary valuation metrics:
Metric [TTM] | DoorDash | Instacart | Variance |
Price / Sales | 4.15 | 2.57 | -38.1% |
EV / Revenue | 3.77 | 1.86 | -50.7% |
EV / EBITDA | NM | 13.35 | --% |
Earnings Per Share | $1.31 | $0.71 | -45.9% |
Revenue Growth Rate | 36.3% | 30.99% | -14.66% |
Net Margin | -16.5% | 6.83% | -141.45% |
(Source - SEC and Seeking Alpha.)
Commentary About Instacart
CART is seeking U.S. public shareholder investment to pay for its RSU tax obligations and for its expansion and general corporate use purposes.
The company’s financials have produced higher topline revenue, increasing gross profit and gross margin and growing operating profit and cash flow from operations.
Free cash flow for the twelve months ending June 30, 2023, was $387 million.
Sales and Marketing expenses as a percentage of total revenue have moved higher as revenue has grown; its Sales and Marketing efficiency multiple has been stable at 1.1x.
The firm says it won’t pay any dividends and will keep future earnings, if any, for reinvestment into the firm’s growth plans.
CART has spent relatively little on capital expenditures as a function of its operating cash flow.
The market opportunity for delivering groceries is very large and expected to grow at a very high rate of growth in the coming years.
Business risks to the company’s outlook as a public company include slowing order growth after a pandemic-era period of rapid growth.
For example, the firm’s order growth rate in the full year of 2022 was 18% over 2021, while the first half of 2023’s order growth rate was only 0.45% over the same period in 2022.
Slowing order volume growth after the end of the pandemic is something that may require management to spend more operational cash on reigniting if the firm is to have a successful growth story for investors.
However, with revenue growth continuing at a high rate, the company appears to be weathering the slowdown in order growth quite well.
Management is seeking an Enterprise Value / Revenue multiple of 1.86x, half that of public comparable DoorDash, despite a similar growth profile.
Given the IPO’s reasonable valuation assumption, the firm’s growth prospects, profitability, strong positive free cash flow and a very strong existing and new institutional and strategic investor interest in the IPO, my opinion is a Buy at around $27.00 per share.
Expected IPO Pricing Date: September 18, 2023.
For further details see:
IPO Update: Instacart Attracts Institutions To Reasonably Priced IPO