Instacart shares jump on public market debut

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Shares in grocery delivery group Instacart jumped on their first day of trading, in the latest sign of investor appetite for new listings.

Strong demand had been expected after Instacart priced its initial public offering at $30 a share, the top of an already-increased price range on Monday evening. 

The shares rose 40 per cent at the start of trading on the Nasdaq exchange on Tuesday to $42 per share, valuing the group at $11.6bn based on shares outstanding.

Still, the California-based company has some way to go to regain its peak private market valuation. Investors including Sequoia Capital, Andreessen Horowitz and Fidelity invested $265mn in the company at a value of $39bn in 2021.

Instacart chief executive Fidji Simo told the Financial Times: “There is no doubt that the markets have adjusted pretty dramatically since 2021, however what I am focused on is that . . . we are a much stronger company now.”

The IPO will float just 8 per cent of Instacart stock, raising $660mn. A group of the company’s venture backers including Sequoia and Norges Bank said they would buy about $400mn of shares at the IPO price, resulting in a small free float of just $260mn.

Simo, who took over the business from its co-founder Apoorva Mehta in August 2021, said: “We did not want to dilute the company at the current prices.” She added that Instacart has about $2bn of cash in the bank, so it “doesn’t make sense to raise primary capital” at the far lower valuation.

“When I took over, transaction volume was shrinking and people thought Instacart was a pandemic fad. Two years later we have shown we can grow from Covid gains and do that profitably,” Simo added.

Instacart generated $242mn in profit in the first six months of 2023, up from a loss of $74mn a year earlier.

The IPO market has been thawing slowly after a period of heightened market volatility and tumbling tech valuations caused activity to freeze last year. Instacart’s listing follows a warm reception for UK-based chip designer Arm, which raised about $5bn last week in the largest IPO for almost two years.

SoftBank-backed Arm shares jumped 25 per cent on its first day of trading, boosting confidence in new listings. Instacart’s deal was seen as an important additional test of investors’ willingness to invest in the smaller venture capital-backed groups that have dominated the IPO market in recent years.