Initial public offerings are back, warts and all.
After two years of dearth of new listings, the company’s shares grocery delivery company Instacart opened for trading Tuesday at $42, up 40 percent from its initial public offering price of $30. The performance indicated that investors are eager to take a risk on young technology companies, but only at the right price.
Instacart’s market capitalization, including all shares outstanding, amounted to $13.9 billion. But even with the share price rising, the company’s valuation still fell far short of the $39 billion investors assigned it in the private market in 2021. It was a painful loss for investors who had bought in at that peak. , which was a tough test of reality. to other startups that raised money at inflated valuations.
Fiji SimoInstacart CEO said the valuation reflects changes in public stock prices, even as the company has improved its performance over the past two years, including turning a profit.
“Markets will always have ups and downs,” she said, adding that she was more focused on what she could control.
The technology and financial industries had been eagerly anticipating new IPOs in the hope that they would usher in more listings. Inflation and rising interest rates, along with a broader recession marked by layoffs and other cuts, deepened investor skepticism toward technology companies, leading to a virtual freeze on IPOs over the past two years.
Only 144 companies went public in the United States in that time, raising $22.5 billion, compared to 397 IPOs that raised $142 billion in 2021, according to Renaissance Capital, which tracks new listings.
Things started to change last week when Arma chip designer owned by SoftBank, it became public. Its shares were priced at the top of the proposed range and rose 25 percent on the first day of trading. Many hoped that Arm’s IPO would encourage more investors to pour money back into technology.
A large number of companies are eager to access the public market. More than 1,400 new private companies, with a combined value of more than $4.9 trillion, could be candidates, according to EquityZen, a private equity marketplace. Among them are the social media company Redditthe ticketing start-up SeatGeek and the car rental company Turo.
Klaviyo, a marketing software startup, will also go public this week. Investors valued the company at $9.5 billion when it was privately held.
Investors have often been skeptical that the highly valued tech companies of the last generation (called “unicorns” for their rare billion-dollar valuations) could turn a profit.
Both Instacart and Klaviyo have defied that expectation. Instacart made $428 million in profits on $2.5 billion in revenue last year, in part because it had expanded beyond its core grocery delivery business into advertising and software services. Klaviyo lost money last year, but made a profit of $15 million on $320 million in revenue in the first half of this year.
Together, they showed that the bar for what investors expect from a company’s IPO is higher than it was. “Profitability will be key,” said Kyle Stanford, an analyst at PitchBook, who tracks startups.
Ms. Simo said public market investors had raised doubts about Instacart’s future growth but placed a very large premium on its earnings.
“The change we have achieved in the last two years was enormously important,” he said.
Instacart’s path has not been easy. Founded in 2012 as a service that connected customers at home with subcontracted workers who bought and delivered their groceries, it has faced scrutiny (along with other companies like Uber and DoorDash) over whether its contractors should be treated as employees and whether They are fair. compensated.
Customers flocked to Instacart’s app during the early days of pandemic closures, but its growth plummeted in mid-2021 as people returned to grocery stores, raising questions about the long-term sustainability of the business. .
Apoorva Mehta, co-founder and CEO of Instacart, resigned that summer and Ms. Simo, a former Meta executive, took over. Under Simo’s leadership, Instacart has increasingly focused on grocery software and advertising businesses, which has helped the company make money.
As the company’s shares began trading, Mr. Mehta reflected on the company’s ups and downs. “During the company’s early years, it wasn’t clear to the industry that Instacart was here to stay,” he said. “I guess that’s not a question anymore.”
As part of its initial public offering, Instacart sold shares to investors before its formal “road show” presentation. PepsiCo, one of its advertising clients, was among them, buying $175 million worth of shares. That move “sent a strong signal” to the market, Simo said.
Investment firms Sequoia Capital and D1 Capital are among Instacart’s largest outside shareholders, with Sequoia owning a 19 percent stake and D1 Capital 14 percent. Mehta owns an 11 percent stake, which is now worth about $1.2 billion. As for his plans for a windfall, he said, “That’s the billion-dollar question.”
Meredith Kopit Levien, CEO of The New York Times, is on Instacart’s board of directors.
Instacart celebrated its listing by ringing the Nasdaq opening bell at its San Francisco office with more than 1,000 employees and “a lot of food,” Simo said.