INSTACART (CART) PRE-IPO BLACK BOOK
***New Date & Time
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Instacart (CART) is looking to raise $1.0B and the first significant one for a venture-backed company in over a year and a half. Instacart secured support from Pepsi, a major advertiser, who will invest $175 million in new convertible shares at the IPO price through a private placement. Along with Goldman Sachs, its primary underwriter, Instacart has arranged investors willing to purchase up to $400 million of stock at the IPO price. New investors include TCV and Norges Bank (the Norwegian central bank's investment arm); the current shareholders are D1 Capital Partners, Sequoia Capital, and Valiant Capital Management. Incorporating "cornerstone investors" has been an essential component of recent IPOs. These investors add credibility and validation to the company for other potential investors. This strategy appears critical for CART as its S1 shows some uncertainties.
WHAT IS INSTACART:
- Instacart was founded in 2012 with the vision of transitioning the grocery industry to the digital realm and streamlining the grocery shopping experience.
- The San Francisco, CA-based company booked $2.9 billion in revenue for the 12 months ended June 30, 2023.
- The company prioritized consumer demands, subsequently developing advanced technologies to aid retailers in addressing these demands.
- Instacart's mission is to empower retailers, irrespective of their size, to thrive in both online and brick-and-mortar environments.
- Currently, over 1,400 various national, regional, and local retail banners (80,000 doors), accounting for more than 85% of the U.S. grocery market, collaborate with Instacart.
- The company's Gross Transaction Value (GTV), an indicator of the online sales they facilitate for their partner retailers, has shown impressive growth, with a Compound Annual Growth Rate (CAGR) of 80% from 2018 to 2022. In comparison, the online grocery market grew by 50%, and offline grocery grew by just 1%.
- In 2022 alone, Instacart generated around $29 billion in GTV, establishing itself as North America's foremost grocery technology enterprise.
- It plans to list on the Nasdaq under the symbol CART. Instacart filed confidentially on May 11, 2022.
SOME BRIEF TAKEAWAYS FROM THE S1:
- Strategic partner for Grocery -The grocery business is the largest retail category and a $1.1 trillion industry in the U.S., with only 12% of online grocery sales. Instacart self-identifies as a "grocery technology company" and emphasizes its significant investment in technology tailored to drive online grocery sales. The company highlights that its top 20 retail partners saw Instacart contributing 5% of their sales in 2022, an increase from 0.6% in 2018. It should be noted that the company is pointing out instances where retailers have previously opted out of exclusive agreements. "As I write this, a massive digital transformation is underway in the grocery industry, as even more people shop online, online penetration could double or more over time." Instacart CEO Fidji Simo
- Slowing Order Growth - I suspect some investors will express concerns regarding Instacart's core grocery delivery segment. The number of orders remained stagnant (+0.5% YoY) in 1H22. Total GMV of grocery purchases increased by a mere 4%, a small growth, especially considering the prevailing high inflation.
- Low take rate, but it has advertising model - The S1 emphasizes the inherently low-profit margins in the grocery sector. From a $110 order, Instacart earns just $7, indicating a 6.3% "take rate" compared to DASH at 13% (2Q23). DASH does not have a thriving advertising segment, which adds an average of $3 in revenue to CART every order. The company's advertising revenue grew 30% to $740 million last year in 2022 and 24% in 1H23. The company has developed behind-the-scenes technology, taking advantage of the volume of consumer data it collects to help grocery stores sell more and sell that data to advertisers.
- Consumer spending is slowing but entering a seasonally strong period - Instacart is slowing consumer spending in online grocery, as indicated by customers opting for fewer and cheaper items in their baskets. Despite the current trend, Instacart expects some primary metrics, such as orders and transaction volume, to pick up pace after going public. The company typically observes a surge in order volume during the latter half of the year, particularly during the back-to-school and holiday seasons.
- Lockup exception – Insiders can sell 35% of their shares before the lockup period ends (6 months) if the stock price rises by 20% from the IPO price for at least five trading days.
The Consumables Show
We are hosting our weekly Consumables Show today, September 11 @ 12 PM ET.
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Every Monday at 12 PM ET our Consumables Team will be hosting a live event where we will go through Timely and Topical events/data that have occurred in our respective industries, as well as preview the week to come. We hope that you can grab your lunch and join us as we break down the Restaurant, Consumer Staples, and Cannabis space.
We will explore a number of topics including recent position monitor changes, top questions from client meetings, most frequent inbounds, pushback on our most recent calls, and updates on some of our best ideas.
Industry Traffic
Casual Dining traffic in the first week of September slowed by 397bps WoW to (-6.49%), with August traffic of (-3.48%).
Quick Service traffic in the first week of September slowed 35bps WoW to (-3.06%), with August traffic of (-2.03%)
