Instacart Sets Price for IPO: $9B Midpoint Valuation: Too Low?
It looks to me like Instacart is setting a relatively conservative range for its IPO, despite its previous valuation of $39B (which was always ridiculous). I wanted to compare it to Doordash for a moment.
How Does Instacart Compare to Doordash?
Let's assume that Doordash is on a $9B revenue run-rate (this is assuming 2023 will be 40% higher than last year), and currently has a market cap of $32B. That would give it a 3.5x revenue multiple, which would value it as a growth stock.
If you assume that Instacart in 2023 is on a $3.5B revenue run-rate (assuming growing 40% y/y), then at the same revenue multiple, they would be valued at around $12B valuation.
I'm assuming the caution reflects the overall cautious situation in the market, and Wall Street not wanting to get ahead of itself in one of only tech IPOs in the last two years.
This all looks fine unless you see that Doordash has about 50% gross margin (and decreasing), and Instacart has around 70% gross margins (and increasing). Not to mention that Doordash does not have the advertising machine of Instacart. A huge difference between the companies.
What Factors Are Affecting Instacart's Valuation?
Of course, Instacart still has problems. Here are my primary worries:
Revenue concentration with its major grocers, who are incented to reduce their Instacart share. This is my biggest worry by far.
Increasing Walmart grocery share, automation, and same-day service, with no signs of slowing down. This is my second biggest worry.
Wages paid to shoppers will only keep increasing and are subject to regulatory and union organization (in a bear case).
I'm assuming you do this when Wall Street wants a "guaranteed win" on Wall Street. The valuation can always find its true market value later on, as it grows.
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