Instacart, the grocery delivery business that has sprung up during the pandemic, took a step Friday toward an initial public offering that will be a test of Wall Street’s appetite for tech start-ups after a year of slumping industry.
In an offering prospectus that gave the first public look at its financials on Friday, Instacart announced that unlike other gig economy companies, it was able to turn a profit. But growth in its core grocery delivery business is slowing.
If it’s successful, Instacart’s public offering could clear the way for more from tech start-ups. At least 1,400 private tech companies valued at $1 billion or more are waiting for a more favorable IPO market, said Brianne Lynch, head of market insights at EquityZen, an online marketplace for private stocks .
Just 100 companies with market valuations of more than $50 million went public in the United States last year, compared with 397 in 2021, according to Renaissance Capital, which tracks listings. New public listings have also been few this year, although Arm, a chip maker owned by SoftBank, also filed an offering prospectus on Monday.
“Instacart and Arm will be one that other tech companies will be keen to watch because there is a pent-up need to inform the public,” said Ms. Lynch.
Instacart rode the tech industry’s boom and crashed with the rest of the industry when the sugar rush of online pandemic activity faded. The company laid off workers last year and slashed its $39 billion valuation — first to $24 billion and then to about $10 billion — as it struggled to adjust.
Instacart is the straggler among high-profile gig economy companies like Uber, Lyft and DoorDash that have gone public in recent years despite being far from profitable — though Uber is coming close.
The company earned $428 million in revenue in 2022, compared to a $73 million loss last year, according to the prospectus. It said $358 million of that came from what it described as a tax benefit. Grocery orders in 2022 grew 18 percent from 2021, but orders in the first half of this year were flat compared with a year earlier, the company said.
Instacart shifted its business from relying on low-margin delivery services to higher-margin online advertising. That change helped the company’s bottom line. The company earned $740 million from ads and other revenue last year, making up about 30 percent of Instacart’s total revenue, which is $2.5 billion.
The company began building its ads business in 2019, allowing brands that pay for product placement within the Instacart app to pitch grocery items to customers while they shop. Last year, it also began selling software to the grocery retailers it works with.
Brittain Ladd, a consultant for the grocery industry, said Instacart is smart to diversify into advertising, but he doubts how much room there is to expand its grocery delivery business.
“They don’t face a future of significant growth in their core business,” Mr. Ladd said.
Instacart was founded in San Francisco in 2012 by Apoorva Mehta, now 37; Max Mullen, 37; and Brandon Leonardo, 38. Mr. Mehta, the company’s chief executive at the time, raised $2.7 billion in funding for the company from top Silicon Valley investors including Sequoia Capital, Andreessen Horowitz and Kleiner Perkins.
As it has grown, expanding to thousands of cities across North America, Instacart has faced increasing competition from rivals such as DoorDash, Gopuff and Amazon. Gig companies’ reliance on independent contractors, who are responsible for their own expenses and don’t earn the minimum wage or have health insurance like employees, has also led to intense conflict with labor activists who say the drivers and gig buyers are exploited and underpaid. .
The pandemic has fueled Instacart’s growth. Sales quadrupled from 2019 to 2020, Instacart said, and continued at a strong pace through early 2022. The company acknowledged that growth in grocery delivery is unlikely to be repeated, but said of the Covid spike set it up for long-term success.
“While we do not expect our pandemic-accelerated growth rates to be repeated in future periods, our growth during this period has helped establish a business with greater scale and higher gross profit ,” Instacart said.
When Instacart’s growth began to slow in 2021, Mr. Mehta approached Uber and DoorDash about selling his company to them or ending the partnership, The New York Times previously reported. He stepped down from his role as chief executive after a series of tense discussions between himself and the company’s board of directors. Fidji Simo, a rising star at Facebook who led the social network’s video division, has taken the top job as chief executive.
In its prospectus offering, Instacart lists risk factors including its history of losses, its dependence on relationships with retailers, stiff competition from nine companies and the newness of its business in advertising. It also said it has a new investor: PepsiCo. The packaged food company said it will invest $175 million in new shares in a private placement as part of Instacart’s IPO
The company’s largest shareholders include Sequoia Capital and D1 Capital, according to the prospectus.
Instacart plans to list its shares on the Nasdaq stock exchange under the symbol CART.