In a move largely targeted at employee-retention and recruitment, grocery-delivery start-up Instacart this week reduced its estimated valuation by about 40% to $24 billion.
The change isn’t tied to a new funding round—the company has more than $1 billion in cash in the bank, and seems unlikely to raise more capital before an eventual initial public offering. Instacart’s last funding round came at a $39 billion valuation in March 2021. To date, the company has raised $2.9 billion in venture-capital funding.
The...
The Instacart logo on a smartphone
Tiffany Hagler-Geard/Bloomberg
In a move largely targeted at employee-retention and recruitment, grocery-delivery start-up Instacart this week reduced its estimated valuation by about 40% to $24 billion.
The change isn’t tied to a new funding round—the company has more than $1 billion in cash in the bank, and seems unlikely to raise more capital before an eventual initial public offering. Instacart’s last funding round came at a $39 billion valuation in March 2021. To date, the company has raised $2.9 billion in venture-capital funding.
The reduced valuation reflects the recent sharp selloff in the share prices of the company’s closest publicly traded peers. DoorDash (ticker: DASH) stock is down about 56% since their November 2021 peak, for instance, while Shopify (SHOP) stock is off about 60% over the same period. As a private company, Instacart has no requirement to provide an estimated valuation. And since the shift wasn’t connected with a funding round, the new number is still basically a guess. But it provides a stark reminder of the close ties between public- and private-market valuation—and it suggests that many venture-capital funds are likely sitting on considerable losses on venture investments in Instacart and other companies made when the equity market was peaking in 2021.
Like many companies, Instacart hires a third-party consultant to conduct a quarterly estimate of its valuation—a process known as a 409A estimate, a reference to a section of the Internal Revenue Code that deals with deferred compensation. The company had been using last-round pricing to set prices for employee restricted stock units, or RSUs—but it is shifting to a process tied to the 409A calculation. Instacart isn’t reprocessing old awards, but the company is planning an “equity refresh” for current staff that tied to the new lower price.
“We are confident in the strength of our business, but we are not immune to the market turbulence that has impacted leading technology companies both public and private,” Instacart said in a statement. “We can’t control the market, but we can control how we respond….We announced to our team that we will be aligning new equity awards—for existing employees and new hires—to an updated company valuation that reflects the current market conditions. Our team built Instacart into the market leader it is today, and we believe investing in them is the right thing to do. Markets go up and down, but we are focused on Instacart’s long-term opportunity to power the future of grocery with our partners.”
Instacart had 2021 revenue of about $1.8 billion, up from $1.5 billion in 2020, according to a source familiar with the company. At $24 billion, Instacart is valued at about 13 times trailing year sales; that compares with eight times for DoorDash on the same basis, or 18 times for Shopify.
Meanwhile, Instacart earlier this week announced a new push to expand beyond grocery delivery, creating a suite of services for retailers that brings it more directly into competition with Shopify and other e-commerce platform providers. Built on a new brand called Carrot, the new offering includes a digital ad platform called Carrot Ads, a network of local fulfillment centers that will speed delivery times for urgent purchases called Carrot Warehouses, and a set of digital analysis tools called Carrot Insights.
The push into small-scale warehouses for quicker delivery times is an obvious response to services like GoPuff that promise delivery times for convenience store items of 30 minutes or less. The company is launching the service initially in Atlanta and Miami with the Publix supermarket chain.
The company has declined to comment about a potential IPO.
Write to Eric J. Savitz at eric.savitz@barrons.com