Keeping financial tabs on Instacart as it preps its IPO

@alex / 8:30 am PDT • September 19, 2022

Instacart’s willingness to go public this year is now slightly better understood after The Wall Street Journal reported that the grocery delivery giant isn’t planning on a mega-fundraise when it does list.

While the mechanics of a company’s public debut have only so much variation — direct listings and traditional IPOs both result in a newly public company, after all — Instacart’s plans provide us with useful hints about its recent financial history.

That Instacart is expected to go public this year at all is a minor miracle; the U.S. market for new technology listings has been moribund for quarters now. The slack IPO market is a marked shift from the active 2020-2021 period that saw a good number of startups and unicorns — private-market companies worth $1 billion or more — list when investors had bid the value of tech shares to new heights.

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Prices have since come down, at times sharply from pandemic-induced highs. Most tech upstarts are holding back on public listings in response, presumably concerned about matching final private-market valuations in an IPO or other form of flotation.

With that context in mind, let’s chat through the latest Instacart news — after all, it could be the only IPO of note that we see before 2023.

Why not raise more?

Per the Journal, Instacart does not “plan to issue many new shares in their IPO.” Instead, the newspaper reports, it “plans to have most of the listing come from the sale of employees’ shares.” The same piece indicates that Instacart “previously leaned toward going public through a direct listing.”

This is rich with useful context. Here are our immediate takeaways:

The Instacart IPO is moving ahead with enough conviction that talks have reached the above stages; the company is hammering away at its public flotation planning with enough gusto to have changed its mind about how to approach the transaction.
Instacart views its IPO more as a liquidity event than a fundraising event. IPOs have two purposes: raising money and allowing backers of the private company in question to turn paper profits into cash. The former is dropped when a company direct lists and is diminished when a company sells mostly existing stock in its debut in lieu of many newly created shares. A direct listing is when a company merely starts to float, with no shares from the company sold at the time. By mostly selling existing shares, Instacart is favoring the “provide liquidity” part of the IPO equation over the “raise money” portion.
That means that the company’s cash balance likely remains healthy. The WSJ writes that Instacart had over $1 billion in cash and equivalents earlier in the year, meaning that it was well capitalized at the time. However, time has passed and Instacart has done some shopping of its own, which could have cut materially into those funds; apparently operating its business and executing M&A has not burned through enough of its financial Fort Knox as to warrant an IPO tuned toward raising capital.
Finally, we can infer from our final point above that Instacart’s operating cash flow is not terrifying; This is good to know because it helps explain why the company is forging ahead with an IPO during a down cycle, apart, of course, from its age and the ocean of capital that has backed it to date. (As a company raises more capital and gets further from the time when its first investments were written, pressure increases to melt illiquid stakes into more liquid currency.)

While Instacart is, based on our above reasoning, not burning that much cash, we don’t know much about its overall profitability. By U.S. accounting norms (GAAP), companies have to include non-cash costs in their profit reporting. This means that the stock Instacart uses to partially compensate its employees won’t show up in its operating cash flow but will be counted in its operating and net profit figures.

So, we don’t know if Instacart is profitable or not, but we have learned enough to ferret out a little learning for other unicorns. Namely that accelerating growth — which Instacart showed off in Q2 2022 — and limited, or perhaps merely receding, operating cash flow burn is enough to go public in 2022.

That Instacart looks rather lonely in its efforts to debut before the end of the current calendar year is either indictment of its courage — or a blistering critique of its unicorn brethren who may not be able to match its performance.

Keeping financial tabs on Instacart as it preps its IPO

Why not raise more?

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