What does Instacart’s supposedly delayed IPO teach us about how unicorns think?

Instacart has left us IPO nerds feeling whiplashed. Late last week, Reuters reported that the American grocery delivery and technology company might probably shelve its IPO until next year. The richly valued startup was poised to become the splashiest public offering of the year in the United States, but now it appears we won’t get to see the implications of the IPO’s reception for at least a few more months.

Instacart going public is notable not just due to its own corporate history. The company raised huge sums, grew immensely during the pandemic and is in the midst of an expanding into advertising and software. The IPO was also set to be a critical affair for other, yet-private unicorns, as it would have provided some indication of how the public market felt about at least one of their peers.

Sadly, we are likely bereft of new unicorn liquidity information for the rest of calendar 2022. While disappointing, this turn of events does teach us a few things. (Instacart declined to comment on its IPO timing, but did reveal some juicy info on its Q3 performance — details below.)

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Recall that Instacart got a new, lower 409A (internal) valuation earlier this month. So we are seeing the company delay its IPO despite what we could consider to be a lower hurdle ahead of it — in terms of pricing, at least.

Let’s go over what we know about the company’s results through Q2 2022, its most recent internal valuation and see if we can figure out what all the fuss is about.

Price hunting

It’s not news that the venture markets got a bit out of pocket in 2021 on the valuation front, but what we keep relearning is just how far off startup prices really got.

Strictly to avoid Instacart PR from dialing me the moment this little meditation goes live, keep in mind that all that follows is focused on the company because it had the temerity to try to go public this year. Here at TechCrunch, we do not shun pluck, but we also do not avoid talking about bad news because we want to avoid negativity.

How did the company’s shot at an IPO make it our choice of startup fodder? Instacart trying to go public this year meant that it started to disclose more financial performance data as the quarters went past, and that its changing 409A valuation was consistently leaked to the media. Because we know a bit about Instacart, it makes for a good ruler for measuring how far apart the private and public markets may be when it comes to pricing.

To start, here are Instacart’s valuations during its most recent funding events and what has happened since:

The line went up and then down again. Notably, Instacart is now worth a bit less today (by one measure) than it was back in the early days of the pandemic. All the value created during its massive COVID-19 sales bump has been at least temporarily evaporated. I leave you to decide if investors were more correct in July 2020 or October 2022.

What does any of the above have to do with the Instacart IPO? The following tweet from GGV investor Jeff Richards rings in my head when I think about this year’s dearth of listings:

If we cross Instacart’s downward-trending valuation with the fact that IPOs are not happening this year due to pricing disconnects, we can now posit an idea as to why the Instacart offering is on hold: The price the public market would pay for the company today is not a price that the company wanted to pursue with its IPO.

This is speculation, but I doubt that we are too far off course. If my valuation had been cut by a full two-thirds and the public market was asking for a further discount, I too would tell those investors to go fly a kite into a storm.

The question at this juncture is simple given our hypothesis: Who is more right, Instacart or the public markets?

We don’t have revenue figures for Q3 2022 at Instacart, but the company did share in a statement that its “revenue grew more than 40% year-over-year, and [its] Net Income and Adjusted EBITDA more than doubled from” the second quarter. Recall that Instacart’s revenue grew 10% in Q1 and 39% in Q2, both measured on a year-over-year basis. Finally, in the second quarter, the company’s top line came to $621 million.

Seeing Instacart manage to increase its revenue acceleration for yet another quarter — no matter how slight — is solid news for the company and better than we had expected.

Using its revenue figure from Q2 2022, we can arrive at run-rate revenue of around $2.5 billion, giving Instacart a revenue multiple of just over 5x at a $13 billion valuation. That may seem cheap, but recall that tech valuations have been cut to the bone. As Altimeter investor Jamin Ball noted late last week:

Put another way, a 5x multiple today is what you get if you are a mid-growth SaaS company, not a grocery delivery company with a strong tech angle. Given that we would expect Instacart to trade at a discount to pure-play software companies (not a diss, but more a note on where we anticipate the decacorn’s gross margins to land), holding off on an IPO until tech shares recover a bit makes good sense.

Unless they don’t. But just how it felt like tech valuations couldn’t go any higher last year, and then didn’t, we could see the reverse this year, right? Right?