A day after a blockbuster debut, Instacart's shares go in reverse and briefly sink below their IPO price
Instacart, the US grocery-delivery giant that soared by as much as 43% in its trading debut Tuesday, has now wiped out virtually all of those gains as investors question its growth prospects.
The largest grocery-delivery company in America, incorporated as Maplebear Inc., fell nearly 11% on Wednesday, closing at $30.10 — all but erasing yesterday’s increase and settling at just ten cents above the $30 level at which its shares were sold in an initial public offering. Earlier on Wednesday, it traded below that IPO price.
The selling Wednesday came as the broader equities market was under pressure from comments out of the Federal Reserve. Instacart also faced its own headwinds. Its first analyst, Needham’s Bernie McTernan, initiated a lukewarm hold rating, flagging concerns about rising competition from the likes of Uber Technologies Inc. and DoorDash Inc., and a slowdown in the growth of online grocery sales. The company is now betting on other revenue streams, leaning into advertising and data, for profits.
“We see a balanced risk-reward reflecting slowing growth in the years following a pandemic-driven demand surge and CART’s already scaled advertising business,” Needham’s McTernan wrote in a note.
Phil Lempert, a grocery analyst and editor of SupermarketGuru, said consumers are shopping in person more, challenging Instacart’s business. The company also has yet to diversify its product and services, he said. “Finally people can see under the hood related to Instacart that this is not a stable situation.”
“From a consumer stand point we have seen a move away from delivery to click and collect, where a shopper orders online and schedules a time to pick up their groceries at the store,” Lempert added, noting that quality from third-party pickers like Instacart was often worse than supermarket staffs.
Many Wall Street banks that were involved in the IPO are now in a quiet period for coverage.
Instacart’s second-day dive stands as a cautionary tale for other tech companies that are looking to ride the IPO momentum and are preparing for their own listings in the months to come. The company wiped out nearly $1 billion in market value in a single day, proving that high valuations aren’t a given. SoftBank Group Corp-owned chip designer Arm Holdings Plc has similarly fallen every day since its trading debut last week.
Despite the fizzle in Instacart’s shares since the debut, the offering was popular. The $30 per share IPO price was at the top of the $28 to $30 range, and the offering was more than 23 times oversubscribed, according to people familiar with the matter.
Instacart is one of the biggest companies to list in nearly two years, alongside Arm, stoking hopes that US listings will see a revival.