Overview of the Instacart IPO
Instacart is a popular grocery delivery service that has become a household name during the pandemic. With the rise in demand for contactless deliveries, Instacart's services have become even more popular. The company filed for an initial public offering (IPO) in May 2021, and it has since become one of the most anticipated IPOs of the year. In this blog post, we'll take a closer look at the Instacart IPO and what you need to know.
Brief history of the company
Instacart is a grocery delivery and pick-up service that was founded in 2012 by Apoorva Mehta, a former Amazon employee. The idea for the company came to Mehta while he was working at Amazon as a supply chain engineer. He realized that he spent a significant amount of his free time grocery shopping and believed there was an opportunity for a service that could deliver groceries to people's homes.
Mehta began developing Instacart in 2012, and by the end of the year, the company was operational in San Francisco. Instacart quickly gained popularity, and by the end of 2013, the company had expanded to several other cities across the United States. In 2014, the company raised $44 million in a Series B funding round, led by Andreessen Horowitz, which helped fund further expansion.
Since then, Instacart has grown to become one of the largest online grocery delivery services in the world, with operations in over 5,500 cities in North America. As of 2021, the company has partnerships with over 600 retailers, including major chains like Costco, Kroger, and Walmart. In addition to traditional grocery stores, Instacart has also partnered with specialty stores like Petco and Sephora.
Explanation of Instacart's Business Model
Instacart has multiple sources of revenue that contribute to its significant earnings. Here are some of the important sources of revenue:
Delivery Fees
Instacart charges a delivery fee to customers for each order placed on their platform. The delivery fee varies based on factors such as the size of the order, distance of the store, and time of the day. The fee for a one-hour delivery is higher than a two-hour delivery, and if the order includes alcoholic beverages or exceeds a certain weight limit, an additional fee is charged. Delivery fees can represent a substantial portion of Instacart's revenue, ranging from 5% to 10% of the order value. Instacart also charges surge pricing during special events such as Christmas or New Year's Eve.
Commissions
Instacart has agreements with retail chains that pay them a commission for customers brought to them. The commission is based on the total value of orders that Instacart can route to a particular retailer. Local stores offer higher commissions than national grocery chains.
Membership
Instacart provides annual and monthly memberships to regular users, offering benefits such as waiving delivery fees for orders over a certain amount and no surge pricing for premium members. Instacart is willing to forego some revenue to sell premium memberships because it cultivates customer loyalty.
In-App Ads
With an audience of ten million shoppers, Instacart is an attractive platform for companies to advertise products. Instacart has data about customers' consumption patterns, allowing advertisers to engage in targeted advertising. The rate charged to advertisers is determined by several factors, including brand value and the length of the campaign, and companies are typically charged on a pay-per-click basis.
How Instacart makes money
Instacart generates revenue by levying delivery fees on every grocery and pick-up order. Customers are charged $5.99 for transactions over $35, while orders below $35 have a delivery fee of $7.99, with a minimum order amount of $10. Fees may vary for customers who opt for faster delivery or select busier timeslots. The platform also offers advertising space for brands.
Moreover, customers can subscribe to a yearly membership of $99 or a monthly service priced at $9.99. This provides them with a range of benefits, such as waived delivery fees under specific circumstances, lower service fees, and more flexible pricing during peak hours.
Instacart's revenue growth
Instacart has seen significant revenue growth in recent years, driven by increasing demand for online grocery delivery services. In 2021, the company reported revenue of $1.8 billion, up 20% from the previous year. The pandemic-induced shift to online grocery shopping has boosted Instacart's business, as consumers increasingly opt for contactless delivery options. Additionally, Instacart has expanded its services beyond grocery delivery, partnering with retailers such as Best Buy and Sephora to offer same-day delivery of electronics and beauty products.
Instacart's profitability
While Instacart has yet to turn a profit, the company has made progress toward profitability in recent years. In 2021, the company reported positive adjusted EBITDA for the first time, indicating that its operations are generating positive cash flow. Instacart's profitability has been driven in part by its efforts to reduce costs, including implementing dynamic pricing to incentivize shoppers to work during peak demand periods. The company has also focused on growing its advertising business, which has higher margins than its core delivery operations.
Instacart's valuation
Instacart's valuation has fluctuated in response to changing market conditions and investor sentiment. In 2020, the company was valued at $17.7 billion in a funding round led by D1 Capital Partners, while in 2021, the company was valued at $39 billion in a funding round led by Andreessen Horowitz. However, in the wake of the pandemic, Instacart has faced increasing competition from established players such as Amazon and Walmart, as well as new entrants such as DoorDash and Uber. As a result, Instacart has reportedly postponed its plans for an IPO, indicating that the company may be reevaluating its growth prospects and valuation.
