Episode Details

The COVID shutdown in 2020 created a host of pain, but it did also create some winners, and one of those was Instacart, an online grocery shopping and delivery company that was made for that moment. As Instacart usage soared, its pricing (by venture capitalists) also jumped, hitting $39 billion in a capital round in 2021. The bloom is off the rose, as online grocery sales have leveled off and Instacart is finally going public at a pricing of around $9-10 billion. I start by looking at the Instacart business model, with revenues coming from transaction service feeds and ads, and put it against the backdrop of the business that it serves, which is groceries. The grocery business is huge, but its combination of low growth and low margins, puts a ceiling on how quickly an intermediary in the business can grow and the profitability of that intermediary. I assume modest growth in transactions on Instacart, in line with overall growth in online grocery sales, with a declining take rate and improving profitability to estimate a value per share of about $29. While that put me right in the middle of the offering range, the stock started trading just as I was doing this session, and popped to $42. While I don't think it is an attractive investment at that price, who knows where it will be trading at a week from now? You are welcome to start with my valuation of Instacart and make it your own. Finally, I try to dispense with the notion that value investors are "smart money", by tracking VC investments over Instacart's life as a company, and chronicling that they trade companies, rather than invest in them.
Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/InstacartIPO.pdf
Instacart Valuation: https://pages.stern.nyu.edu/~adamodar/pc/blog/InstacartIPO.xlsx
Blog Post: https://aswathdamodaran.blogspot.com/2023/09/putting-instacart-before-grocery-horse.html

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