Instacart’s biggest IPO twist: Tech trying to go public as a value stock

Published

2 years ago

September 18, 2023

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When the Covid pandemic had many Americans declining to go to the grocery store in 2020, sales at online grocery startup Instacart rose 590%, and its venture capital valuation soared to $39 billion. As the San Francisco company prepares to go public this week, the world has changed. And so has Instacart and its deal.

In a twist for an internet-oriented retailer, Instacart’s enterprise valuation in its initial public offering isn’t outlandish: It’s as little as 15 times earnings before interest, taxes, depreciation and amortization charges for the 12 months that ended in June. At the top of the latest IPO price range, the enterprise value would be 16x EBITDA. And in another twist for a sector where the most-common IPO candidates are newly or barely profitable, but growing so rapidly that large profits look imminent, the company will need to rekindle sales growth after a lull in the first half of this year, its first slowdown since the Covid pandemic, Renaissance Capital analyst Matt Einhorn said, whose firm focuses on IPO research and runs an IPO-focused exchange-traded fund.

“They haven’t done anything wrong,” Einhorn said. “That was just a different time.”

For investors, the good news is that Instacart got much bigger during the pandemic, and its profitability is inflecting higher now. The better news may be that its valuation skyrocketed before a private financing that valued the company at a reported $39 billion in 2021 – and then sank as Covid fever waned.

There is some sign that Instacart’s IPO pitch may be working. On Friday, the company raised the price target for its deal by $2 a share, or 7.4% at the midpoint of the old and new price ranges, with Instacart now seeking a value up to $10 billion, according to its latest IPO prospectus update, and a plan to sell shares at $28 to $30 apiece, giving public investors a better shot at a profit. With roughly $2 billion in cash on the balance sheet, the company’s enterprise value would be as high as $8 billion at the top of its IPO range.

It isn’t the only planned tech IPO of the week to now see some room to up its valuation range, with marketing automation company Klaviyo doing the same.

Low valuation defuses the risk that burned investors in DoorDash, a different Web-fueled food delivery business that went public in December 2020. DoorDash shares closed at $189.51 on their first day of trading, surged to nearly $250, and are now a bit above $80.

Doordash is a good place to start in evaluating Instacart, according to Einhorn.

Indeed, the numbers say Instacart is a lot like DoorDash, but at a fraction of the price.

DoorDash, which mostly delivers restaurant meals, posted a net loss in the first half of this year on sales of $4.17 billion, but made $687 million in EBITDA over the prior 12 months, according to its second-quarter report. At today’s stock price, Doordash is worth about $32 billion, about 37 times its EBITDA for the 12 months that ended in June and 21 times its 2024 EBITDA, as estimated by ISI Evercore analyst Mark Mahaney.

Instacart, on the other hand, has generated $486 million in EBITDA in the last year, including $279 million in the last six months, reversing a $20 million EBITDA loss in early 2022 as economies of scale kick in. Almost three-fourths of revenue comes from transaction fees of about $16 an order, split between the store and the customer, and about 28% comes from advertising. And the company is asking for a valuation less than one-third as high as DoorDash’s, and about a tenth of what DoorDash commanded at its peak.

Instacart’s pitch is that online sales are only 12% of the $1.1 trillion Americans spend on groceries, mostly at stores like Walmart, Kroger and Aldi that are partners with Instacart. The company thinks that share can double, though its roadshow presentation doesn’t say exactly how soon. And, in a nod to growth worries, Instacart is also selling itself as a cash-conscious business that invests carefully, with an eye toward short-term returns, while building up its advertising business to keep building profit even as sales growth slows.

That reflects a hard-won skepticism about Web business models that had been powered by Covid-driven hypergrowth, Einhorn said.

“They won’t do 2020 growth again and probably will grow less than in 2021 and 2022,” he said.

Industry sources are split on how fast Instacart will grow now, said Third Bridge analyst Nicholas Cauley. More aggressive experts consulted by the New York research firm think Instacart can boost gross sales by almost 20% this year and next, helped by market share gains that can be achieved with higher marketing spending after the IPO, he said. Relative pessimists think sales will grow by a high single-digit percentage.

“They have industry leading selection and the app is good for the user,” Cauley said.

Indeed, the waning of Covid has tapped the brakes on Instacart’s growth The company told analysts on its roadshow that the early part of this year was the first period when it did not think sales were inflated by Covid fears, either the original version or the less-intense recurrence driven by the Omicron variant in late 2021 and early 2022.

Gross sales grew just 3% in the first quarter and 6% in the second three months of 2023, down from the 18% average the company posted in 2021 and 2022. Instacart’s revenue grew 31% in the first half of 2023, however, as it added high-margin advertising sales and other income.

The right valuation for Instacart depends on where the ultimate rate of sales growth falls, Einhorn said.

In its roadshow presentation, which the company has made public, Instacart projects that its long-term business model will capture between 6.5% and 7.5% of each dollar a consumer spends in service charges and other revenue to Instacart (the rest is passed through to grocery stores who sell on the platform). Another 4% to 5% of gross sales will flow to Instacart in the form of advertising revenue, mostly from consumer products companies.

The company’s plans turn on getting loyal customers who belong to the company’s Instacart+ program, a $99 a year subscription plan that gives free grocery delivery and cash back on some orders, Instacart chief financial officer Nick Giovanni said in the investor presentation. He acknowledges that customers who began shopping at Instacart during Covid have been less loyal than earlier adopters, but said sales to new customers this year are 60% higher than in pre-Covid 2019.

“We expect to see some headwinds,” he said.

Instacart+ may be the key to the future, according to Cauley. Members shop more often and spend more each time, and larger orders are more profitable because they use workers’ time more efficiently and require less marketing spend.

“Once customers get on the platform, they tend to be sticky,” he said.

The company’s pitch turns on its ability to boost profits by containing costs as sales grow more slowly. Since its store partners buy and sell the food themselves, Instagram’s cost of goods is about the cost of running its Instacart.com platform, which is essentially a locally tailored marketplace of supermarkets that are its partners, and private-label store sites; and of delivering packages to consumers.

The company says those costs will dip to just 22% of revenue, from 28% last year and 25% early this year, as it moves toward its “long-term target” levels. Its capital spending is very low, and its corporate overhead and marketing were 53% of revenue in early 2023. The company believes it can double its EBITDA as a percentage of sales to 39%, according to its presentation.

“When a customer orders more than 20 items, everything about the process is different,” Giovanni said.

Instacart’s prospectus cites market research firm Incisiv as saying the online grocery market will grow between 10% and 18% annually through 2025. If Instacart regains sales growth of 18%, that would work out to 2025 revenue of $5.9 billion, gross profit of $4.63 billion, and EBITDA of $2.3 billion. Including the cash on the company’s balance sheet, that values Instacart at about three times EBITDA – way below DoorDash’s valuation.

At 10% growth in merchandise sales, which Einhorn thinks is closer to the mark, Instacart’s share of that revenue climbs to as much as $2.88 billion in 2025, with EBITDA of about $1.12 billion. Even that would value the company at only seven times 2025 EBITDA, and about 14 times EBITDA from the last four quarters, still a sharp discount to DoorDash. Grocery giant Kroger trades at 13 times net income.

So in a twist few would have predicted in 2020 or 2021, Instacart is trying to go public as a value stock, carefully managed to wring the best results from potentially modest growth. Investors will soon show whether they are buying.

Technology

Meta’s big AI spending blitz will continue into 2026

Published

8 hours ago

July 31, 2025

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Meta's big AI spending blitz will continue into 2026

Meta CEO Mark Zuckerberg makes a keynote speech at the Meta Connect annual event, at the company’s headquarters in Menlo Park, California, U.S. September 25, 2024.

Manuel Orbegozo | Reuters

Meta CEO Mark Zuckerberg plans to continue his company’s artificial intelligence spending blitz well into the next year as rival tech giants do the same.

Zuckerberg told analysts Wednesday during a second-quarter earnings call that AI’s rapid pace of progress has informed much of Meta’s recent business decisions, including the company’s $14.3 billion June investment into the data-annotating startup Scale AI as part of a revamped AI strategy involving a wave of high-profile hires.

AI’s swift advancement warrants that Meta have “the absolute best and most elite talent-dense team” that can access the resources they need from a “leading compute fleet,” Zuckerberg said about the AI Superintelligence team he assembled for his company this summer. Whatever these top-tier AI researchers build can then be implemented throughout Facebook, Instagram and the rest of the company’s family of apps, he said.

“When we take a technology, we’re good at driving that through all of our apps and our ad systems,” Zuckerberg said. “There’s no other company that is as good as us at kind of taking something and getting it in front of billions of people.”

Those AI endeavors, however, come at a cost.

Meta on Wednesday said it expects its total expenses for 2025 to come in the range of $114 billion and $118 billion, raising the low end of its previous outlook of between $113 billion and $118 billion. And while Meta is still planning out next year, the company said its AI initiatives will “result in a 2026 year-over-year expense growth rate that is above the 2025 expense growth.”

Other tech giants are also spending heavy on AI projects and talent.

Alphabet said last week during its earnings report that it is raising its 2025 capital expenditures forecast to $85 billion, which is $10 billion higher from its prior forecast. Microsoft said Wednesday that its fiscal first-quarter capital expenditures will be $30 billion, ahead of analyst expectations of $24.23 billion.

For now, investors are OK with Meta’s big AI investments, with the company’s shares up nearly 12% in after-hour trading on Wednesday. It helps that Meta reported strong second-quarter earnings that beat on the top and bottom while providing third-quarter sales guidance that topped Wall Street expectations.

It also helps that Zuckerberg said AI drove “greater efficiency and gains across our ad system,” likely reassuring worried investors that Meta’s big AI spending is leading to some immediate results.

And while the company’s Reality Labs unit continues bleeding money, posting an operating loss of $4.53 billion in the second quarter, the surprise hit of the Ray-Ban Meta smart glasses seems to have quelled investor discontent for the time being.

“I continue to think that glasses are basically going to be the ideal form factor for AI, because you can let an AI see what you see throughout the day, hear what you hear, talk to you,” Zuckerberg said. “Once you get a display in there, whether it’s the kind of wide holographic field of view, like we showed with Orion, or just a smaller display that might be good for displaying some information, that’s going to unlock a lot of value, where you can just interact with an AI system throughout the day.”

WATCH: I like Meta as a stock, don’t love it, prefer Google.

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Technology

Elon Musk’s plan to build Boring Co. tunnels in Nashville sparks partisan feud

Published

9 hours ago

July 31, 2025

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Elon Musk's plan to build Boring Co. tunnels in Nashville sparks partisan feud

Elon Musk has expanded a number of his companies within Texas, including Tesla, SpaceX, the Boring Co. and Neuralink. Tesla broke ground on a lithium refinery in Texas earlier this year with Governor Greg Abbott in attendance.

Christophe Gateau | Picture Alliance | Getty Images

Elon Musk’s tunneling venture, The Boring Company, announced plans earlier this week to build a 10-mile underground loop in Nashville, in coordination with Tennessee Republican Governor Bill Lee, who put out a press release praising the project.

Democratic lawmakers in Nashville are demanding answers on the plans, while the state’s Republican leaders have jumped at the chance to partner with Musk. A state commission is holding an emergency meeting and public hearing Thursday morning to discuss a “no cost/mutual benefit” lease arrangement that’s been proposed to help the company get the tunnels started.

“We are aware of the state’s conversations with the Boring Company, and we have a number of operational questions to understand the potential impacts on Metro and Nashvillians,” Freddie O’Connell, Nashville’s mayor, said in an e-mailed statement.

Based in Pflugerville, Texas, The Boring Co. is poised to take over a chunk of public property about the size of a football field in downtown Nashville. The commission that’s meeting on Thursday includes Tennessee’s governor, speaker of the house, speaker of the senate and secretary of state. Members of the public were invited to give testimony but with less than a week’s notice.

On Monday, The Boring Co. and state officials divulged that Musk’s venture would dig its tunnels under state-owned roadways in order to “connect downtown and the Convention Center to Nashville International Airport with a transit time of approximately 8 minutes.”

It’s called the Music City Loop, and the project marks Musk’s latest effort to bolster his budding business empire in Tennessee. His artificial intelligence startup xAI, the parent of social media platform X, is building data centers and a power plant in Memphis, on the western side of the state.

The governor’s office said on Monday that the Nashville project would come “at zero cost to taxpayers” and would be “entirely privately funded,” though no details were provided about whether or what type of cost-benefit analysis, environment, safety or traffic assessment had been completed by the state before agreeing to the deal.

Threats to SpaceX & Tesla as Musk, Trump feud heats up

Musk became a major force in Republican politics last year, when he spent almost $300 million to help reelect President Donald Trump before working for the Trump administration in the first few months of this year. Musk brought The Boring Co. CEO Steve Davis with him to lead Trump’s DOGE initiative, slashing federal agencies, regulations and personnel.

Justin Jones, a Democratic state representative in Nashville, told CNBC on Wednesday that his district had not been able to participate in any public comment period, and hadn’t seen any environmental impact report or health assessment related to the Music City Loop or its construction.

‘Not allowed to be here’

On Wednesday evening, The Boring Co. held a recruiting event, with Davis in attendance, at the parking lot where the company expects the state to grant it a no-cost lease. Jones went to the event hoping to discuss the jobs that Musk’s company is looking to create in his district, the lawmaker told CNBC.

“The CEO is here and the other members of their team, but they sent someone out to tell me that I’m not allowed to be here,” Jones said in a text message, sharing a video of his interaction with The Boring Co. employees at the event.

On Monday, Jones arrived to a separate company event at the Nashville airport only to have authorities claim he lacked proper credentials to attend.

Jones told CNBC that state officials explained to him that only state-level authorizations would be required for The Boring Co. project to begin because the tunnels would go under state roads, and would not require the use of taxpayer funds.

“We’re not even being informed where or what exactly these tunnels are going to run through,” Jones said. “Tomorrow they’re voting to give away state land for no cost. But giving away land obviously has a cost.”

The governor’s office didn’t respond to a request for comment regarding Jones’ concerns. Representatives for The Boring Co. weren’t immediately available to comment.

The Boring Co. has previously built tunnels in Las Vegas, including an initial two miles to carry visitors to different exhibit halls around the Las Vegas Convention Center. Tesla drivers travel through the tunnels to pick up and drop off passengers, who book their rides using an app.

xAI says Grok's 'white genocide' posts resulted form change that violated its core values

The initial loop cost Nevada taxpayers about $50 million and has been criticized for a lack of pedestrian entrances, walkways and platforms, and its limitations relative to a subway system. The Boring Co. was previously fined by the Nevada Occupational Safety and Health Administration for repeated violations and worker injuries in Las Vegas.

The Musk-owned company also abandoned plans to build tunnels in other locations, including Chicago.

One particular concern in Nashville is that the city is prone to flooding with an average annual rainfall of around 50 inches, according to the National Weather Service, which compares to around 4 inches in Las Vegas. The city’s Metro Water Services previously arranged, with federal support, to purchase homes from residents in vulnerable areas at reduced prices, and convert the land there to green spaces.

The Boring Co. has no experience building in areas with that kind of rainfall and flooding concern.

The public hearing to discuss whether the state will give the parking lots to The Boring Co. in a no-cost, mutual benefit lease agreement starts at 8 a.m. local time on Thursday at Cordell Hull State Office Building, according to a copy of the agenda on the state government’s website.

In Memphis, xAI has faced a community backlash over its use of natural gas-burning turbines which power its data center and supercomputer there. The facility, housed in a former home appliance factory, is responsible for training xAI’s controversial chatbot Grok.

The NAACP and other environmental and public health advocates are suing xAI, saying the company exacerbated air pollution in the area, harmed majority-Black communities who live near their facilities, and violated the Clean Air Act. An xAI spokesperson said at the time the groups announced their intent to sue that the company takes “our commitment to the community and environment seriously.”

WATCH: Tesla CEO Elon Musk says he has no plans to merge the automaker with xAI

Tesla CEO Elon Musk: No plans to merge Tesla and xAI

Technology

Samsung’s profit more than halves, missing expectations as chip business plunges 94%

Published

11 hours ago

July 31, 2025

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Samsung's profit more than halves, missing expectations as chip business plunges 94%

Headquarters of Samsung in Mountain View, California, on October 28, 2018.

Smith Collection/gado | Archive Photos | Getty Images

Samsung Electronics on Thursday reported a second-quarter operating profit of 4.7 trillion Korean won, missing expectations, weighed by a 93.8% profit slump in its chip business.

While Samsung’s second-quarter operating profit beat its own forecast of around 4.6 trillion won, it was a steep drop from the 10.44 trillion won recorded in the same period last year.

The South Korean technology giant posted a quarterly revenue of 74.6 trillion won, up slightly from 74.07 trillion won a year earlier and beating its forecast of 74 trillion won.

Here are Samsung’s second-quarter results compared with LSEG SmartEstimate, which is weighted toward forecasts from analysts who are more consistently accurate:

Revenue: 74.6 trillion won ($53.5 billion) vs. 74.43 trillion won
Operating profit: 4.7 trillion won vs. 5.33 trillion won

Shares of Samsung fell by as much as 1.79% in early trading.

Notably, its Device Solutions division, which encompasses its memory chip, semiconductor design and foundry business units, recorded a 93.8% drop in operating profit year over year.

Samsung Electronics’ chip business posted an operating profit of 400 billion won in the second quarter, plunging from 6.45 trillion won in the same period last year. Chip revenue fell to 27.9 trillion won, from 28.56 trillion won last year.

“Inventory value adjustments in memory and one-off costs related to the impacts of export restrictions related to China in non-memory had an adverse effect on profit,” the company said in a statement.

However, speaking in an earnings call, Samsung’s chief financial officer Soon-cheol Park voiced some optimism for the company in the near term.

“Despite ongoing global economic concerns driven by uncertain trade policies and geopolitical tensions, the IT industry appears poised for a gradual recovery fueled by increasing momentum in AI and robotics,” he said.

“In this context, we anticipate a rebound in our performance in the second half, following a bottoming out in the second quarter, with the earnings expected to improve steadily as the year progresses,” he added.

Foundry hopes, memory woes

Samsung’s foundry business could receive a boost in the following quarters from a $16.5 billion contract to supply chips to a major company in a deal announced on Monday.

While Samsung did not initially disclose the counterparty, Tesla CEO Elon Musk has said that it was his American electric vehicle maker, and that the so-called AI6 chips would be made at Samsung’s upcoming fab in Taylor, Texas. The deal could be even larger than what’s been announced, Musk added.

The main aim of the Tesla deal for Samsung could be attracting other potential customers to its foundry business, Nam Hyung Kim, research partner and equity research analyst at Arete, told CNBC.

However, “production costs at the Taylor site are expected to be significantly higher than those in Korea,” he said, adding that it is far too early to conclude the deal will improve Samsung’s position against market leader Taiwan Semiconductor Manufacturing Company.

Samsung’s foundry business is currently at a “critical juncture between survival and profitability,” Neil Shah, vice president of research at Counterpoint Research, said in a pre-earnings statement.

Samsung, meanwhile, has been dealing with increased competition in its memory business, which makes chips used to store data in everything from servers to consumer devices such as smartphones and laptops. The company has traditionally been the market leader in the space.

But Samsung’s strength in memory is being threatened as it falls behind rival SK Hynix in high bandwidth memory, or HBM — a type of memory used for artificial intelligence computing.

A report from Counterpoint Research earlier this month found that SK Hynix had caught up with Samsung’s memory revenues in the second quarter, with both now vying for the top position in the global memory market.

In the second half of the year, Samsung said it plans to proactively meet the growing demand for high-value-added and AI-driven products and continue to strengthen competitiveness in advanced semiconductors.

Galaxy sales lift mobile earnings

Samsung’s mobile experience and networks businesses, tasked with developing and selling smartphones, tablets, wearables and other devices, reported an uptick in sales and profit.

The unit posted an operating profit of 3.1 trillion won for the second quarter, compared to 2.23 trillion won during the same period last year.

Consolidated revenue for the unit reached 29.2 trillion won, up from 27.38 trillion won last year.

Samsung said that both revenue and operating profit grew year over year through robust sales of its Galaxy S25 series and Galaxy A series smartphones, as well as its Galaxy tablets.

“In H2 2025, the [mobile experience business] plans to continue a flagship-first approach for smartphone sales focusing on foldables and the Galaxy S25 series — while emphasizing the AI functionality of the Galaxy A series — to increase market share,” Samsung added.