The best-known unicorns in the world are getting fit, showing that it is possible to trim losses while still posting growth. They are living experiments when it comes to corporations looking to get lean without cutting muscle.
European fintech giant Klarna is working through a valuation reset and a change in investor priority ahead of an eventual public offering. It’s not the only private tech company adjusting its valuation and working to scale its revenue and profitability to meet the new valuation reality the startup world is still digesting.
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Here in the United States, Instacart is undergoing a similar reforging. Much like Klarna, Instacart soared amid the pandemic, watching its valuation explode as it caught a business updraft during COVID-triggered economic upheaval. And, like Klarna, it has had to slash its valuation and clip staffing so that it can, at last, go public.
Earlier this week, we dug into Klarna’s 2022 results, paying special attention to its Q4 data; the company’s full-year results obfuscated the fact that Klarna made material progress toward profitability as the end of the year neared. That mattered more than its historical losses from earlier in the year.
So when The Wall Street Journal got a grip of new data regarding Instacart’s 2022 performance, we dug into it with the same perspective: What was the full-year data, and what do the company’s more recent results say about the trajectory of the business?
Recall that Instacart’s latest valuation is around the $10 billion mark. That’s far below its peak price of $39 billion but gives us a nice round number to compare results to.
Let’s peek at the latest data and take stock of how far — and perhaps how close — Instacart has come to matching its performance and price.
Instacart’s 2022
Parsing the WSJ report, here’s the rundown of data that it discussed, starting with 2022 full-year results compared to the year-ago period:
- Revenue: Up 39% to “about” $2.5 billion.
- Gross transaction volume: Up “about” 16% to $29 billion.
Next, quarterly results compared to year-ago data:
- Q3 2022: Revenue up 40%, gross profit up 45%.
- Q4 2022: Revenue up 50%, gross profit up 80%, positive net income and more than $100 million in adjusted EBITDA.
That was a pile of numbers, so let’s distill them into statements:
- Instacart’s full-year growth rate was faster than its growth rate in 2021, a positive development.
- Instacart’s growth rate inside of 2022 accelerated, with the third quarter posting above-average growth compared to its full-year rate and its fourth quarter besting even that result.
- Instacart’s take rate improved in 2022, which we infer from its revenue expanding faster than its gross transaction volume.
- Instacart’s gross margins strengthened throughout 2022 as its gross profit growth accelerated faster than revenue growth as the year concluded.
- Instacart’s net income in Q4 2022 was likely modest, but the fact that it had any is impressive, and nine-figure adjusted EBITDA in a single quarter is pretty darn good to boot.
It’s frankly an impressive list. Last March, this column was somewhat bullish on the company’s growth plan, noting that it appeared that its software and advertising efforts might “get growth going again [and] likely boost its blended gross margins.” We were directionally correct, but Instacart did better than we anticipated.
The correct question at this juncture is whether Instacart can go public with its current result set and present-day valuation. The WSJ notes that Instacart is saying internally that it is waiting for a more receptive climate for a debut. How do we rate that statement?
There is no perfect comp for Instacart on the public markets, but DoorDash is a similar enough business to chew on. It deals with a marketplace of foodstuffs, offers delivery and a consumer subscription, and even generates a portion of its overall volume from groceries.
In the fourth quarter of 2022, the company posted 40% year-over-year revenue growth to $1.82 billion, a GAAP net loss of $640 million, and positive adjusted EBITDA of $117 million. That means that DoorDash was growing more slowly in revenue terms in Q4 2022, and it appears to have posted less profitability than Instacart (which, recall, featured Q4 2022 positive net income).
What is DoorDash worth today? Per both Yahoo Finance and YCharts, just over 3x sales with a trailing revenue multiple of 3.04x. So! What’s Instacart worth at that multiple? With $2.5 billion in 2022 revenue, just over $7.5 billion.
However, as Instacart may have arguably more attractive recent profitability metrics, could it expect a better revenue multiple? Perhaps! After all, we’ve been told that investors are now all about that net income, right?
Sadly for the grocery giant, even if we grant it a roughly 33% revenue multiple bump to 4x, it’s worth nearly exactly its last private valuation mark. No one who just underwent a valuation correction for the ages wants to debut flat. So, Instacart needs to either wait a minute until it can post more growth and, therefore, a higher revenue base to predicate a valuation off of, or it needs the public markets to warm up a smidge.
Either way, we can see why Instacart is holding off on going public. It probably makes numerical sense to wait a quarter or two, provided that its results continue to impress. If its growth slips, or profitability trips, it may have wished to pull the trigger while its Q4 data was still sizzling.
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