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Shoot for the moon, land with a mediocre valuation.
That’s what happened in Instacart’s much-hyped IPO, which officially debuted on Monday. The grocery delivery company, a pandemic-era standout, set an offer price of between $26 and $28 per share.
It intends to sell 22 million shares in total, 14.1 million of which will be newly issued from the company and 7.9 million of which will come from selling stockholders. The company will officially list shares next week, trading on the Nasdaq under the ticker CART.
But the real story comes from Instacart’s valuation, which is tens of billions of dollars lower than it once was. The tech company appears set to ring in a valuation between $8.6 and $9.3 billion. Back in 2021, Instacart landed a $39 billion valuation on the back of an impressive funding round.
That valuation dip may not bode well for the IPO market at large, which is starting back up after a yearlong freeze.
All eyes were on Instacart, but it’s increasingly becoming clear that valuations are still a challenge that will vary based on market conditions. In 2021, at the time of Instacart’s eye-popping valuation, tech companies were reaching record-high valuations, while startup funding also reached record highs, and other tech standouts, like Airbnb and DoorDash, had recently gone public, likely fueling momentum for other tech IPOs, like Instacart’s.
Now, though, it all looks like a bygone era of not just tech-IPO hype, but also lower interest rates and eager consumer spending. In 2023, it’s possible that higher interest rates will cause hiccups for other IPO market debuts, which have been off to a mixed start so far.
“Present value calculations of future earnings for stocks are tied to assumptions about interest rates or inflation,” Rob Haworth, senior investment strategy director at US Bank Wealth Management, said in a statement. “If investors anticipate higher rates in the future, it reduces the present value of future earnings for stocks.”