Instacart's $9B IPO: Sizzle or Fizzle?

GRIT
18 Sep

Good Morning!

Today were talking Instacart +$9 billion IPO, $100 oil, and the $100B student loan hit.

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Let’s get into it!

INSTACART $9B IPO: SIZZLE OR FIZZLE?

Source: CB Insights

Instacart is set to hit the trading floor on Tuesday under the ticker "CART," hot on the heels of Arm Holdings' blockbuster IPO, which soared 20% last week. After years of IPO deliberation, Instacart is finally pulling the trigger, targeting a raise of over $600 million at a valuation between $9.3 and $9.9 billion ($26-28/share).

The company has turned a corner financially, raking in $242 million in profits so far in 2023, compared to a $74 million loss during the same period last year. A 31% revenue surge in the first half of the year is largely credited to its lucrative ad segment, which trails only its core grocery delivery service in revenue generation.

While the IPO offers a long-awaited exit for investors—the company was founded in 2012 and has raised $2.9 billion to date—it's not all roses. Investors who backed the company in March 2021 did so at a $39 billion valuation ($125/share), making this IPO a valuation haircut of over 75%. The company slashed its valuation three times last year, last settling at about $13 billion in October.

In a strategic play, Instacart is courting heavy-hitters like PepsiCo, Sequoia, Norges Bank, D1 Capital Partners, and Valiant Capital Management to snap up as much as 60% of the IPO shares. This diversifies its investor base, reducing reliance on just institutional or retail investors.

GRIT TAKE: Grocery is a cutthroat, low-margin game with few entry barriers. Instacart's IPO looks tempting—profitable, strong growth, and a valuation around 3x revenue (below DoorDash at 4.2x but above Uber at 2.8 times and Lyft at 1x). But let's not forget, DoorDash's IPO fizzled from $102 to $80. Add to that the looming threat of a recession within a year, which could make grocery delivery a luxury few can afford. I'm keeping my wallet closed but my popcorn ready for this one. Will it match ARM's IPO buzz?

STUDENT LOAN RESTART: $100 BILLION HIT

Source: Al.com

Starting October 1st, the student loan grace period is officially over for tens of millions of borrowers, with monthly tabs ranging from $200 to $300. This ends an 18-month financial breather granted by the Education Department since March 2020.

During this pause, borrowers didn't just sit on their cash. They indulged in luxuries like high-end TVs, gourmet dining, dream vacations, and even new homes. This spending spree has been a lifeline for an economy grappling with rising interest rates.

Now for the gut punch: Restarting these loan payments could drain a jaw-dropping $100 billion from consumer pockets in the coming year. This looming financial strain has not only everyday Americans but also retail giants like Target, Walmart, and Macy's on high alert for a potential dip in consumer spending.

GRIT TAKE: According to Wells Fargo’s economist the amount of money saved during the payment pause comes out to less than 1% of $18 trillion in annual U.S consumer spending. It might look like small potatoes on the surface, but here's where it gets dicey: it's all about spending at the margin. Consumers are already feeling the pinch from rising interest rates on credit cards, car leases, and mortgages, not to mention escalating grocery and gas prices. Tossing another financial burden into this already smoldering mix? That's just fanning the flames.

Stem Cell Sector Set to Reach New Heights

FED NIGHTMARE: $100 OIL

Source: Bloomberg

U.S. strategic petroleum reserves are scraping 40-year lows while global thirst for oil hits record highs. OPEC's playing coy with extended production cuts, and refineries are feeling the squeeze. The Fed is sweating bullets, trying to rein in inflation without triggering an economic nosedive. But oil prices? They're dancing to their own beat!

A sharp 11% spike in oil prices over the past three weeks has hedge funds and savvy investors the most bullish they've been in 15 months.

When it comes to the recent spike in inflation, gasoline is the main offender. Last month's CPI numbers revealed that gasoline was the largest contributor to the monthly all-items increase, accounting for over half of the inflation uptick.

Buckle up: experts are now forecasting the once-unthinkable—$100 oil could be on the horizon.

GRIT TAKE: Stagflation—a chilling combo of rising inflation and sluggish economic growth—is becoming an increasingly real threat. Consumers are already getting a taste, with gas prices hitting 2023 peaks. Nationwide, we're talking $3.87 per gallon, but in California, it's a jaw-dropping $5.52. Brace yourselves; the economic weather is looking stormy.

Coming Up…

Monday: National Association of Home Builders will be releasing September’s Housing Market Index data and the New York Fed announcing September’s Business Activity results.

Tuesday: Housing Starts, Building Permits and AutoZone earnings.

Wednesday: FED rate decision, FedEx and General Mills earnings.

Thursday: Bank of England rate decision.

Friday: Bank of Japan rate decision.

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UAW tossed its old playbook and pursued a surprise strike-attack
Biden national security advisor has secret meeting with China
House Republicans hold conference call to avert shutdown
Zelenskyy to meet with Senators at US Capitol

Just for fun…

This man paid for an entire graduation class tuition

Source: Wikipedia

This man defied all odds, became a billionaire and then paid for an entire graduation class college tuitionRobert Smith was born in 1962 in Denver, Colorado where his parents were both school principals, and they instilled in him a deep respect for philanthropy and education. After graduating Cornell with a degree in chemical engineering, Smith worked at Goldman Sachs for 6 years, where he spent his time overseeing a $50 billion portfolio in mergers and acquisitions. Smith left Goldman Sachs in 2000 to launch his own fund, Vista Equity Partners, that focused on Enterprise Software specifically financing their debtHowever, no one believed in Smith’s vision because enterprise software companies had no hard assets that could be put up as collateral. In response, Smith presented his investors with future revenue of subscription based businesses, and they were blown away with the projections. Today, Vista Partners is worth over $85 billion and is one of the largest and most successful investment tech firms around and Robert Smith is a billionaire. In fact in 2019, during his graduation speech to Morehouse College, he paid for every graduating students college tuition.

The Financial Ally You’ve Been Waiting For

3 Most Important Charts Right Now

Global Central Banks: Gold Holdings

Gold holdings as a % of foreign reserves are going up

Source: Bloomberg, Tavi Costa

US Farmland Has Never Been This Valuable

Agricultural land is up by 7.4% over last year

Source: Bloomberg, US Department of Agriculture

Delinquent Mortgages

There are very few delinquent mortgages.

Source: Apollo

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