Instacart, Klarna lead thin IPO market heading into the New Year

Last year, Instacart slashed its valuation 38% to $24 billion, down from a pandemic-high of $39 billion.
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Francis Scialabba

4 min read

It’s a new year, which means a new crop of companies will tackle the IPO market. This year, however, there are fewer contenders, as investors are a lot more weary given the economic conditions.

But what’s the outlook for companies that have already filed an IPO and are expected to go public? Here’s what experts told us.

Instacart: The grocery delivery service shelved plans to go public last year, as factors such as inflation, fears of a recession, and the war in Ukraine scared off Wall Street. The pandemic ratcheted up the adoption of grocery delivery rapidly, but that effect essentially wore off by June of last year, Daniel McCarthy, assistant professor of marketing at Emory University, told Retail Brew.

The pandemic boost allowed the public to get a better idea of how Instacart would fare on the market, and McCarthy believes the company has a solid value proposition—so long as it targets a reasonable valuation.

  • Last year, the company slashed its valuation ~40% to $24 billion, down from a pandemic-high of $39 billion.

“We just left an era where valuations were significantly higher,” McCarthy said. “There was this hope they were holding on to that maybe they can still get there with that. Obviously, they’re going to be priced relative to…anything else that’s trading right now.”

While grocery delivery, by and large, is here to stay, there are questions as to how Instacart can compete moving forward, Michael Maloof, director of strategy and marketing at Earnest Analytics, told Retail Brew.

  • Given that 6% of consumers’ budgets is spent on groceries, much of that is concentrated in the largest grocery stores.
  • Additionally, discount grocers like Lidl and Aldi are outpacing in growth compared to the rest of the industry.
  • Maloof also mentioned the company will face stiffer competition from grocers like Kroger, which is expanding its partnership with Ocado to open more customer fulfillment centers for online grocery delivery. Kroger said it wants to double digital sales by the end of 2023.

“It’s not shoppers moving from going in store to Kroger to going online to buy from Kroger via Instacart, it’s really shoppers deciding to trade down to cheaper things right now,” he said. “If the consumer outlook worsens, that would probably be a trend that accelerates and further hurts Instacart’s prospects.”

Klarna: The buy now, pay later firm had a busy 2022, rolling out a slew of social shopping tools for customers and its merchant partners, while expanding its services to more brick-and-mortar locations. In July, the company took a major hit to its valuation, falling from $45.6 billion to $6.7 billion after a funding round. Klarna also laid off more than 10% of its workforce last year and lost $580 million in the first two quarters.

  • For what it’s worth, CEO Sebastian Siemiatkowski remains optimistic, telling CNBC he anticipates the company to return to profitability by this summer.

It’s been long speculated that Klarna will file an IPO at some point, and this year may be the time. The company is still adding new users despite decelerating transaction growth that peaked last January, Maloof said. Plus, the company is officially top dog as far as BNPL companies are concerned, with a larger market share (44.5%) than Affirm (19.6%) of total Q3 app downloads.

  • But the entire BNPL industry is facing the same headwinds: rising rates, economic uncertainty, and regulatory scrutiny.
  • In a tough economic climate, consumers are less willing to spend on discretionary items, which is where Klarna sees an inroad, Maloof said.
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“Affirm’s earnings results…raised serious doubts on whether really anyone in the BNPL space can be profitable right now,” Maloof said. “Despite record holiday spending, the consumer is slowing down right now.”

+1: The rest of the field is fairly thin. Stripe and Chime are two other fintech firms eyeing going public soon, but McCarthy said the information on them is far more sparse. “There is an element with some of these companies that could feel like subprime lenders, and we’re just starting to see all that shake itself out.”

Retail news that keeps industry pros in the know

Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.