Fidelity, T. Rowe Mark Down Instacart Stake by Up to 18%
Some large investors in Instacart have marked down the value of their stakes in the privately held grocery-delivery company by as much as 18% since it raised funds a year ago at a $39 billion post-investment valuation, previously unreported figures show. The moves indicate that the recent sell-off in technology stocks may be starting to affect investor perceptions of startups that raised at high prices last year, particularly in competitive sectors like online delivery.
Fidelity’s Growth Company Fund, which holds stock in both private and public companies, on November 30 valued Instacart shares at $102 apiece, an 18% decline from the $125 share price it paid when it invested in the startup’s Series I round in February 2021, according to public filings. The move implied the investor believed Instacart’s valuation had dropped on paper to a little under $32 billion.
THE TAKEAWAY
• Mutual funds invested in round that valued Instacart at $39 billion
• Fidelity, T. Rowe markdowns follow drop in stocks of DoorDash
• Instacart revenue growth slowed to 20% last year
Meanwhile, mutual fund T. Rowe Price’s Communications and Technology Fund, which first backed Instacart in a July 2020 Series G round, marked down the value of its stake in Instacart by 5% to $119 on December 31 from $125 in the February 2021 fundraising. Hedge fund D1 Capital Partners and venture firms Andreessen Horowitz and Sequoia Capital also participated in that round, though it’s unclear whether they adjusted the value of their stake.
The mutual funds’ lowered valuations follow a drop in the share prices of similar businesses like restaurant-delivery app DoorDash and Grubhub owner Just Eat Takeaway. These stocks fell 22% to 39% from mid-November to year-end. They have both fallen another 40% since the start of the year, broadly in line with a wide range of other tech stocks, although more than the 10%-15% drop in most of the big tech giants. That suggests investors in private delivery firms such as Instacart could further lower their valuations in the months to come.
The mutual funds’ lowered expectations marks a reversal from a year ago, when nine-year old Instacart had become a pandemic darling amid a surge in consumer demand for online delivery. It raised nearly $800 million in three rounds of funding between 2020 and 2021 from a who’s who of big Silicon Valley VC firms and financial giants, vaulting its valuation five-fold from $7.9 billion in 2018. At one point Instacart was the second most valuable private startup in the U.S. after SpaceX, on a path to a late-2021 IPO.
The fundraising outlook for mature startups like Instacart has worsened since then, as a retreat in tech stocks has halted most initial public offerings this year and led some large private investors, such as D1 and Tiger Global, to indicate they would invest less in late-stage startups and instead focus on younger startups or beaten down tech stocks.
It’s not clear if the market downgrade of fast-growing tech stocks over the past few months triggered Fidelity and T. Rowe to mark down their valuations or whether the moves also reflect insight into Instacart’s business. Investors vary in how they value their holdings. For instance, VC firms often keep startups marked at the last private valuation instead of adjusting share prices on a regular basis like mutual funds do. And between them, mutual funds and private equity firms differ in their methods.
In November, in fact, Fidelity did not mark down its investment in Gopuff, the $15 billion valuation instant delivery firm, which provides grocery and convenience item delivery to consumers from a network of warehouses, and which investors frequently compare to Instacart. It also did not mark down the share price of other startups nearing a public listing including Stripe, Databricks, Discord, or Reddit, according to the filings.
Spokespeople for Fidelity and T. Rowe declined to comment.
20% Revenue Growth
Instacart’s business slowed dramatically last year as vaccines became widely available in the U.S. and consumers returned to in-store grocery shopping. Instacart’s net revenue rose last year to around $1.8 billion, said a person with direct knowledge of the matter, roughly 20% higher than the $1.5 billion in net revenue it generated in 2020 but a slower rate than the tripling in revenue it achieved during the first year of the pandemic. Last year’s net revenue excludes fulfillment and service costs like the money paid out to gig economy workers who pick and deliver the groceries, as well as discounts and coupons given to customers.
By contrast, DoorDash’s net revenue grew 69% to $4.9 billion in 2021 thanks to continued high demand for restaurant delivery even after the end of U.S. lockdowns. The number similarly excludes money paid out to restaurant merchants and delivery workers and various customer promotions.
Instacart is also facing growing competition from rivals like DoorDash and Uber’s UberEats, which are expected to grow their own market share in the online grocery market and have already begun to work with retailers that were once exclusive to Instacart. Albertsons last year struck a partnership with DoorDash to offer grocery delivery from around 2,000 stores. And Costco, one of Instacart’s largest customers, began piloting grocery delivery services with Uber in Texas in July.
Instacart last year also pushed off plans to go public to focus instead on developing new services for retailers like smart check-out carts amid the heightened competition, The Information previously reported. The startup also suffered executive turnover, including a CEO switch in August from founder Apoorva Mehta to ex-Meta Platforms executive Fidji Simo and the departure of president Carolyn Everson in December, who left after just three months on the job.
Instacart also engaged in merger talks with DoorDash over the summer for a price that would have likely been between $40 billion and $50 billion, The Information first reported. Those talks fell apart in part due to concerns that the deal wouldn’t get past antitrust regulators.
It’s unlikely Instacart would be able to fetch a price anywhere near that range if it were to seek a new round of private funding or go public in the current fundraising environment. The firm currently has no plans to do either and is sitting on at least $1 billion in cash, said a separate person with direct knowledge.