INSTACART: PUTTING A PRICE ON THE IPO SHARE VALUATION
CASE STUDY SOLUTION
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SYNOPSIS
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Instacart was an online grocery delivery platform that was seeking to go public through an Initial Public
Offering (IPO). Instacart had hired an investment bank to be its lead bookrunner, and the bank was
responsible for coming up with an IPO price range. Maya Martinez, an investment banking analyst at the
firm, had been tasked with building financial models to come up with an appropriate share range for the
firm’s managing directors to present at the IPO roadshow.
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OBJECTIVES
• Value a company using discounted cash flow (DCF) analysis
• Value a company using comparable companies analysis
• Discuss the pros and cons of these valuation methods for determining an offering price range for
Instacart’s IPO.
The Case Solution Starts From page 5
,ASSIGNMENT QUESTIONS
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1. Provide a brief overview of Instacart and its operations. What are some key factors about the current
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IPO market that Martinez needs to consider?
2. Using DCF and comparable companies analyses, at what price range should Martinez and her team
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recommend that Instacart go public (IPO)?
3. Should Martinez and her team recommend that Instacart go public, and what are the pros and cons of
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going public now at this valuation?
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So
ANALYSIS
1. Provide a brief overview of Instacart and its operations. What are some key factors about the
current IPO market that Martinez needs to consider?
The Case Solution Starts From page 5
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2. Using DCF and comparable companies analyses, at what price range should Martinez and her
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team recommend that Instacart go public (IPO)?
Sa
To arrive at a share price range, students should conduct a DCF analysis (TN-1), followed by a comparable
companies analysis (TN-2). For the DCF analysis, students are given the historical income statement in
Exhibit 2 and information to project revenue, cost of goods sold, and operating expenses (operations and
support, research and development, sales and marketing, general and administrative, depreciation and
amortization, etc.) in the body of the case. Students should project each line of the income statement from
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2023 to 2027. Students should ultimately arrive at operating income by subtracting the sum of all operating
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expenses from the gross profit.
The next step is to calculate the net operating profit after tax (NOPAT), which is calculated as operating
income × (1 − tax rate). The tax rate given in the case is 21 per cent, which can be found in TN-1. After
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calculating NOPAT, students will need to calculate the unlevered free cash flow (FCFU). FCFU is calculated
according to the following equation:
So
FCFU = NOPAT + Depreciation & amortization − CapEx − Change in net working capital
Capital expenditures (CapEx) for the projected years are provided in the case.2 For the working capital
The Case Solution Starts From page 5
, EXHIBIT -1: INSTACART 5-YEAR DISCOUNTED CASH FLOW VALUATION
Summary Projections (in $ millions)
2020A 2021A 2022A 2023E 2024E 2025E 2026E 2027E
1 2 3 4 5
Sales $ 1,477 $ 1,834 $ 2,551 $ 3,010 $ 3,251 $ 3,479 $ 3,652 $ 3,762
Cost of goods sold 598 608 720 729 755 790 812 817
Gross profit 879
Operating expenses:
Operations and support 324
Research and development 194
Sales and marketing
General and administrative
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The Case Solution Starts From page 5
CASE STUDY SOLUTION
e
pl
m
SYNOPSIS
Sa
Instacart was an online grocery delivery platform that was seeking to go public through an Initial Public
Offering (IPO). Instacart had hired an investment bank to be its lead bookrunner, and the bank was
responsible for coming up with an IPO price range. Maya Martinez, an investment banking analyst at the
firm, had been tasked with building financial models to come up with an appropriate share range for the
firm’s managing directors to present at the IPO roadshow.
n
tio
lu
So
OBJECTIVES
• Value a company using discounted cash flow (DCF) analysis
• Value a company using comparable companies analysis
• Discuss the pros and cons of these valuation methods for determining an offering price range for
Instacart’s IPO.
The Case Solution Starts From page 5
,ASSIGNMENT QUESTIONS
e
1. Provide a brief overview of Instacart and its operations. What are some key factors about the current
pl
IPO market that Martinez needs to consider?
2. Using DCF and comparable companies analyses, at what price range should Martinez and her team
m
recommend that Instacart go public (IPO)?
3. Should Martinez and her team recommend that Instacart go public, and what are the pros and cons of
Sa
going public now at this valuation?
n
tio
lu
So
ANALYSIS
1. Provide a brief overview of Instacart and its operations. What are some key factors about the
current IPO market that Martinez needs to consider?
The Case Solution Starts From page 5
, e
pl
2. Using DCF and comparable companies analyses, at what price range should Martinez and her
m
team recommend that Instacart go public (IPO)?
Sa
To arrive at a share price range, students should conduct a DCF analysis (TN-1), followed by a comparable
companies analysis (TN-2). For the DCF analysis, students are given the historical income statement in
Exhibit 2 and information to project revenue, cost of goods sold, and operating expenses (operations and
support, research and development, sales and marketing, general and administrative, depreciation and
amortization, etc.) in the body of the case. Students should project each line of the income statement from
n
2023 to 2027. Students should ultimately arrive at operating income by subtracting the sum of all operating
tio
expenses from the gross profit.
The next step is to calculate the net operating profit after tax (NOPAT), which is calculated as operating
income × (1 − tax rate). The tax rate given in the case is 21 per cent, which can be found in TN-1. After
lu
calculating NOPAT, students will need to calculate the unlevered free cash flow (FCFU). FCFU is calculated
according to the following equation:
So
FCFU = NOPAT + Depreciation & amortization − CapEx − Change in net working capital
Capital expenditures (CapEx) for the projected years are provided in the case.2 For the working capital
The Case Solution Starts From page 5
, EXHIBIT -1: INSTACART 5-YEAR DISCOUNTED CASH FLOW VALUATION
Summary Projections (in $ millions)
2020A 2021A 2022A 2023E 2024E 2025E 2026E 2027E
1 2 3 4 5
Sales $ 1,477 $ 1,834 $ 2,551 $ 3,010 $ 3,251 $ 3,479 $ 3,652 $ 3,762
Cost of goods sold 598 608 720 729 755 790 812 817
Gross profit 879
Operating expenses:
Operations and support 324
Research and development 194
Sales and marketing
General and administrative
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The Case Solution Starts From page 5
