Instacart shares fell 5% on Wednesday, as the grocery delivery app joined other recent stock market entrants in failing to keep up with their strong gains on debut.
Investors were hoping that a wave of new listings would reignite the IPO market after a near 18-month dry spell. However, stocks including that of chip designer Arm and RayzeBio have slipped from their highs, in a sign of caution amid concerns of inflation and higher interest rates.
The market seems unsure of whether the economic conditions can continue to support the elevated valuations of those IPOs, said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
Instacart, which counts Costco Wholesale, Kroger and Aldi among its retail partners, has seen its orders grow despite slowing from pandemic highs as people stick with their lockdown habits of ordering groceries and essentials from the comfort of their homes.
"We are seeing ... the realisation that consumers are still facing a cost-of-living crisis and that their willingness to pay an additional charge for home deliveries may be weaker than assumed," said Stuart Cole, chief macro economist at Equiti Capital.
Shares of the San Francisco-based firm ended 12% higher in their Nasdaq debut on Tuesday (19 September), failing to hold onto an intraday gain of as much as 43%. The company's initial public offering on Monday had given it a valuation of nearly $9.9 billion.
"Enthusiasm for the company will be challenged by its ability to sustain margin expansion and revenue growth while facing elevated food price inflation and increased competition from food delivery providers, Walmart, Amazon, and traditional grocers," said Alex Frederick, senior emerging technology analyst at PitchBook.
A potential headwind would be attracting and retaining new customers, Frederick said, especially older shoppers who tend to prefer the savings and experience of brick-and-mortar grocery stores.
Instacart's listing came almost three years after it kicked off preparations to go public. In August, it announced interest from PepsiCo, which has agreed to buy $175 million in preferred convertible stock.