This analysis was first published in SvD Näringsliv, in Swedish, on September 20th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Optimism is returning to the tech market after delivery company Instacart’s listing on the American Nasdaq. But Instacart has what many tech companies still lack: profitability.

Lime-green canvas bags were everywhere in San Francisco in the mid-2010s. In shop after shop, people walked the aisles picking items that ended up in the bags. They were not shopping for themselves, though — they were doing it for someone who had placed an order through an app. The bag said “Instacart.”

The pitch was very simple. Someone else shops for you, at your favourite store. You get food delivered to your door within an hour. For the trouble, you pay a small fee, plus a tip.

Living in San Francisco at that time was like being subsidised by venture capitalists. In the race for growth, services were offered at unreasonably low prices. Why shop yourself when someone else will do it for you? It might sound like a luxurious life, but the cost was often negligible. There was one simple reason for that — someone else was paying. In this case, American venture capitalists who wanted companies like Instacart to win new customers.

On Tuesday, Instacart listed on the American Nasdaq. The core idea remains, but the company has undergone a substantial transformation since its founding. Going public with a business model where shareholders foot the bill is no longer particularly fashionable. In Instacart’s IPO prospectus, a profitable company emerges — with 5.4 billion kronor in adjusted earnings.

Going public as a tech company has been essentially off the table since 2021. Growth stopped being attractive and investors instead wanted to see profitability. Listing without having solved that question has been virtually impossible — there is simply no appetite for that kind of company.

Many tech companies have therefore spent the past two years trying to become profitable. Instacart’s listing now is because they managed to do exactly that. At the end of 2022, they turned a profit for the first time.

It is also interesting to look at how Instacart reached this sought-after profitability. It was not, as one might expect, the result of consumers simply paying more to have food delivered. Instead, Instacart has undergone a transformation and now has three legs to its business: food delivery, advertising, and software. The company’s stated vision is to “build the technology that enables every grocery transaction.” That does not quite sound like a delivery company anymore, does it?

What they are referring to is what they call the “Instacart Enterprise Platform” — a technology product sold to retailers, enabling everything from e-commerce to advertising management.

By holding data on every customer’s purchasing habits, they have built a highly attractive and successful advertising business. In the past year, the platform and advertising accounted for around 29 percent of revenue — more than 8 billion kronor in total. In the US, only 12 percent of grocery purchases happen online, which means there is a great deal of market share still to be gained. And the more people who shop through Instacart, the better their data becomes — and by extension, the more advertising revenue they generate.

On the first day of trading, Instacart rose around 12 percent, giving a company valuation of roughly $11 billion. Under normal circumstances this would be a major success — but that assessment depends on not knowing Instacart’s valuation in 2021, which was around $39 billion, nearly four times higher.

But that was a different time, as we know. Perhaps Instacart’s new valuation is a sign that the tech world has sobered up a little? The numbers are high, but not as astronomical as they once were. And — just as in the rest of the business world — it helps to be able to show that you can actually make money. When the next generation of tech companies reaches that point, the market appears to be open for them too.