Instacart, known as Maplebear (CART) in the market, had a strong opening day following its initial public offering (IPO), but this doesn’t guarantee its future performance. One factor that could complicate things for Instacart is its “low float,” which means that only a small percentage of its total shares were made available for public trading.
When a company has a low float, there is often too little supply to meet the demand from investors, which can cause the stock to surge upon its market debut. This was exactly the case for Instacart, which experienced a 12% gain on its first day of trading.
However, Instacart CEO Fidji Simon clarified in an interview with CNBC that the low float was not intended to raise money for the company. Instead, it aimed to provide liquidity to employees who have worked hard and earned stocks through their dedication.
Instacart is not alone in starting off with a low float. Other companies, such as chip designer Arm Holdings (ARM) and Vietnamese electric-vehicle start-up VinFast Auto (VFS), have also offered a limited number of shares to the public. Arm closed 25% above its IPO price on its first trading day, while VinFast skyrocketed by 255%.
Recent trends indicate that many companies are being more conservative with the number of shares they offer to the public. In 2021 and 2022, the average float for IPOs was around 18% and 19%, respectively—which is the lowest percentage in over four decades, according to Jay Ritter, a finance professor at the University of Florida specializing in IPO studies.
While a low float can boost returns when stocks rise, it can also amplify losses when they fall. For example, Arm experienced a 4.5% decline on its second and third trading days, and VinFast’s stock price dropped to about half of its closing price after the SPAC deal closed.
However, Instacart’s fate doesn’t necessarily have to mirror these examples. Ultimately, the stock’s performance will be determined by its fundamentals. When considering whether to invest in a high-profile IPO like Instacart, it’s crucial to take the low float into account as an important factor.
