Instacart’s strong opening day following its initial public offering as Maplebear doesn’t guarantee the stock will stay strong in the future—and its “low float” could complicate things in the future.
Maplebear (CART), which does business as Instacart, made just under 8% of its total shares available for public trading, what’s known as a “low float” in market jargon. A low float means that a company is offering a small number of shares to public investors, often resulting in too little supply to meet the demand, which can cause a stock to pop at the open. That’s exactly what happened with
Instacart,
which gained 12% on its first day of trading.
Instacart CEO Fidji Simon in an interview with CNBC justified the low free float by stating that “this IPO is not about raising money for us. It’s really about making sure our employees can have liquidity on the stock that they work really hard for.”
Instacart isn’t the only company starting off with a low float. Chip designer
Arm Holdings
(ARM) offered about 9.3% of its shares when it went public on Sept. 14 while Vietnamese electric-vehicle start-up
VinFast Auto
(VFS), which went public via a SPAC, had a float of just 0.3%. Arm closed 25% above the IPO price on Thursday, its first day of trading, while VinFast skyrocketed 255%.
These companies are not the exception. Corporations recently have been stingier with the number of shares offered to the public. In, 2021 and 2022, the average float stood at approximately 18% and 19%, respectively, the lowest in over four decades, according to Jay Ritter, a University of Florida finance professor who studies IPOs.
There’s a downside to low floats, however. What juices returns on the upside can exacerbate losses when stocks fall. Arm, for instance, fell 4.5% on its second and third days of trading, while VinFast now trades for about half of where it closed after its SPAC deal closed.
Instacart doesn’t have to meet the same fate; fundamentals will ultimately determine where the stock trades. Just remember to consider the float when making a decision about whether to dive into a high-profile IPO.
Write to Karishma Vanjani at [email protected]
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