Wall Street Pays Attention to Instacart’s Market Trajectory By Investing.com

In the rapidly evolving online grocery sector, Instacart (NASDAQ:), which operates under the EXCHANGE:CART name, has received considerable attention from Wall Street analysts. These industry experts have closely monitored the company’s performance, market trends, and the potential impact of external factors to provide a comprehensive outlook for potential investors.

Company Overview

Instacart has established itself as a digital-first leader in online grocery delivery and pickup services, connecting customers with a variety of retailers. We have built a significant presence in the United States and Canada with a focus on tight integration with sellers, optimized delivery logistics, and mature advertising products. Instacart’s platform supports both grocery and non-grocery items and has been recognized for its early leadership in the large grocery Total Addressable Market (TAM).

Market Performance and Strategy

Analysts noted that Instacart’s gross transaction value (GTV) and revenue consistently beat consensus estimates, and EBITDA margins showed significant year-over-year improvement. This reflects the company’s stringent cost management and improved profitability. Instacart’s ad adoption increased year-over-year, driven by robust consumer packaged goods (CPG) ad spending and the launch of new ad formats in the second half of 2022.

The company’s $500 million share repurchase program signals confidence in its financial strength and cash generation ability. With $2.2 billion in cash on hand, Instacart is poised to continue GTV growth through 2024 and possibly surpass current levels.

competitive landscape

Instacart is navigating a competitive landscape with pressure from companies like DoorDash (NASDAQ:) and Uber (NYSE:). Analysts highlighted the importance of a substantial reacceleration of top-line growth to remain optimistic about the company. Long-term growth opportunities include strengthening retailer relationships and investing in audience growth.

Despite the competitive environment, Instacart’s leadership position in digital grocery was strengthened by accelerating GTV and order growth and expanding purchase rates. The company’s business model is evaluated as defensible, and its continued performance is expected to contribute to an increase in its stock price.

Regulatory and macro environment

Among the risks facing Instacart are regulatory scrutiny over the status of gig workers and changes in consumer behavior post-pandemic. The Company must also navigate increased competition within the marketplace and retail media markets and the potential failure to scale its advertising business or expand internationally.

financial outlook

Instacart’s financial performance has been solid, and its third quarter 2023 results exceeded expectations. The company reported total GTV of $7.49 billion and adjusted EBITDA of $163 million for the quarter. Revenues were driven by trading revenue and advertising and other revenue, with fourth quarter 2023 guidance calling for GTV growth of +5% to 6% year-over-year and adjusted EBITDA between $165 million and $175 million.

Wolfe Research maintains an Outperform rating on Instacart (CART) with a $39 price target, up from $35 previously. The company’s analysis suggests multiple paths for GTV acceleration in FY24, with the base case being +7% GTV growth. The adjusted EBITDA outlook for FY24 is estimated at $730 million, further increasing to $903 million in FY25. The company currently has a market capitalization of approximately $11.495 billion, an enterprise value of $9.153 billion, and its financial ratios include a price-to-earnings ratio of 55x, an EV/EBITDA of 12.5x, and a free cash flow (FCF) ratio of 21.7%.

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Is Instacart’s market share at risk?

As competition in the online grocery space increases, Instacart faces the challenge of maintaining market share. The company’s top-line growth has been slower compared to competitors like Uber and Uber, which are gaining share in the grocery segment. Uncertainty in competitive markets remains a concern as potential loss of market share and macroeconomic factors impact growth. Despite these challenges, Instacart’s valuation appears attractive and the company is well-positioned to capture incremental share due to its market leadership and strong margin profile.

Can Instacart maintain profitability despite competition?

Instacart’s profitability exceeded expectations and its EBITDA was well ahead of consensus. However, with increasing competition, it is questionable whether we should invest more for growth. The company aims to achieve GAAP profitability next year, but must balance its need for profitability with the need to invest in growth to fend off competitors.

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Will Instacart’s advertising business drive future growth?

Instacart’s advertising revenue grew 19% year-over-year as GTV penetration increased. It is expected to drive future growth by expanding the advertising business through partnerships and increased advertising spending. Instacart has a significant leadership position in the bulk grocery delivery market through its unique and differentiated advertising business model.

Can Instacart leverage its first-mover advantage?

Instacart’s first-mover advantage and proven profitability in the online grocery sector are attractive valuation points. The company’s strong third quarter performance and improved margin outlook, combined with the potential for accelerated GTV in early 2024, positions Instacart for continued top-line growth.

SWOT analysis

strength:

• Leading position in online grocery delivery.
• A solid source of advertising revenue.
• Significant cash reserves and share repurchase program.

Weakness:

• Compared to competitors, external growth is slow.
• High stock-based compensation after IPO.
• Risks Associated with Gig Worker Regulatory Investigations.

opportunity:

• SNAP is likely to accelerate GTV growth while alleviating headwinds.
• Expansion of advertising business and overseas expansion.
• Strengthening retailer relationships and investing in customer growth.

Threat:

• Intense competition from companies like DoorDash and Uber.
• Loss of market share and macroeconomic factors affecting growth.
• Consumer behavior changes after COVID-19.

For analysts

– JMP Securities: Market outperform with target price of $35 (Nov 14, 2023).

– Barclays: Overweight with target price of $40 (November 9, 2023).

– Bernstein: Market outperform with target price of $30 (November 9, 2023).

– Wolfe Research: Outperform with $39 target price increase (March 5, 2024).

– Stifel: Buy with price target of $48 (November 9, 2023).

– JP Morgan: Overweight with target price of $33 (November 9, 2023).

– BofA Global Research: Neutral, target price of $31 (November 9, 2023).

– Baird: Outperform with target price of $31 (January 18, 2024).

– Gordon Haskett: Hold with revised target price of $38, up from $34 previously (April 9, 2024).

– Piper Sandler & Co.: Overweight with price target raised from $36.00 to $45.00 (March 15, 2024).

The period used for this analysis is January to November 2023.

InvestingPro Insights

Instacart, known on the stock market as EXCHANGE:CART, has become a focal point for investors seeking opportunities in the fast-growing online grocery sector. With a market capitalization of approximately $9.76 billion, the company’s financial strength and growth prospects are constantly under scrutiny. Instacart’s recent performance has shown some notable highlights, as evidenced by data and insights from InvestingPro.

One of Instacart’s key strengths is its impressive gross margin, which stood at 74.88% over the past 12 months as of Q4 2023. These figures not only highlight the company’s ability to maintain a respectable margin on sales, but also suggest operational efficiency. It is aimed at controlling the cost of goods sold. Moreover, Instacart’s revenue growth remains strong, up 19.25% over the same period, indicating strong demand for its service and potential for future expansion.

InvestingPro tips highlight several aspects that can influence investor sentiment. Instacart’s financial resilience is reflected in its liquidity position, where liquid assets exceed short-term liabilities, providing a buffer against market volatility. Additionally, the company has more cash than debt on its balance sheet, presenting a favorable financial structure that could attract cautious investors. Instacart’s net income is expected to increase this year, providing a positive outlook for its profitability trajectory. Notably, analysts are predicting that the company will be profitable this year, which could mark a turning point in its financial narrative.

Although Instacart hasn’t made a profit over the past 12 months, the company’s stock has posted strong returns over the past three months, with a total price return of 53.3%. This performance suggests growing investor confidence in Instacart’s business model and future prospects. It’s important to note that Instacart doesn’t pay dividends to shareholders, which may be a consideration for income-oriented investors.

For those interested in additional analysis and additional insights, InvestingPro has comprehensive tips for Instacart, with nine additional tips listed on the platform. These tips provide in-depth information about the company’s financial health, market position, and potential growth path, which can be found at https://www.investing.com/pro/CART.

With its next earnings date scheduled for May 8, 2024, investors and analysts will be closely watching Instacart’s performance metrics and strategic initiatives to gauge the company’s trajectory in the highly competitive online grocery market.

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