In the booming online grocery sector, Instacart (NASDAQ:), operating under the ticker symbol EXCHANGE:CART, has received significant attention from Wall Street analysts. These industry experts closely monitor a company’s performance, market trends, and potential external influences to provide potential investors with a comprehensive picture.
Company overview
Instacart is positioning itself as the digital leader in online grocery delivery and pickup, connecting customers with a variety of retailers. Focused on deep merchant integration, streamlined delivery logistics and a mature promotional product, the company has established a significant presence in the US and Canada. The Instacart platform supports both grocery and non-grocery items and has been recognized for its leadership in the massive 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 its EBITDA margin showed significant improvement year-over-year. This reflects the company’s disciplined cost management and improved profitability. Instacart’s ad demand metrics increased year-over-year, driven by strong 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 demonstrates confidence in its financial health and cash generation ability. With $2.2 billion in cash, Instacart is poised for continued GTV growth through 2024, with the potential to accelerate beyond current levels.
Competitive environment
Instacart is navigating a competitive landscape under pressure from companies like DoorDash (NASDAQ:) and Uber (NYSE:). Analysts stressed the importance of a tangible re-acceleration in revenue growth to become more bullish on the company. Long-term growth opportunities include deepening relationships with retailers and investing in audience growth.
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Despite the competitive environment, Instacart’s leadership position in the digital grocery space is strengthened by accelerating GTV and order growth, as well as increased order volume. The company’s business model is considered sound and solid results are expected to support share price growth.
Regulatory and macroeconomic environment
Regulatory scrutiny over the status of freelancers and changes in consumer behavior in the wake of COVID-19 are among the risks Instacart faces. The company must also consider intense competition in the Marketplace and Retail Media markets, as well as the potential inability to scale its advertising business or expand internationally.
Financial forecast
Instacart’s financial performance was strong, with third-quarter 2023 earnings beating expectations. The company reported total gross revenue for the quarter of $7.49 billion and adjusted EBITDA of $163 million. Revenue was driven by transaction revenue as well as advertising and other revenue, with guidance for the fourth quarter of 2023 indicating GTV growth of 5-6% year-over-year and adjusted EBITDA of US$165-175 million.
Wolfe Research maintains an Outperform rating on Instacart (CART) with an increased price target of $39, up from the previous $35. The company’s analysis suggests multiple paths to accelerate GTV in FY24, with a base case GTV growth scenario of +7%. Adjusted EBITDA guidance for FY24 is estimated at US$730 million, rising further to US$903 million in FY25. The company currently has a market capitalization of approximately $11.495 billion, an enterprise value of $9.153 billion, and financial ratios that include P/E ratio of 55x, EV/EBITDA of 12.5x, and free cash flow (FCF) yield of 21.7%.
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The Case of the Bear
Is Instacart’s market share at risk?
In an increasingly competitive online grocery space, Instacart faces the challenge of maintaining its market share. The company’s revenue growth is slower than that of its competitors such as Uber, which are gaining share in the grocery segment. The uncertainty of the competitive market continues to be a concern with the potential for loss of market share and macroeconomic factors affecting growth. Despite these challenges, Instacart’s valuation looks attractive and the company is well positioned to gain share thanks to its market leadership and strong profitability.
Can Instacart maintain profitability in the face of competition?
Instacart’s profitability beat expectations, with EBITDA well above consensus estimates. However, questions are being raised about whether more investment should be made in economic growth given increasing competition. The company aims to achieve GAAP profitability next year, but it needs to balance the need for profitability with the need to invest in growth to fend off competitors.
Bull case
Will Instacart’s advertising business drive future growth?
Instacart’s ad revenue grew 19% year-over-year, driven by increased GTV penetration. The company has expanded its advertising business through partnerships and increased ad spend, which is expected to fuel future growth. Thanks to its unique and differentiated advertising business model, Instacart has a significant leadership position in the large-cart grocery delivery market.
Can Instacart take advantage of its first mover advantage?
Instacart’s first mover advantage and proven profitability in the online grocery space are attractive valuation criteria. The company’s strong third-quarter performance and improved profitability outlook, coupled with the potential for GTV acceleration in early 2024, positions Instacart for robust top-line growth.
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SWOT Analysis
Strengths:
- Leadership in online grocery delivery.
- Powerful advertising revenue stream.
- Significant cash reserves and share repurchase program.
Flaws:
- Slower revenue growth compared to competitors.
- High compensation in the form of shares after the IPO.
- Risks associated with regulatory oversight of gig workers.
Possibilities:
- Potential acceleration in GTV growth as barriers to SNAP benefits ease.
- Expansion of advertising business and international coverage.
- Deepening relationships with retailers and investing in audience growth.
Threats:
- Stiff competition from companies like DoorDash and Uber.
- Loss of market share and macroeconomic factors affecting growth.
- Consumer behavior is changing post-COVID.
Analysts’ goals
– JMP Securities: Outperform with $35 price target (Nov 14, 2023).
– Barclays: Overweight with $40 price target (Nov. 9, 2023).
– Bernstein: Market-Perform with $30 price target (Nov. 9, 2023).
– Wolfe Research: Outperform with raised price target of $39 (March 5, 2024).
– Stifel: Buy with a $48 price target (Nov. 9, 2023).
– JP Morgan: Overweight with $33 price target (Nov. 9, 2023).
– BofA Global Research: Neutral with a $31 price target (Nov. 9, 2023).
– Baird: Outperform with $31 price target (Jan. 18, 2024).
– Gordon Haskett: Hold revised price target of $38, down from previous $34 (April 9, 2024).
– Piper Sandler & Co.: Overweight with price target raised to $45.00 from $36.00 (March 15, 2024).
The time frame used for this analysis covers the period from January to November 2023.
InvestingAbout Insights
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Instacart, known in the stock market as EXCHANGE:CART, has become a focal point for investors looking for opportunities in the growing online grocery sector. The financial health and growth prospects of the company, which has a market capitalization of approximately $9.76 billion, are under constant review. Instacart’s recent results showed some notable highlights, as evidenced by InvestingPro data and insights.
One of Instacart’s key strengths is its impressive gross margin, which stands at 74.88% for the trailing twelve months as of Q4 2023. This metric not only highlights the company’s ability to maintain significant margins on its sales, but also suggests operational efficiency. in managing the cost of goods sold. Moreover, Instacart’s revenue growth remains strong, up 19.25% over the same period, indicating strong demand for its services and potential for future expansion.
InvestingPro’s tips highlight several aspects that can influence investor sentiment. Instacart’s financial strength is reflected in its liquidity position: its liquid assets exceed its short-term liabilities, providing protection from market volatility. In addition, the company has more cash than debt on its balance sheet, presenting a favorable financial structure that may attract cautious investors. Instacart’s net income is expected to grow this year, providing a positive outlook for its profitability trajectory. Notably, analysts are predicting the company will be profitable this year, which could mark a turning point in its financial history.
Although Instacart was not profitable over the past twelve months, the company’s stock has posted a strong performance over the past three months with a total return of 53.3%. These results indicate growing investor confidence in Instacart’s business model and future prospects. It’s important to note that Instacart does not pay dividends to shareholders, which may be important to income-focused investors.
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For those interested in further analysis and additional information, InvestingPro offers a wide range of Instacart tips and has 9 additional tips posted on their platform. These tips provide deeper insight into a company’s financial health, market position and potential growth paths, 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 assess the company’s trajectory in the competitive online grocery market.
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