Instacart parent Maplebear has had a rough time since its initial public offering last month. But analysts see much to like about Instacart stock.
Several Wall Street banks initiated research coverage of CART stock with a positive view, prior to trading Monday. Instacart bulls see the company as the clear leader for a growing category in online grocery shopping, further bolstered by a promising advertising business.
But the positive views, which arrived following a quiet period after the IPO, haven't helped turn around Instacart's slump. Instacart stock fell 2.8% to 24.85 on the stock market today.
Instacart's Bull Case
Stifel analyst Mark Kelley initiated Instacart stock with a buy rating and a 12-month price target of 48.
"We view CART as one of the best positioned businesses to benefit from continued online penetration of the U.S. grocery market, with the underlying category largely predictive given the overwhelming majority of grocery purchases are non-discretionary," Kelley wrote.
Further, Kelley said the company should be able to sell more advertising on the app. Ad revenue currently represents just under 3% of the Instacart's gross transaction value (GTV), whereas Kelley believes that percentage could grow to 5% based on other retail advertising businesses.
San Francisco-based Instacart has more than 600,000 active shoppers. It also has partnerships with more than 1,400 grocery retailers, representing 85% of the U.S. market.
Some Instacart bulls pointed to the massive market potential for online grocery shopping. JPMorgan Chase, for instance, noted North Americans spend $1.1 trillion on groceries but only 12% of that is online. Analyst Doug Anmuth wrote that online grocery shopping could reach 25% of that tally within the next 10 years. Anmuth gave Instacart an overweight rating and a price target of 33.
"Overall, we like Instacart's marketplace leadership position (and) first-mover tech advantage within a secular growth category, healthy profitability profile and advertising potential," Anmuth wrote in a client note Monday.
Also adopting buy ratings for Instacart stock: Barclays, Piper Sandler, Oppenheimer and Citi. Instacart stock has an aggregate target price of 35.27 among 15 analysts following the stock, according to FactSet. That implies projected growth around 40% over the next year.
Baird analyst Colin Sebastian said Instacart's ad business is "one of the most successful roll-outs of retail media, perhaps only second to Amazon." Baird initiated coverage with an outperform rating and price target of 31.
Instacart's Moderate Case
Meanwhile, some analysts took a more moderate view. Wedbush analyst Scott Devitt initiated Instacart with neutral rating and a price target of 28. Instacart has strong brand recognition and valuable relationships with top grocers, Devitt said. But he pointed to risk from growing competition from Uber and DoorDash.
Also, "approximately 43% of Instacart's GTV is generated by its top three partners, and there is emerging risk that Instacart's largest partners will drive a greater share of incremental online grocery demand to their own first-party offerings," Devitt wrote in an Oct. 15 client note.
BofA Securities also took a more cautious view. The bank initiated coverage with a neutral rating with a target price of 30.
"We are constructive on the company's long-term fundamentals given a large total addressable market (TAM), consumer preferences shifting toward time savings delivery services, Instacart's market share leadership for larger baskets and growth of advertising to drive ongoing margin improvement," wrote BofA analyst Justin Post. "However, we are also cognizant of macro risks facing Instacart as the consumer is the primary source of funding for the convenience of delivery — potentially up to an extra 20% cost vs. going to the store (through prices, consumer fees, and tips)."
Instacart Stock: Shaky Post-IPO
Instacart got off to a strong start following its initial public offering. Shares surged as high as 42.95 from an IPO price of 30, which itself represented the top of CART's range. However, those gains faded throughout the trading, although shares closed at 33.70, up 12% on the first day of trading.
But CART stock is trading down about 25% from its first-day closing price.
Recent IPO stocks can be especially volatile. Newer companies with strong characteristics can be found in the IBD IPO Leaders screen.
