Instacart (CART), officially known as Maplebear, has emerged as a major player in the online grocery delivery industry. It went public in September 2023 and was one of the hottest IPOs of the year. Instacart's ingenious business strategy is based on innovation and diversity. The company is no longer just a delivery service, but a tech-driven retail solutions provider that uses the power of artificial intelligence (AI).
The company reported another strong quarter, sending its stock up 81.7% year-to-date, outperforming the S&P 500 Index's ($SPX) 27.2% gain. Wall Street is moderately optimistic about Instacart's long-term prospects, citing positive trends in online delivery. Let’s find out if this is the right time to add this retail tech stock to your 2025 portfolio.
Instacart Reported a Robust Third Quarter
Instacart provides a platform that allows customers to order groceries online and have them delivered within hours. This business model helped the company gain traction quickly by eliminating the time-consuming task of navigating aisles to find products and waiting in checkout lines.
Furthermore, over the years, Instacart has expanded its offerings beyond grocery delivery to include non-grocery retailers, specialty stores, pharmacies, and even pet supply stores. These partnerships have broadened Instacart's market reach.
In the third quarter, Instacart outperformed Wall Street expectations. The company reported a gross transaction value (GTV) growth of 11% year-over-year, reaching $8.3 billion, with total revenue of $852 million, up 12% year-over-year.
Another promising avenue for the company is advertising, with ad and other revenues increasing 11% year-over-year to $246 million in the quarter. This business line is critical to driving profitability because it allows consumer brands to reach Instacart's large user base.
The company also reported a net income of $118 million, or $0.42 per share, under generally accepted accounting principles (GAAP). This is a significant improvement over the $1.9 billion loss reported a year ago, and it marks the fourth consecutive quarter of GAAP profits. In the third quarter, the company repurchased $1.4 billion worth of shares and increased its buyback program by $250 million.
Instacart has invested heavily in technology to improve its platform. A standout innovation is the AI-powered "Caper Cart," which simplifies the in-store shopping experience by automatically scanning and charging for items as customers shop. The platform now includes a variety of grocers, such as Maurer's Market IGA, Bowman's Market, Soelberg's Market, Neiman's Family Market, and Queen's Price Chopper, significantly expanding its market appeal. Furthermore, Instacart+ (formerly Instacart Express) provides unlimited free delivery for a flat fee, which promotes customer loyalty and recurring revenue.
Recently, the company launched FoodStorm, a specialized order management system (OMS) with grocers such as Giant Eagle and Lucky Supermarket, which focuses on catering, prepared foods, and deli services. In the Q3 shareholder letter, management stated that Instacart's strategy of deep integration with its retail partners set it apart and will fuel future growth.
CEO Fidji Simo stated, “With the grocery market still vastly underpenetrated online, we’re taking an aggressive approach to reinvesting in opportunities that we believe can drive long-term growth while steadily expanding profitability."
Looking ahead to the fourth quarter, Instacart expects GTV to grow by 8% to 10%, reaching $8.5 billion to $8.65 billion. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) could range from $230 to $240 million.
Analysts who cover Instacart predict 11.2% revenue growth to $3.38 billion and earnings of $1.41 per share. Revenue and earnings are expected to grow by 9% and 13.9%, respectively, in 2025. CART stock is valued at 27 times forward earnings in 2025.
Robert W. Baird analyst Colin Sebastian believes CART stock is trading at a discount to industry averages, creating a buying opportunity for investors. Sebastian has given the stock a "buy" rating based on its long-term prospects, noting that “consumers show a strong preference for delivery over traditional in-store shopping.”
Is CART Stock a Buy, Hold, or Sell on Wall Street?
Overall, Wall Street analysts are optimistic about CART and rate it a “moderate buy.” Of the 25 analysts covering the stock, 13 rate it a “strong buy,” and 12 rate it a “hold.” The average target price for the stock is $48.71, which implies the stock can go up by 11.9% from current levels. The high price estimate of $60 suggests potential upside of 37.9% over the next 12 months.
The Bottom Line on CART Stock
The online delivery market is very competitive. Instacart will need to continue to innovate and expand aggressively in order to maintain its leadership position in this space.
Investors should expect some stock volatility as the company continues to grow. However, I believe Instacart's dominant position in the U.S. grocery delivery market, which includes partnerships with 1,500 retail banners, combined with its innovative approach, provides a compelling growth story.
CART stock could be a promising choice for long-term investors seeking exposure to the evolving retail tech sector.
