Monday Nov 13 2023 14:09
5 min
Grocery-delivery platform Instacart revealed a nearly $2 billion loss in its initial earnings report since its IPO. Despite the substantial loss, the company exceeded sales expectations, reporting a 14% increase in revenue to $764 million in the third quarter. The firm’s net loss amounted to $1.99 billion, or $20.86 per share, primarily attributed to significantly heightened stock-based compensation during the initial public offering (IPO).
While analysts anticipated a GAAP per-share loss of $15.07 cents and sales of $737 million, Instacart's report differed. The company anticipates "mid-single-digit" growth in gross transaction value, indicating the total value of products sold.
In a letter to shareholders, the company wrote:
“We are confident in our position, even as several macroeconomic factors work against the online grocery industry: COVID is no longer a tailwind, consumers are receiving less government aid, interest rates remain high and inflation persists.”
“Given our substantially larger scale, these headwinds impact us more than smaller, new entrants,” it said. “While we expect these and other factors to continue to dampen our current and near-term growth, they do not change our long-term view on online grocery adoption or our competitive advantages.”
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Despite the positive sales outlook, Instacart's stock performance has been less than stellar this week, with shares slipping in after-hours trading on Wednesday. The company, officially known as Maplebear Inc., released its earnings amid a stock price that remains below its September trading debut, as investors remain hesitant towards IPOs.
In its IPO documents, Instacart outlined a future vision of increased online orders for groceries and essential items. However, customer orders in the first half of the year did not see a significant surge, and elevated grocery prices tempered demand. Additionally, the company faces stiff competition in the food
delivery sector from major players like Walmart, Target, and DoorDash, which has expanded its services to include grocery delivery. Instacart heavily relies on its top three customers to drive demand. Since its September debut, Instacart shares have declined by 19.9%.
Founded in 2012 and having gone public in September this year, Instacart has joined a cohort of gig economy companies in the public market. The move followed the earlier IPOs of online homestay marketplace Airbnb and online food order and delivery firm DoorDash in 2020, as well as ride-sharing companies Uber and Lyft the year before.
Instacart dispatches personal shoppers to grocery stores on behalf of its clients, who use a mobile app to make their grocery selections and place their orders. The company’s services are available in more than 5,500 cities, serving over 40,000 grocers and other retail stores, as stated on its website. The firm experienced significant growth during the COVID-19 pandemic, as consumers opted for home delivery to avoid public places. However, like many players in the gig economy, profitability has consistently posed a significant challenge for Instacart, due to the high costs associated with compensating a large pool of contractors.
Prior to the firm’s IPO, analysts at Evercore noted that Instacart held close to 22% of the $132 billion U.S. online grocery-delivery market. However, increased grocery prices have had an impact on demand. In the first half of 2023, the company processed a total of 132.9 million customer orders — a slight step up from the 132.3 million orders during the same period the previous year.
In a recent interview with CNBC’s The Exchange, NYU Stern School of Business professor Aswath Damodaran said that he “assumes” Instacart will maintain its market share in the foreseeable future — but only by cutting fees. In a more long-term Instacart forecast, Damodaran said he sees the firm potentially tripling its revenues over the next decade and operating margins to rise to 23% over the next year, and 25% over the next four years.
Instacart's stock maintains an average Moderate Buy rating, as per 15 Wall Street analysts surveyed by TipRanks who have provided 12-month price targets for CART in the past three months.
The average Instacart stock price target stands at $36.00, implying a 45.34% upside, with a high forecast of $48.00 and a low forecast of $28.00.
At the time of writing on Friday, Instacart shares traded at $24.80, up 1.27% on the day, according to MarketWatch data. Instacart stock has declined over 3% in the past month. When considering shares for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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