Why This Instacart Analyst Is Sidelined After IPO: 'Online Grocery Sales May Lag'

Adding to the cart, but not checking out yet — that's how Bernie McTernan at Needham & Company described the situation after Instacart CART made a splash on the Nasdaq on Tuesday.

With shares falling over 5% during Wednesdays session toward its initial IPO price of $30, how does Needham & Company feel about the stock?

The CART Analyst: McTernan initiated coverage on Instacart with a "Hold" rating, and did not give a price target.

His caution stems from several concerns, not least of which is the company's anticipated growth trajectory and the intensifying competitive landscape of the online grocery sector.

The CART Takeaways: McTernan sees a balanced risk-reward scenario for the stock, reflecting a forecasted growth slowdown after the pandemic's unprecedented surge in demand, combined with the mature nature of CART's advertising arm.

The analyst is bearish about the post-pandemic online grocery sales outlook, suspecting that they may lag behind the consensus. Structural hurdles, he says, might become headwinds to widespread adoption.

McTernan isn't the only Instacart analyst, here's what Josh Brown thinks about the stock.

Competition is another dominant theme in McTernan's prognosis — the market is becoming a battlefield with stalwarts like Uber Technologies UBER, DoorDash, Inc DASH, WalMart Inc WMT, and Amazon.com, Inc AMZN positioning themselves aggressively.

Drawing from Needham's own survey, McTernan points out that 75% of online shoppers are buying from both restaurants and grocery stores. It’s a statistic that hints at the possibility of Instacart's margins being under threat, either due to a loss in market share or spiraling costs associated with customer acquisition.

While Instacart's past performance paints an impressive picture — an 80% Gross Transaction Value (GTV) and a 130% revenue Compound Annual Growth Rate (CAGR) from 2019 to 2022 — McTernan is focused more about the future. Predicting a 12% CAGR for the online grocery sector through to 2025, he speculates that growth might not come easily.

It wasn’t all doom and gloom in McTernan's outlook, however. He credited Instacart's strong and strategic footing in its Enterprise Platform, especially given the chatter around industry consolidation following the announcement of the KR-ACI merger. More to that, the analyst has a bullish stance on Instacart's Retail Media Network (RMN), viewing it as a goldmine for consumer packaged goods firms seeking high attribution in a closed-loop setup.

By his estimation, the RMN segment alone could bring in a revenue nearing $900 million by year's end.

As analysts dissect and discuss, the market has spoken — at least for now.

Instacart's shares made a hot debut, opening at $42, up from its initial pricing of $30 per share but gave most of it back on Wednesday.

CART Price action: Shares of Instacart are trading 5.26% lower to $31.91, according to Benzinga Pro. The stock has traded in the range of $42.95 and $31.30.

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