Instacart's Total Addressable Market Is Massive Despite Grocery Category Being Slower To Shift Online, Says Bullish Analyst

Seaport Global analyst Aaron Kessler initiated coverage on Maplebear Inc CART (Instacart) with a Buy rating and announced a price forecast of $62.00.

The grocery sector is the largest in retail, generating over $1.1 trillion annually in the U.S. Despite the large total addressable market (TAM), the shift to online grocery shopping has been slower compared to other eCommerce categories, with approximately 13% of grocery orders occurring online, noted the analyst.

This slower transition is attributed to factors such as varied consumer preferences, grocers’ low profit margins leading to higher delivery costs, and the complexities of inventory management and order fulfillment.

While growth has slowed, Instacart remains optimistic, focusing on selection, affordability, quality, and convenience to drive sustained growth, noted the analyst.

Founded in 2012, Instacart set out to revolutionize the grocery industry by bringing it online and simplifying the shopping experience.

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By December 31, 2023, the platform partnered with over 85,000 stores across 1,500 national, regional, and local retail banners, representing more than 85% of the U.S. grocery market.

Instacart asserts its leadership in the digital grocery space, holding over 50% market share for small baskets (under $75) and more than 70% for large baskets (above $75), with large baskets accounting for about 75% of grocery spending in the U.S.

Its key advantages include extensive retailer integrations, a high-quality shopping experience, precise order fulfillment, larger basket sizes, increased customer order frequency and spending, and consistently strong unit economics, the analyst opined.

The analyst anticipates Instacart’s long-term revenue growth will be in the high single digits, fueled by greater customer adoption, expanding retail partnerships, and new collaborations, alongside increased spending on brand advertising.

The analyst expects Adjusted EBITDA margins to exceed 35% over time, driven by efficiencies from scale and controlled investment levels.

Price Action: CART shares are trading higher by 1.01% at $50.21 at the last check Wednesday.

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