Instacart, the popular grocery delivery company known as Maplebear (ticker: CART), experienced a lackluster performance in the public market following its initial public offering on Tuesday.
Originally priced at $30 per share, slightly surpassing the anticipated range of $27 to $29 per share, Instacart's shares opened at $42 but gradually declined throughout the trading day, eventually closing at $33.70. The following morning, the shares faced another setback, dropping by 6% to $31.65.
To compound the stock's struggles, analyst Bernie McTernan from Needham recently initiated coverage on Tuesday with a Hold rating. While McTernan refrained from setting a specific price target, he believes that the stock's risks and potential rewards are evenly balanced. He suggests that the company's growth has slowed down after a period of high demand driven by the pandemic. According to McTernan, online grocery sales in the U.S. witnessed a remarkable annual growth rate of almost 60% between 2019 and 2022. However, he predicts that this rate will regress to approximately 12% per year until 2025.
In a research note, McTernan stated, "Our survey work indicates that online grocery adoption is encountering significant obstacles."
It remains to be seen how Instacart will navigate through these challenges in the online grocery industry.
The Future of Online Grocery Shopping
A recent survey conducted by Needham reveals that a significant portion of consumers, approximately 38%, do not plan to utilize online grocery marketplaces in the coming month. Upon further examination, it becomes evident that there are three primary reasons behind this hesitancy. Firstly, many individuals express a desire to personally ensure they receive the correct products, finding this aspect crucial to their shopping experience. Secondly, there is also a substantial number of people who genuinely enjoy the process of physically visiting the grocery store. Lastly, the perceived higher costs associated with online grocery shopping deter a considerable portion of potential customers.
Indeed, for those consumers who prioritize quality control and derive satisfaction from visiting the grocery store themselves, the time-saving benefits of online shopping are simply not convincing enough to outweigh these factors. This sentiment is elaborated upon by the analyst who states, "Consumers who have quality control fears or enjoy going to the grocery store do not consider the upside from time savings worth paying for."
Apart from discussing consumer preferences and hesitations, the analyst also focuses on Instacart's advertising business and predicts a shift towards a more moderate growth trajectory. Although CART's ad revenue growth is anticipated to outpace the broader U.S. digital ad industry and transaction revenue, it has now reached a plateau in its growth curve.
Furthermore, the analyst presents a somewhat pessimistic outlook regarding the future of online grocery sales post-pandemic. Expectations for post-pandemic online grocery sales in the U.S. are likely to fall below consensus due to various structural challenges inhibiting widespread adoption.
In addition to these obstacles, competition within the industry is intensifying. Uber Technologies and DoorDash are both investing in their own grocery platforms, posing a potential threat to industry leader Instacart. Moreover, e-commerce giants Amazon.com and Walmart are also active participants in this growing market.
It is evident that online grocery shopping faces several hurdles, and there are significant factors limiting its widespread adoption. The coming years will undoubtedly test the industry's ability to overcome these obstacles and deliver a seamless and compelling online grocery shopping experience.
McTernan Raises Concerns Over Instacart's Market Competition and Slowing Growth
In a recent analysis, McTernan expressed concerns regarding the rising competition and slowing growth in the market of Instacart. Examining the situation, he believes that these factors may result in an estimate risk that tilts towards the downside.
Comparing Instacart's stock value with other high-margin, lower-growth tech companies, McTernan suggests that the current valuation of the stock appears to be fairly balanced.
While these concerns highlight potential issues within Instacart's market position, it is important to consider various factors before forming a comprehensive perspective on the matter.
