By Savyata Mishra
Most Wall Street brokerages, including J.P.Morgan and Piper Sandler, kicked off coverage on Instacart with a bullish view, betting on the grocery delivery app's growth amid a shift to online shopping.
Shares of the San Francisco-based company, formally called Maplebear, were down nearly 3%. The stock — following a lukewarm debut in September — closed at $25.57 on Friday, compared with its initial public offering (IPO) price of $30.
At least 10 of Instacart's 20 IPO underwriters have initiated coverage with their top ratings after the quiet period ended.
Brokerages expect Instacart's advertising business to drive profitability in the near to medium term, also boosted by its focus on the typically higher-margin, non-discretionary groceries category.
"As a technology company unburdened by inventory or large infrastructure, Instacart requires little capital expenditure to fund operations, with the potential for significant margin expansion," Baird analyst Colin Sebastian wrote in a note.
Incremental growth in the company's gross transaction value will be challenged by competition from delivery firms such as Uber, DoorDash as well as Amazon and big-box retailer Walmart, said Scott Devitt, analyst at Wedbush — the only brokerage with a price target below the IPO price.
"Lack of exposure to growing grocery businesses such as Walmart and Amazon could drive share loss at Instacart," said Justin Post, an analyst with BofA Global Research, which has a price target of $30.
Oppenheimer analysts estimate Instacart's advertising business to make up 30% of revenue in 2025, but said over time the company could be increasingly competing with grocers for ad dollars.
J.P.Morgan and BofA analysts flagged that the popularity of weight-loss drugs could weigh on consumer spending on food, challenging the company's growth and profitability.
Average rating of the six brokerages that covered the stock prior to quiet period was "hold", according to LSEG data.
Instacart trades at 54.4 times its forward earnings, LSEG data showed.
(This story has been corrected to say Instacart's 20 IPO underwriters have initiated coverage, not 19, in paragraph 3)
(Reporting by Savyata Mishra in Bengaluru; Editing by Shilpi Majumdar)