The Instacart logo at the company’s Nasdaq debut on Tuesday.
Photo by Vanja Savic
Instacart
shares are continuing to lose ground, after a solid debut in the public markets on Tuesday.
The grocery delivery company, which is officially called Maplebear (ticker: CART), priced its initial public offering at $30 a share, just above the final expected price range of $27 to $29 a share. It opened at $42 but gradually sank throughout the trading day to close at $33.70. On Wednesday morning, the shares retreated another 6% to $31.65.
Adding to the pressure on the stock, Needham analyst Bernie McTernan launched coverage of the company late Tuesday with a Hold rating. He didn’t provide a target for the price.
McTernan’s take is that the risks and potential rewards of the stock are balanced, “reflecting slowing growth” after a pandemic-driven surge in demand. The analyst said online grocery sales in the U.S. grew nearly 60% a year from 2019 to 2022, but predicted that will slip back to about 12% a year through 2025.
“Our survey work suggests online grocery adoption is facing structural headwinds,” he wrote in a research note.
The analyst said a Needham survey of consumers found that 38% don’t plan to use an online grocery marketplace over the next month. He said that the three primary reasons people cited for not buying groceries online were a desire to make sure they got the right products, enjoyment in going to the grocery store, and higher costs.
“Consumers who have quality control fears or enjoy going to the grocery store do not consider the upside from time savings worth paying for,” he wrote.
He also said Instacart’s ad business has matured and that growth is now likely to be more moderate. “We expect CART’s ad revenue growth to outpace the broader U.S. digital ad industry and grow faster than transaction revenue, but it is now at the flatter part of the growth curve,” he said.
“Our expectations for post-pandemic online grocery sales in the U.S. are likely going to be below consensus, and we see structural headwinds against adoption,” McTernan writes.
The analyst also said competition is increasing, with both
Uber Technologies
(UBER) and
DoorDash
(DASH) investing in their own grocery platforms.,
Amazon.com
(AMZN) and
Walmart
(WMT) also participate in the market.
McTernan said his concerns about increasing competition and slowing growth of the market Instacart “skew estimate risk to the downside.” He added that the stock seems fairly valued compared with other high-margin, lower-growth tech companies.
Write to Eric J. Savitz at [email protected]
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