Deutsche Bank Initiates Coverage on Instacart
Deutsche Bank (ETR:DBKGn) has initiated coverage on Instacart (Maplebear Inc.) with a Hold rating and a $37 price target. The rating reflects concerns regarding the grocery delivery platform's growth prospects and competitive positioning.
Despite Instacart (NASDAQ:CART) establishing itself as a profitable player in the digital grocery sector, Deutsche Bank expresses caution about its fundamentals over the next 12-24 months.
Key Concerns
Analysts highlight affordability challenges as a significant barrier to market share gains in the digital grocery sector. The online grocery market currently holds a 12% penetration rate of the $1.3 trillion North American grocery market, but has faced stalled momentum after the pandemic-induced growth spurt.
Factors such as rising food inflation—averaging 15% year-over-year between 2022 and 2023—have increased price sensitivity among consumers. Moreover, groceries priced on third-party platforms like Instacart often exceed in-store or retailer-owned digital prices.
Pricing Challenges
Deutsche Bank stated, “Price remains a significant hurdle for Instacart.” Delivery prices can be “nearly 50% higher than Walmart (NYSE:WMT) and 10% higher than Amazon (NASDAQ:AMZN) Fresh,” despite initiatives to reduce delivery fees and enhance loyalty programs. These affordability efforts have not significantly increased user growth, which remains at a 10% year-over-year deceleration.
Competitive Landscape
Deutsche Bank anticipates heightened competition from first-party (1P) operators such as Walmart and Amazon, as well as marketplace competitors like DoorDash (NASDAQ:DASH) and Uber (NYSE:UBER), who possess greater financial flexibility to navigate affordability issues.
Consequently, analysts forecast a 7% gross transaction value (GTV) compound annual growth rate (CAGR) for Instacart from 2024 to 2028.
Conclusion
While Instacart benefits from significant scale—covering approximately 85% of the US grocery market and providing high reliability—Deutsche Bank believes that its competitive edge in affordability is limited. Therefore, Instacart is expected to grow at a slower pace than its peers within the online grocery market, which is projected to expand at a high single-digit CAGR.
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