Jefferies analysts initiated coverage of Instacart (NASDAQ) with a “Hold” rating and a $45 price target, citing two major concerns:
- Market Share Losses: Despite operating in the massive $1.3 trillion U.S. grocery market, Instacart faces stiff competition from giants like Amazon and Walmart, which hold 24% and 34% of the market, respectively. Instacart’s market share has declined from 24% in 2021 to 19%, and Jefferies expects this downward trend to continue due to competitors’ stronger product diversity and customer acquisition strategies.
- Uncertainty in Advertising Growth: Advertising is crucial to Instacart’s profitability, contributing to 75% of its margin expansion and half of its EBITDA growth. However, advertising growth has stagnated since late 2023, posing a significant risk to future earnings. Jefferies warns that any slowdown in this segment could severely impact the company’s financial performance.
Given these risks, Jefferies believes a discounted valuation for the stock is justified.
