The shares of Maplebear, the official entity behind the renowned grocery delivery service Instacart, have experienced a notable decline following a robust initial public offering (IPO) debut. Initially priced at $30 each for the IPO, a slight uptick from the projected range of $27 to $29, the shares embarked on a volatile trajectory. Despite commencing trading at $42 on Tuesday, they gradually lost ground throughout the day, eventually closing at $33.70. The downward momentum extended into Wednesday, with shares witnessing an additional 9% dip, settling at $30.4.
On Tuesday, late in the day, Needham analyst Bernie McTernan initiated coverage of Maplebear with a “Hold” rating, though he did not specify a target price. McTernan’s analysis underscores the delicate balance of risks and potential rewards associated with Maplebear’s stock, primarily driven by concerns of an impending deceleration in growth, a phenomenon that has become increasingly conspicuous following the pandemic-induced surge in demand.
McTernan underscored that online grocery sales in the United States had witnessed a staggering annual growth rate of approximately 60% between 2019 and 2022. However, his projections indicate a considerable deceleration, with this growth rate expected to taper to approximately 12% annually until 2025. This anticipated slowdown is attributed to structural hurdles impeding the widespread adoption of online grocery shopping.
Intriguingly, a consumer survey conducted by Needham yielded insights suggesting that 38% of respondents did not intend to utilize an online grocery marketplace within the next month. The primary reasons cited for this reluctance encompass concerns regarding product accuracy, the intrinsic pleasure derived from in-store grocery shopping, and the perceived higher costs associated with online purchases.
Furthermore, McTernan illuminated the maturation of Maplebear’s advertising business, which is poised for more moderate growth in the foreseeable future. Despite foreseeing an expansion of Maplebear’s ad revenue at a pace outstripping that of the broader U.S. digital advertising industry and surpassing transaction revenue growth, McTernan posited that it has now entered a phase characterized by slower growth.
McTernan also underscored the intensifying competition in the market, with companies such as Uber Technologies (NYSE: UBER), DoorDash, Amazon.com (NASDAQ: AMZN), and Walmart (NYSE: WMT) actively investing in their own grocery platforms. He voiced concerns that this escalating competition, combined with the market’s deceleration, could exert adverse pressures on Maplebear’s estimates. He concluded by opining that, relative to other high-margin yet slower-growing tech entities, Maplebear’s stock presently appears to be fairly valued.
