On Wednesday, Instacart (NASDAQ:CART) shares received a positive outlook from Cantor Fitzgerald as the firm raised the stock's price target to $56.00 from $45.00, while maintaining an Overweight rating. The grocery delivery company's third-quarter performance showed gross transaction value (GTV) and earnings before interest, taxes, depreciation, and amortization (EBITDA) surpassing analyst expectations by 1% and 7%, respectively.
Instacart's order growth displayed a year-over-year increase of 10%, which was an acceleration of 3 percentage points even with a 1-point tougher comparison from the previous year. This growth was attributed to an increase in Instacart+ user numbers and order frequency.
Despite a general weakness from consumer packaged goods (CPG) brands, the company's advertising revenue maintained a stable growth of 11% year-over-year. Moreover, Instacart's transaction take rate saw an expansion of 7 basis points year-over-year.
The company has been actively working on its product offerings, making significant strides in broadening its selection, enhancing affordability, and refining the user experience throughout the third quarter. These improvements are expected to support sustained order growth in the upcoming quarters.
Instacart's guidance for the fourth quarter of 2024 estimates a GTV growth of 8-10% year-over-year and an EBITDA ranging from $230 million to $240 million, which is anticipated to bolster confidence in the company's ability to maintain stable growth and margin expansion.
Instacart's shares experienced a substantial intra-quarter increase of 50%, outperforming the Nasdaq's gain of 19% during the same period. However, the firm noted that the lack of a more significant upside in key performance indicators (KPIs) might leave some investors wanting more. Nonetheless, the analyst expressed increased confidence in the bullish thesis for Instacart.
With the stock valued at 11 times its forecasted FY25 EBITDA, the valuation is considered highly attractive. The revised price target of $56 is based on a 13 times multiple of Instacart's expected FY25 EBITDA, up from the previous 12 times multiple.
In other recent news, Instacart has reported significant developments in its financial performance and strategic partnerships. The company's third-quarter results revealed a Gross Transaction (JO:TCPJ) Value (GTV) of $8.3 billion, exceeding Macquarie's estimate of $8.2 billion. This growth was driven by a 10% increase in order volumes, resulting in a transaction revenue of $606 million, surpassing FactSet's consensus estimate of $602 million.
Instacart has also been focusing on diversifying its advertising strategy with smaller brands and partnering with platforms such as Roku (NASDAQ:ROKU), The Trade Desk (NASDAQ:TTD), YouTube, and PubMatic. This has led to an 11% growth in advertising revenue, contributing to a total revenue increase of 29%.
In addition, the company has expanded its share buyback plan from $500 million to $750 million. Strategic partnerships with Family Dollar and Foodsmart have been established, providing more options for customers and improving health outcomes for individuals with obesity and diabetes.
Analyst firms have had varied responses to these developments. Macquarie maintained its Outperform rating on Instacart and increased its price target to $52, while BMO Capital Markets and Citi raised their price targets to $48 and $55 respectively. Jefferies, on the other hand, reaffirmed its Hold rating. These developments provide insight into Instacart's current financial strategies and market activities.
InvestingPro Insights
Instacart's recent performance and positive analyst outlook are further supported by real-time data from InvestingPro. The company's market capitalization stands at $12.43 billion, reflecting its significant presence in the grocery delivery sector. Instacart's impressive revenue growth of 10.69% over the last twelve months and a robust 14.94% growth in the most recent quarter align with the analyst's observations of accelerating order growth and stable advertising revenue.
InvestingPro Tips highlight Instacart's financial strength, noting that the company "holds more cash than debt on its balance sheet" and "liquid assets exceed short-term obligations." These factors contribute to the firm's ability to invest in product improvements and support future growth, as mentioned in the article.
The stock's recent performance has been remarkable, with InvestingPro data showing a 50.36% price return over the last three months, mirroring the 50% intra-quarter increase noted by Cantor Fitzgerald. This strong momentum is further emphasized by the stock trading at 96.66% of its 52-week high.
Investors considering Instacart may find value in exploring the additional 11 InvestingPro Tips available, which could provide deeper insights into the company's financial health and market position.
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