Instacart filed Friday to move forward with an initial public offering for what would be the first major venture capital-backed tech IPO since December 2021
The company, which plans to trade under the ticker symbol CART, has some near-term concerns but offers long-term potential (along with its rivals), according to analysts at UBS.
The firm is “slightly more concerned about near-term grocery delivery order growth and AOV trends for DASH/UBER, but more positive on [long-term] ability for cohort behavior, increasing ad penetration and subscription users to deliver topline growth,” analysts wrote.
In its prospectus, Instacart said it saw $716 million in revenue during its latest quarter, up 15% year-over-year. Net income totaled $114 million.
The analysts noted that orders were flat at $132.9 million, while average order value (AOV) climbed 4%.
“Customers have been purchasing fewer items on AOV and shifting toward lower-price product categories on Instacart, partially offsetting the effects of inflation and driving AOV back down,” the analysts wrote. “The company stated that it does not expect future AOV growth rates to approach COVID levels of $121 in 2020.”
“While we flag for investors that some of the 1H23 order weakness is seasonal, with Instacart flagging lower usage during the spring and summer months before reverting to higher levels in 2H (back-to-school period and holiday season), we view the order/AOV growth rate trends as cautious read-throughs for UBER's /DASH's grocery delivery businesses.”
Then there’s the matter of advertising revenue. Advertising and other revenues hit 2.8% of gross transaction volume in the second quarter, compared to 2.4% a year earlier.
“In our view, retail media networks such as Instacart, DASH and Uber are set to become more valuable as cookies deprecate and brands gain confidence in the [return on ad spend]/measurability delivered by ads backed by these companies' first-party data,” analysts wrote.
“In fact, Instacart noted that through 1H23 it has seen an increase in advertising volumes and higher adoption of its new ad features and products, which include shoppable display ads and shoppable video ads launched during 1H22.”
Additionally, Instacart reported that it has 5.1 million Instacart+ members as of June 30. Analysts noted that Instacart+ users have shopped at more than twice as many retail banners since joining Instacart than non-members while spending an average of $461 over 4 orders per month, compared to $223 spent over 2 orders by non-members.
That’s a higher gross transaction value than Uber or DoorDash, which suggests to the Wedbush analysts that UberOne and DashPass have room to deliver higher contributions.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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