Morgan Stanley adjusted its outlook on Instacart shares (NASDAQ:CART), reducing the price target from $45.00 to $41.00 while keeping an Equalweight rating on the stock. The change reflects a more conservative view of the company's near-term advertising revenue potential.
The firm cited challenges Instacart faces in expanding its advertiser base to include smaller advertisers, noting that this strategy is progressing more slowly than expected in terms of enhancing auction density and advertising growth.
The investment firm also revised its forecasts for Instacart's Gross Transaction Value (GTV) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). For the years 2024 and 2025, Morgan Stanley predicts no change in GTV for 2024 but a 2% decrease for 2025. Moreover, the firm anticipates a 1% reduction in EBITDA for 2024 and an 8% decrease for 2025.
The new price target of $41.00 implies a modest 3% upside from the stock's current trading level. The Equalweight rating suggests that Morgan Stanley views Instacart's stock as fairly valued at the moment, relative to the market or its peers, and does not recommend either buying or selling shares more than market weight.
Instacart, which is traded on the NASDAQ, has been under scrutiny as it attempts to scale its business model and improve profitability. The company's efforts to diversify its advertising base are part of a broader strategy to increase revenue streams beyond its core grocery delivery services.
In summary, Morgan Stanley's revised price target for Instacart reflects a cautious stance on the company's short-term advertising revenue growth, with specific concerns about the pace at which it is adding smaller advertisers to its platform. Despite the lowered expectations for GTV and EBITDA, the firm maintains its neutral stance with an Equalweight rating.
Instacart reported a Gross Transaction Value (GTV) of $8.2 billion and an EBITDA of $208 million. The company also repurchased $117 million worth of its shares from D1 Iconoclast Holdings LP. Raymond James initiated coverage on Instacart with a Market Perform rating, highlighting the company's successful management and technological integrations.
In addition, Instacart expanded its Board of Directors and appointed Mary Beth Laughton, a seasoned leader with experience from Nike (NYSE:NKE) and Athleta LLC, as a Class I director. The company has also been forming strategic partnerships, integrating Ibotta's extensive catalog of digital coupons into its platform and expanding its collaboration with ALDI SOUTH Group.
Analysts from BMO Capital Markets and Piper Sandler raised their price targets on Instacart's shares, citing the company's robust performance and growth potential. However, Wolfe Research initiated a Peerperform rating due to growth concerns, and KeyBanc Capital Markets maintained a Sector Weight rating.
InvestingPro Insights
Amid the cautious outlook from Morgan Stanley, current data from InvestingPro provides a broader perspective on Instacart's financial health and market performance. With a market capitalization of $10.34 billion and a notable gross profit margin of 74.95% in the last twelve months as of Q2 2024, Instacart demonstrates a strong ability to retain earnings relative to revenue. Additionally, the company's impressive gross profit of $2.406 billion signals robust operational efficiency.
InvestingPro Tips highlight that management at Instacart has been actively buying back shares, which could be a sign of confidence in the company's future prospects. Furthermore, Instacart's balance sheet holds more cash than debt, providing financial flexibility and potentially reducing risk for investors. For those looking to dive deeper, InvestingPro offers several additional tips, including insights on shareholder yield and profitability forecasts for the upcoming year.
Investors may also find encouragement in the stock's recent performance, with a strong return of 28.29% over the last three months and a year-to-date price total return of 71.37% as of the same period in 2024. Despite the operational challenges noted by Morgan Stanley, these metrics suggest a positive reception from the market. For a comprehensive analysis and access to more insights, investors can explore the full list of 11 additional InvestingPro Tips available for Instacart.
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