Instacart, the popular grocery delivery platform, is poised for potential stock turbulence as it approaches the end of its IPO lockup period on February 15. The company’s shares experienced an initial drop of over 8% during midday trading on Wednesday following its fourth-quarter earnings report. Despite later recovering some losses, the day concluded with a nearly 2% decline.
The market anticipates heightened volatility in Instacart’s shares, with analysts cautioning investors about the looming uncertainty. Arun Sundaram, a CFRA analyst, expressed skepticism, stating, “It just doesn’t seem like it’s the right time to be an investor right now. That’s why we’re recommending a sell.” The impending end of the lockup period, allowing insiders to sell their shares, adds an element of uncertainty to the company’s stock performance.
In preparation for the potential sell-off, Instacart has taken measures to mitigate the impact. The company increased its stock buyback authorization by approximately $500 million, indicating its commitment to supporting the stock price. JPMorgan analyst Doug Anmuth noted that Instacart has around $930 million available for repurchases ahead of the lockup period expiration. Anmuth, who maintains an Overweight rating on the stock, pointed out that affiliates holding approximately 120 million shares are less likely to sell near-term.
Instacart, formally listed as Maplebear Inc., recently reported its Q4 results, which aligned with estimates but revealed slower growth compared to the peak of the pandemic. While the number of orders in Q4 2023 increased by 5% year-over-year to 70.1 million, it marked a notable slowdown from the 10% surge witnessed in Q4 2022.
Gross transaction value (GTV), reflecting the value of products sold on the app, grew by 7% to $7.9 billion. This increase was influenced by inflation impacting grocery prices. The company anticipates further growth in GTV, projecting a range between $8 billion and $8.2 billion in Q1. However, concerns arise as consumers reduce the items in their baskets, impacting volumes.
Arun Sundaram highlighted the challenge, stating, “Volumes are generally pretty weak across the food landscape; consumers are putting fewer items into their basket. The entire food industry will be trying to grow volume in 2024.” This shift in consumer behavior poses a potential threat to Instacart’s business model, raising questions about the sustainability of its growth as spending patterns slow.
Other factors contributing to the uncertainty include the departure of three executives for personal reasons. Chief Operating Officer Asha Sharma, Chief Technology Officer Varouj Chitilian, and Chief Architect JJ Zhuang announced plans to step down, surprising investors in the wake of the company’s recent IPO. These executive departures may add further uncertainty to Instacart’s near-term outlook.
As Instacart navigates through potential headwinds, investors brace for a pivotal period marked by the confluence of the lockup period expiration, shifts in consumer behavior, and leadership changes within the company.
