Instacart (CART) shares tumbled over 11% following its fourth-quarter earnings report.
The company failed to meet revenue expectations and provided a weaker-than-anticipated outlook for the first quarter of 2025.
The grocery delivery giant reported total revenue of $883 million, falling short of analysts' estimates of $891 million. Revenue from delivery transactions came in at $616 million, missing the expected $623.4 million. Despite exceeding projections in order volume and gross transaction value (GTV), the company’s profit outlook raised concerns over the sustainability of its growth strategy.
The earnings disappointment comes amid a stark contrast to rival DoorDash (DASH), which recently posted robust Q4 results and an upbeat order growth forecast. Instacart’s reliance on affordability initiatives, including the introduction of a $0 delivery fee on $10 minimum orders, appears to be impacting its revenue-per-transaction. This shift is seen as a bid to boost customer engagement, but at the potential cost of profitability.
Profitability Pressures and Advertising Slowdown
While Instacart’s adjusted EBITDA grew 27% year-over-year to $252 million—beating estimates—the company’s first-quarter guidance has alarmed investors. Instacart forecasts adjusted EBITDA of $220 million to $230 million, below analysts’ projections of $237 million. The company also expects GTV to be between $9 billion and $9.15 billion, slightly ahead of Wall Street expectations.
One of the primary concerns weighing on investor sentiment is the company’s shrinking average order value (AOV), which dipped 1% in Q4 to $112. Instacart’s strategic push to lower minimum order fees could drive more frequent transactions but may further erode per-order profitability. Additionally, its advertising segment, a high-margin revenue source, saw growth slow to 10% in Q4, compared to 11% in Q3. Analysts at Jefferies noted that advertising growth has been flat for five consecutive quarters, raising questions about whether Instacart can sustain its revenue diversification strategy.
Expansion Efforts and Competitive Landscape
To counteract slowing transaction revenue, Instacart has been broadening its service offerings. The company has expanded its partnerships with retailers and ventured into restaurant delivery in collaboration with Uber Technologies (UBER). While these initiatives have bolstered customer retention, they have yet to offset declining margins. Additionally, increased competition from players like DoorDash, Uber Eats, Amazon (AMZN), and Walmart (WMT) continues to put pressure on Instacart’s market position.
Instacart has also reshuffled its leadership team and is making strategic investments in advertising and e-commerce software. These higher-margin businesses now contribute nearly 30% of the company’s revenue. However, analysts remain cautious about whether these efforts will be enough to drive sustained profitability.
To counteract slowing transaction revenue, Instacart has been broadening its service offerings. The company has expanded its partnerships with retailers and ventured into restaurant delivery in collaboration with Uber Technologies (UBER). While these initiatives have bolstered customer retention, they have yet to offset declining margins. Additionally, increased competition from players like DoorDash, Uber Eats, Amazon (AMZN), and Walmart (WMT) continues to put pressure on Instacart’s market position.
Instacart has also reshuffled its leadership team and is making strategic investments in advertising and e-commerce software. These higher-margin businesses now contribute nearly 30% of the company’s revenue. However, analysts remain cautious about whether these efforts will be enough to drive sustained profitability.
Investor Sentiment and Market Reaction
Following the earnings release, Instacart stock dropped as much as 13% in intraday trading, marking its steepest decline in over three months. The stock has gained 6% year-to-date but remains highly volatile as investors weigh the company’s ability to balance growth and profitability. Morgan Stanley analyst Brian Nowak maintained a neutral stance, citing the company’s solid core growth but warning that investor expectations had been elevated ahead of the report.
Looking ahead, Instacart’s ability to drive order growth while maintaining margins will be key. While its expansion into restaurant delivery and advertising technology presents long-term opportunities, near-term profitability concerns could keep pressure on its stock. Analysts will be watching closely to see whether Instacart’s affordability initiatives translate into stronger customer retention or simply erode its bottom line further.
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