Shares of Instacart (CART 1.06%) were pulling back after its first earnings report as a publicly traded company, as mostly solid results weren't enough to convince investors that the stock deserved to trade at a premium.
As of 12:09 p.m. ET, the stock was down 9.2%.
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Instacart is growing, but investors are hungry
In the highly anticipated debut earnings report, Instacart reported slowing growth, with gross transaction value up 6% to $7.5 billion and orders growing 4% to 66.2 million. However, the company posted 19% growth in advertising and other revenue, and as a result, overall revenue increased 14% to $764 million, which was well ahead of the consensus of $736.9 million.
Management noted several macroeconomic challenges in the online grocery industry, including a loosening of COVID restrictions and stimulus tailwinds as well as the impact of interest rates and inflation.
Further down the income statement, the company reported a 16% increase in gross profit to $561 million, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) soared 120% to $163 million, showing that profitability is ramping up thanks to ancillary businesses like advertising.
What's next for Instacart
Looking ahead, Instacart expects 5%-6% growth in gross transaction value, and it forecast adjusted EBITDA of $165 million to $175 million, similar to the third quarter. Management expects the primary driver of that growth to be advertising and other revenue associated with seasonality.
Separately this morning, Amazon said that customers would no longer need a Prime membership to order groceries from Amazon Fresh, potentially strengthening a deep-pocketed rival.
Instacart has faded from its $30 IPO price, but the stock seems to be approaching the buy range given its solid growth and improving profitability from its advertising business. Today's sell-off seems surprising given the mostly solid results. Fresh IPO stocks can be risky, but investors could be underestimating Instacart's potential. Keep an eye on upcoming reports from Instacart. If the company can maintain its revenue growth and expand its profit margins, the stock should reward investors.
