Instacart’s stock experienced a notable surge following speculation from analyst Deepak Mathivanan of Wolfe Research. Mathivanan suggests that the grocery delivery company could be a potential target for ride-sharing platform Uber Technologies. In light of this, Mathivanan has raised his rating on Instacart to Outperform and set a target price of $35.
Despite Instacart being incorporated under the name Maplebear, it went public last September at $30 per share. Currently, the stock is trading 6.7% higher at $25.48, whereas the S&P 500 is down 0.6% and the Nasdaq Composite has fallen 0.9%.
Mathivanan’s research note highlights the attractiveness of the stock at its current levels and outlines various paths for its improved performance, including a potential merger with Uber. Instacart and Uber have yet to comment on the matter.
Instacart shares have faced pressure since the company’s introduction to the public market, largely due to concerns about its growth outlook. Mathivanan recognizes and shares these reservations; however, he argues that Instacart is not a failing business, despite its low valuation. The stock trades at approximately six times forward EBITDA (earnings before interest, taxes, depreciation, and amortization).
Mathivanan points out three primary reasons why Uber might be interested in acquiring Instacart. Firstly, it aligns with Uber’s objective to expand into the lucrative $1 trillion grocery segment. Additionally, there is the potential for significant revenue and cost synergies. Moreover, the regulatory risk appears minimal since Uber currently holds less than 1% of the grocery delivery market.
According to The Wall Street Journal, Instacart has approached both DoorDash and Uber regarding a potential acquisition in 2021.
Mathivanan believes that Uber could pay up to $40 per share for Instacart and still find the transaction accretive.
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