Rumors of a potential takeover of Instacart by Uber circulate on Wall Street. The shareholders of the American food delivery supplier reacted with excitement to these speculations. But what exactly is behind it? Instacart, one of the key players in the American grocery market, took the step to go public on the NASDAQ exchange in September 2023. However, due to weak growth prospects, demand for the stock was extremely low. But on Wednesday, this changed drastically. The Instacart stock surged significantly on the NASDAQ technology exchange.
The driving force behind the sudden increase in share prices: According to an analyst note, the ride-hailing company Uber is interested in acquiring Instacart. Deepak Mathivanan from Wolfe Research sees Instacart as an ideal acquisition target for Uber and provides three reasons for this scenario in his note.
First, an acquisition would accelerate Uber's move into the lucrative food sector, as Instacart is a complementary addition to Uber's Uber Eats segment. Second, the revenue and cost synergies would be significant if the two companies merged. And third, the regulatory risk is negligible due to Uber's small share of the food market in the United States, so there should be no obstacles from authorities for an acquisition.
Expanding its business, which has mainly consisted of passenger transportation so far, has been a goal of Uber for quite some time. The company is particularly interested in establishing a presence in the vast food industry. "While Uber's fundamental data is solid in the medium term, the food sector is a key category for sustaining long-term growth, and competition is evolving rapidly," quotes "DER AKTIONÄR" from Mathivanan's analysis.
The Cash Position of Uber is currently favorable as Uber has recently had good business. In the report for the third quarter of 2023, the company recorded strong profit development: after a loss per share of $0.610 in the previous year comparison, Uber achieved a profit per share of $0.11, significantly surpassing analyst expectations ($0.071). The revenue also showed solid growth, with earnings of $9.29 billion compared to $8.34 billion in the previous year's quarter.
Shareholders are pleased with Uber's business development, which is reflected in a significant increase in stock price in recent months. The situation is completely different for Instacart's stocks. After a successful IPO on September 19th, where the opening price was a whopping 40 percent higher than the offering price of $30, it has been consistently declining.
Investors view Instacart's growth prospects in the fiercely competitive food market as rather low, resulting in a significant value loss of the stocks. They only found support again at a price of approximately 25 US dollars per share and have since been fluctuating within a narrow trading range around the 25 US dollar mark.
Instacart back in focus for investors due to alleged interest from Uber. Mathivanan confirms rumors by upgrading Instacart stock from "Peer Perform" to "Outperform" and sets a target price of $35. He emphasized that the current valuation is extremely low, with the stock trading at only six times the projected EBITDA.
Although Instacart's growth prospects may be clouded, Mathivanan emphasized that it is by no means a broken company.
On Wednesday, Instacart stock, listed on NASDAQ under the name Maplebear, rose 7.5 percent to $25.67. In pre-market trading, it additionally gained 1.05 percent to $25.94. In contrast, Uber shareholders remained calm and barely reacted to the acquisition speculations.
Although Uber shares lost slightly by 0.83 percent to $63.12 on Wednesday at the NYSE, they temporarily increased by 1 percent to $63.75 in pre-market trading on Thursday.
