Instacart (CART) Preview: Will the Hot Streak Continue?
2min read Instacart (CART) is set to release its third-quarter earnings after the close, with analysts and investors keenly watching whether the grocery delivery company can sustain its recent stock surge.
CART shares have climbed over 40% since early September, reflecting optimism around its improving profitability and strategic partnerships. However, with expectations running high, the company will need to deliver a robust report to avoid a sell-the-news reaction.
The FactSet consensus projects earnings per share of $0.22 and revenue of $844 million for the quarter. More critical for investors, however, will be CART's adjusted EBITDA performance, a key profitability metric.
Last quarter, CART reported an impressive 89% year-over-year growth in adjusted EBITDA, reaching $208 million. For Q3, the company has guided adjusted EBITDA to range between $205 million and $215 million, marking a 29% midpoint growth year-over-year.
Strategic Partnerships Bolster Demand
CART’s recent momentum is partly attributable to strategic partnerships aimed at expanding its customer base and enhancing its value proposition. In August, the company announced a collaboration with Ibotta, providing Instacart customers access to Ibotta’s digital coupons. This initiative is expected to offset delivery costs for customers, making CART's platform more attractive.
Additionally, CART’s partnership with Uber allows Uber Eats' restaurant delivery services to be integrated into the Instacart app. These collaborations not only deepen CART's service offerings but also drive traffic to its platform, positioning the company to capitalize on evolving consumer preferences for convenience and cost savings.
Solid Gross Transaction Value Growth
CART’s Gross Transaction Value (GTV), which measures the total value of goods sold through its platform, is another critical metric for evaluating demand. In the previous quarter, GTV grew 10% year-over-year to $8.194 billion.
For Q3, CART has projected GTV between $8.10 billion and $8.25 billion, implying growth of 8-10%. Investors will also be looking for Q4 GTV guidance to gauge the trajectory of consumer engagement during the holiday season.
Advertising Revenue: A Key Profit Driver
Instacart has increasingly leaned on its higher-margin advertising business to fuel profit growth. In Q2, Advertising & Other revenue rose 11% to $228 million, supported by a growing base of over 6,000 advertising brand partners. This segment plays a critical role in CART’s strategy to diversify revenue streams and enhance profitability.
Cost Management Enhances Margins
CART’s disciplined cost management has also contributed to its improving profitability. Adjusted operating expenses as a percentage of GTV fell to 5.2% in Q2, compared to 5.7% in the same period last year. This efficiency gain was primarily driven by reduced R&D spending, highlighting CART’s focus on operational discipline without compromising its growth initiatives.
Risks and Expectations
Despite CART's strong recent performance, the stock's steep rise in a short period increases the risk of a sell-the-news reaction if the earnings report or outlook falls short of lofty expectations. Investors will scrutinize Q3 results for evidence that CART can sustain its GTV growth while continuing to improve margins.
Looking forward, CART's ability to expand its advertising business, maintain cost efficiency, and capitalize on its partnerships will be pivotal to its long-term success. With Q4 guidance expected in the Shareholder Letter, the market will also assess the company’s positioning for the holiday season, a critical period for consumer-driven businesses.
Conclusion
CART’s Q3 earnings report comes at a crucial juncture as the company works to sustain its growth trajectory while improving profitability. While partnerships and cost management efforts provide strong tailwinds, the high expectations reflected in the stock’s recent rally leave little room for disappointment.
Investors will closely monitor the results to determine whether CART can maintain its upward momentum or if a near-term pullback is on the horizon.