Investing.com -- Following a strong quarter and bullish guidance, Loop Capital’s Rob Sanderson raised the price target on Instacart (NASDAQ:CART) shares to $58 from $52, citing higher-than-expected GTV growth, advertising contribution, and profitability.
Alongside the upgrade, Sanderson posed a broader strategic question in a Monday note, “Why wouldn’t Uber (NYSE:UBER) acquire Instacart?”
“Uber is clearly committed to the grocery category for its large total addressable market (TAM), advertising opportunity and potential synergies,” Sanderson wrote. He highlighted that both companies have made “solid progress” on their partnership so far, though DoorDash (NASDAQ:DASH) continues to lead in grocery delivery.
Still, Instacart holds “majority share of order value, extensive category expertise and deep relationships with grocers – a supply advantage for at least the next 1-3 years.”
Instacart’s first-quarter performance offered further support for the stock’s standalone appeal. Gross transaction value rose 10% year-on-year, adjusted EBITDA exceeded the top end of guidance, and ad revenue growth outpaced GTV growth, accelerating to 14%.
“Alongside Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT), Instacart continues to be recognized as a leader and a high performing retail media channel in our conversations with ad buyers,” Sanderson said.
The company delivered a 60% margin on incremental revenue, significantly outpacing long-term margin targets.
With Instacart CEO Fidji Simo stepping down to join OpenAI, the timing could be opportune for Uber to consider an acquisition, according to Sanderson.
“Instacart trades at half the EBITDA multiple of Uber with a 600bps slower growth outlook in consensus,” he said. “This is before any cost, upsell or operational synergies.”
“It seems to us that an eventual combination is more likely than not,” he added.
Loop Capital sees meaningful cost and channel synergies in a potential combination, noting Instacart’s data-driven ad business and Uber’s history of acquisitions. With Simo departing for OpenAI, the broker suggests that price may be the only remaining hurdle.