Instacart's stock closes lower as a potential sell-off looms

Instacart shares could be on a rollercoaster this week as the company gears up for the end of its IPO lockup period on Feb. 15.

Shares dropped more than 8% in midday trading on Wednesday, following its fourth quarter earnings report that showed consumers are adding less to their carts as the cost of groceries continues to rise. The stock later pared back losses and ended the day down nearly 2%.

"There could be a lot of volatility in the shares beginning [Thursday]," Arun Sundaram, CFRA analyst, told Yahoo Finance over the phone. "It just doesn't seem like it's the right time to be an investor right now. That's why we're recommending a sell."

However, Instacart has made some preparations. The company increased its stock buyback authorization by approximately $500 million, and has roughly $930 million available for repurchases ahead of the lockup period ending, JPMorgan analyst Doug Anmuth wrote in a note to clients.

Anmuth, who has an Overweight rating on the stock, wrote that Instacart had roughly 332 million outstanding shares at the time of IPO. "We believe affiliates hold approximately 120M shares, and these shares have lower probability of being sold near-term," he added.

Instacart declined to comment on the lockup period expiration.

The grocery delivery giant, formally listed as Maplebear Inc., posted Q4 results largely in line with estimates, but is seeing significantly slower growth after huge pandemic-era gains.

In Q4 2023, the number of orders increased 5% year over year to 70.1 million, compared to a 10% jump in orders in Q4 2022.

Gross transaction value (GTV), the value of products sold on the app, increased 7% to $7.9 billion due to inflation hitting grocery prices.

Instacart expects GTV to jump even higher to between $8 billion and $8.2 billion in Q1, making it the fourth consecutive quarter of accelerating growth for GTV.

"Volumes are generally pretty weak across the food landscape; consumers are putting less items into their basket," Sundaram said. "The entire food industry" will be trying to grow volume in 2024, he added.

This trend will put pressure on Instacart's business model, putting the sustainability of its growth into question as consumer spending slows down.

Food price deflation, on the other hand, could also be a headwind, as the lower prices result in lower top-line increases for the company, noted Sundaram. Meanwhile, a more promotional environment could hit the company's profitability as it tries to lure in more users.

For personal reasons, three executives also announced plans to depart: chief operating officer Asha Sharma, chief technology officer Varouj Chitilian, and chief architect JJ Zhuang.

"The restructuring did take investors by surprise ... the company just recently IPO'd," Sundaram said. The three executives' departures are likely to "raise some questions as well."

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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