KeyBanc Capital Markets has initiated coverage on DoorDash (NASDAQ:DASH) and Instacart (NASDAQ:CART), assigning both companies a Sector Weight rating.
The investment firm pointed out several positive aspects of DASH, noting its status as a "category leader in on-demand delivery," poised to benefit from continued category growth. The firm also points to emerging advertising revenue streams and a management team with a strong execution track record as significant positives.
However, KeyBanc also expresses concerns about the company’s "moderating EBITDA upside" and intensifying competition, which could limit profitability and growth.
For Instacart, KeyBanc acknowledges its dominance in the grocery delivery sector and its profitable business model. Yet, the firm notes several challenges, including "moderating revenue growth" and a lack of diversification compared to its peers.
“Instacart has established itself as a leader in the grocery delivery space. However, we believe category growth is undergoing a transition, which could temper revenue growth over the medium term,” KeyBanc analysts noted.
KeyBanc also reflected on the broader industry context, noting that while restaurant delivery remains a growth area, it is further along the S-curve. In contrast, grocery delivery is facing heightened competition amidst high inflation, which may moderate growth rates.
“Given a mixed consumer backdrop and consensus estimates that appear fair, we see limited upside from our fair value estimates of $108 for DASH and $32 for CART.”
DoorDash's strengths include its share gains in the market, the potential of its grocery and retail verticals, and its growing membership and advertising businesses. However, KeyBanc advises waiting for a more attractive entry point, citing a mismatch between Street growth and profit expectations in the near term.
As for CART, analysts pointed to its extensive delivery partnerships, advertising ramp-up, and solid capital allocation as key catalysts to watch. Yet, the firm remains cautious, anticipating that competitive pressures could temper revenue growth over the medium term.