Instacart under pressure after Amazon launches grocery delivery service

Shares of Instacart (CART) are underperforming on Tuesday after Amazon (AMZN) announced its own grocery-delivery service, ramping up competition in an already crowded market. Commenting on the news, Gordon Haskett said that while the development is a negative for Instacart, the selloff in the shares appears to be “a bit overdone.”

GROCERY DELIVERY SERVICE: Amazon announced a new grocery delivery subscription benefit now available to Prime members and customers using EBT in more than 3,500 cities and towns across the U.S. At $9.99 per month for Prime members, this subscription offers unlimited grocery delivery on orders over $35 from Amazon Fresh, Whole Foods Market, and a variety of local grocery and specialty retailers on Amazon.com, and provides access to even more convenient delivery and pickup options. Customers with a registered EBT card can experience the same grocery subscription benefits without a Prime membership for just $4.99 per month. A free 30-day trial is available so customers can see how this grocery delivery subscription works for them.

SELLOFF ‘A BIT’ OVERDONE: Commenting on the news, Gordon Haskett notes that the news has hit Hold-rated Instacart particularly hard, with shares down as much as 7% on Tuesday, which the firm believes is “a bit overdone” – but not enough for Gordon Haskett to turn bullish as it thinks investors have long thought of Amazon as a fierce competitor and expected it to take share from Instacart over the long run. Additionally, it’s worth noting that Instacart has a deep roster of grocery stores on its platform and has been accepting EBT payments since 2020, the firm adds.

Gordon notes that EBT accounts for a relatively small percentage of overall grocery spend, but it’s a sizeable dollar amount. In 2022, 41.2M people used EBT benefits, representing 12.4% of the U.S. population. However, it’s worth noting that some states have far greater EBT usage mix than others. In 2022, EBT users spent $119.5B, or $230.88 per month, representing about 10% of total grocery spend, the firm says.

PRICE ACTION: In afternoon trading, shares of Instacart have dropped over 6% to $33.83.