DoorDash executives believe the company’s planned $17 billion Instacart acquisition could boost grocery delivery and expand advertising revenue.
- DoorDash CEO Tony Xu said the Instacart deal could help improve grocery delivery by making orders more accurate, faster, and cheaper.
- CFO Ravi Inukonda said the deal could drive growth through more restaurant choices and higher ad revenue.
- DoorDash, Instacart deal risks facing FTC scrutiny over competition and grocery pricing.
DoorDash Inc.’s planned acquisition of Instacart is drawing investor attention, as CEO Tony Xu sees room for grocery delivery to grow through better order accuracy, faster service and lower costs. The $17 billion deal could boost revenue and efficiency, though regulatory scrutiny remains a key hurdle.
DoorDash stock rose more than 1% in overnight trading late Thursday, while Instacart stock slipped 0.2%. DoorDash will acquire Instacart for $65 per share, a 26% premium to Instacart’s closing price on Oct.22, the last trading day before media reports surfaced about a possible deal. At least 75% of the payment will be in cash.
DoorDash-Instacart Deal: What Are The Benefits?
During the third quarter (Q3) analysts’ call, DoorDash CEO Tony Xu said the deal with Instacart could help the company address long-standing service issues while making deliveries faster and more affordable for customers.
“I mean if you think about where grocery delivery is, it really is just a fraction of what its potential could be,” said Xu. He believes better inventory management, delivery accuracy and lower prices will be essential to attracting more shoppers.
Xu said managing inventory involves fixed costs, making scale critical to improving profits and added that the Instacart deal could bring more orders to its delivery network, saying,”they have unique demand or orders that are unique to our network.” Xu mentioned that the deal could help DoorDash handle deliveries faster and lower costs.
“It allows us to continue to invest on our end state journey of building what we believe will be the best-in-class product for all retailers to be able to compete against the world’s biggest companies.”
Growth Catalysts For DoorDash-Instacart Combination
DoorDash CFO Ravi Inukonda pointed to several benefits of combining the two platforms. The companies could list more businesses on both apps, allowing DoorDash to offer its restaurant options to Instacart users and attract more orders.
“Second, I would talk about is just purely ads. CPG (consumer packaged goods) advertisers will now have more consumers to reach, which will not only drive quality, but also higher ad spend, which will in turn drive more ROAS (return on ad spend),” said Inukonda.
He also pointed to opportunities to sell Instacart’s grocery software solutions to DoorDash retail partners. Additionally, DoorDash could expand its DashMart Fulfillment Services offering across a wider group of retailers.
Rosenblatt supported the deal, viewing it positively as it could expand grocery options, increase delivery volumes and create more advertising opportunities. The firm maintained a ‘Buy’ rating with a $270 price target, implying a 50% upside potential from the stock’s last closing price.
Will DoorDash’s Instacart Acquisition Pass FTC Review?
According to a Reuters report, DoorDash’s $65-per-share acquisition of Instacart could attract attention from the Federal Trade Commission (FTC) as U.S. regulators intensify their focus on consumer affordability and competition in grocery delivery.
The FTC has been investigating business practices that raise consumer costs, including delivery fees and pricing. It has an ongoing case against Uber Technologies (UBER) over its subscription services and is considering rules to stop food delivery apps from adding charges.
DASH, CART Stocks: Retail View
On Stocktwits, retail sentiment for both DASH and CART stocks remained ‘extremely bullish’.
So far this year, DASH stock has declined 20%, while CART stock has gained 26%.
For updates and corrections, email newsroom[at]stocktwits[dot]com.<