Amazon's expansion of grocery delivery isn't the death knell for these stocks. Here's why

Amazon's expansion of same-day grocery delivery to over 1,000 cities triggered stock declines for DoorDash (-4%), Instacart (-14%), and Walmart (-3%). However, analysts, including Bernstein's Zhihan Ma and Deutsche Bank's Lee Horowitz, view the sell-off in DoorDash and Instacart as overdone, asserting that the online grocery market has ample room for growth and third-party platforms offer distinct advantages like broader selection and retailer integration. They suggest these platforms can remain competitive and even benefit from overall market expansion, with Ma projecting significant upside potential for both DoorDash (25%) and Instacart (43%).

Analysis

Amazon's strategic expansion of same-day grocery delivery to over 1,000 cities has triggered a notable negative market reaction, with shares of DoorDash (DASH), Instacart (CART), and Walmart (WMT) declining 4%, 14%, and 3% respectively over the past week. Despite this, key analyst commentary from Bernstein and Deutsche Bank posits that the sell-off in DASH and CART is overdone. The core of this counter-thesis is that the online grocery delivery market is not a zero-sum game and has significant room for penetration rate expansion, which could accommodate multiple major players. Analysts argue that third-party platforms like Instacart possess a durable competitive advantage in their breadth of merchant selection, allowing consumers to order from preferred retailers such as Costco and Kroger. This dynamic may even compel retailers to deepen their reliance on these platforms to effectively compete with Amazon. Bernstein analyst Zhihan Ma highlights Instacart's best-in-class product, rapid delivery windows, and cost-efficient gig worker model as key strengths, projecting a 43% upside to a $63 price target. Similarly, Ma remains optimistic on DoorDash, reiterating an unchanged earnings power thesis and a $310 price target, implying a 25% upside, which is more bullish than the 17% consensus estimate.

Key Decisions for Investors

• The recent share price decline in DoorDash and Instacart, prompted by Amazon's expansion, may present a tactical entry point, as influential analysts view the sell-off as an overreaction and project significant upside.
• Investors should monitor the ability of Instacart and DoorDash to maintain their key competitive advantage, which is the breadth and quality of their retail partnerships, as this is their primary defense against a single-retailer offering from Amazon.
• The central thesis to watch is whether Amazon's entry primarily expands the total addressable market for online grocery, as suggested by Deutsche Bank, or begins to materially erode the market share of incumbents.
• Note that while the analyst sentiment is positive, specific targets from firms like Bernstein are considerably more optimistic than the street consensus, suggesting investors should weigh this higher-conviction view against average market expectations.