Walmart-backed Ibotta set to IPO, will it revolutionize shopping?
Ibotta (IBTA), a digital marketing platform company backed by Walmart (WMT), recently announced its upsized initial public offering (IPO) in the United States. The company aims to raise about $551 million by selling 6.56 million shares, an increase from the initially planned 5.63 million shares. This move targets a valuation of approximately $2.5 billion for Ibotta, with an IPO price range initially set between $76 and $84 per share.
However, the demand for shares has led to an increase in the indicated trading price, now ranging between $107.50 and $112.50 per share, significantly above the initial pricing. The IPO, which was eventually priced at $88, indicates strong investor interest in this low-float offering. The revised pricing reflects an optimistic market outlook for the digital marketing sector and Ibotta"s strategic positioning within it.
Ibotta will not receive any proceeds from the shares sold by these shareholders. Structurally, Ibotta will have two classes of stock post-IPO, with Class A shares having one vote each and Class B shares carrying 20 votes each. Upon completion of the IPO, Ibotta"s founder, CEO, and president, Bryan Leach, along with associated entities, will control approximately 69.7% of the voting rights.
In the IPO filing documents, Ibotta's founder, Bryan Leach, describes the inspiration behind the company originating from an observation he made on a flight. He noticed a woman photographing her receipts for reimbursement, which made him realize the wealth of data each receipt holds, such as item details, purchase time, and store location. This realization spurred him to think about how technology could leverage this information to revolutionize promotional deliveries and advertisements. He envisioned Ibotta (I-bought-a) as a platform that could offer consumers rewards for trying new brands while simultaneously transforming the digital marketing landscape.
Ibotta"s Mission
IBTA's mission is to Make Every Purchase Rewarding. By using its mobile app and website, consumers can earn cash-back rewards on their everyday purchases. It also enhances third-party publishers' programs by integrating its reward system. INTA"s approach involves sharing a portion of advertising revenue with consumers as rewards when they respond to promotions. The digital platform allows it to tailor promotions not just by tracking online behavior or shopping patterns, but by analyzing specific purchases across a variety of retailers, both in-store and online. This enables Ibotta to directly link promotions to actual sales, enhancing the effectiveness and appeal of offers.
2023 Recap
IBTA experienced significant growth in 2023, largely fueled by the addition of new publishers to the IPN and the successful launch of offers on Walmart's digital platforms. This expansion not only drew in larger audiences but also increased expenditures from CPG brands and the number of redeemed offers, boosting IBTA's scale, growth, and profitability.
Financially, IBTA saw impressive gains across various metrics:
Total revenue surged by 52%, from $210.7 million in 2022 to $320.0 million in 2023.
Redemption revenue, which represents a significant portion of total revenue, increased from $138.7 million (66% of total revenue) in 2022 to $243.9 million (76% of total revenue) in 2023, marking a 76% increase.
Gross profit rose by 68%, from $164.5 million in 2022 to $276.0 million in 2023.
The company turned around its financial standing, with net income improving from a loss of $54.9 million in 2022 to a gain of $38.1 million in 2023.
Net income as a percentage of revenue improved dramatically from -26% in 2022 to 12% in 2023.
Adjusted EBITDA margin saw a significant enhancement, moving from -13% in 2022 to 26% in 2023. This financial turnaround reflects a robust start to the year, positioning IBTA well for continued growth.
Q1 Outlook
For the first quarter ending March 31, 2024, IBTA forecasts revenue increase between $80.8 million and $82.3 million. This represents an estimated growth of 40% to 43% over the $57.7 million recorded in the same period in 2023. The anticipated surge in revenue is largely attributed to an expansion in third-party publishers' contributions, particularly those related to Walmart. This growth stems from the expansion of services to all Walmart.com account holders in the third quarter of 2023, building on the initial launch to Walmart+ members in the third quarter of 2022.
Financially, IBTA is projecting a strong first quarter with gross profits expected to be between $70.2 million and $71.8 million, up from $46.4 million the previous year. Operations income is also expected to show a positive turnaround, with projections ranging from $14.1 million to $15.9 million, a significant improvement from the operation loss of $0.9 million in Q1 2023. Net income is anticipated to be between $7.3 million and $9.3 million, a robust recovery from a net loss of $4.3 million in the prior year. Adjusted EBITDA is projected to be between $21.0 million and $22.7 million, indicating a healthy margin of 26% to 28%, compared to just 4% in Q1 2023. Additionally, cash and cash equivalents are expected to increase, reflecting a solid financial position as the quarter ends.
Conclusion
The launch of IBTA's IPO coincides with a strong period for the Renaissance IPO ETF, which has surged 43% over the past 12 months, significantly outpacing the S&P 500"s gain of 7%. However, the timing of this IPO raises some concerns due to the current retreat in risk appetite as interest rates continue to climb, driven primarily by persistent inflation. These higher costs are pushing consumers to seek out bargains, positioning IBTA"s business model as a strategic opportunity to enhance consumer purchasing power through digital promotions.
IBTA's total addressable market is estimated at $200 billion, indicating substantial potential for growth. The company's profitability is particularly noteworthy amidst concerns about the impact of rising rates on long-duration assets. Additionally, IBTA"s partnerships with major retailers like Walmart (WMT) and Dollar General (DG) underscore its significant reach in consumer spending.
While the IPO"s anticipated opening price above $100 may prompt some skepticism, the relatively low float of just over 6 million shares suggests that the stock may experience considerable volatility.