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Ibotta (IBTA) isn't looking like such a great bargain to investors after the provider of a digital coupon and promotions platform issued its Q3 earnings report. Heading into the print, the stock had been on a roll, rallying by 27% since the beginning of October, indicating that expectations were high for the company, especially in the wake of signing a major new deal with grocery delivery company Instacart (CART) in August. While IBTA did indeed post strong Q3 results that topped EPS and revenue expectations, its guidance for Q4 fell flat, instigating a sharp profit-taking pullback in the stock.

• Total redemption revenue increased by a healthy 28% yr/yr to $84.5 mln while the total number of redeemers on the Ibotta Performance Network (IBN) soared by 63%. In fact, in Q3, coupon redeemers reached a new record high of 15.3 mln, illustrating how IBTA's business performs well in difficult economic times. On that note, the company commented nearly half of Americans are living paycheck-to-paycheck, while nearly a third of consumers are spending about 90% of their income on necessities.
• IBTA's redemption revenue growth is being entirely driven by third party redeemers (3P), such as Walmart (WMT), Kroger (KR), and Costco (COST). More specifically, third party publisher redemption revenue rocketed higher by 129% yr/yr, compared to a 20% drop in the direct-to-consumer channel.
• Not only is IBTA seeing a surge of consumers come to its platform, but it's also experiencing strong growth in the number of consumer-packaged goods (CPG) clients. In FY24, the company has seen a 65% increase in gross billings for its CPG redemption business.
• The strong redemption and revenue growth is generating operating leverage, resulting in Q3 adjusted EBITDA margin improving to 37% from 28% in the year-earlier period. Adjusted EBITDA of $36.5 mln came in above IBTA's Q3 guidance of $28-$32 mln.
• Clouding over these positives is IBTA's Q4 revenue guidance of $100-$106 mln, which fell short of expectations, and its forecast of a qtr/qtr decline in adjusted EBITDA to $30-$34 mln. Typically, Q4 is IBTA's seasonally strongest quarter of the year, but this year the company expects downward pressure on redemption revenue in Q4. This is due to its CPG customers exhausting their 2024 promotional budgets faster than anticipated, leaving less to allocate in Q4.
• On the positive side, IBTA said that it has received indications from its largest clients that they intend to increase their investment levels as they set their 2025 budgets. Furthermore, the company is expecting the CART partnership to contribute more meaningfully in 2025.

The main takeaway is that IBTA's disappointing Q4 guidance is clouding over its solid Q3 results, but the downside guidance does appear to be more temporary in nature as its CPG customers burnt through their promotional budgets faster than expected. IBTA's business should still thrive as consumers remain in a cost-conscious mindset, and as CPG companies look for ways to become more competitive on price.