On Thursday, UBS downgraded shares of Ibotta Inc (NYSE:IBTA) from Buy to Neutral, significantly reducing the price target to $65 from the previous $90. The adjustment follows the company's announcement regarding advertiser budget exhaustion in the third quarter, which implies a deviation from the expected fourth quarter seasonality.
The firm cited concerns about the correlation between the growth of Ibotta's user base, known as "Redeemers," and the increase in advertiser budgets. The analyst expressed a lack of confidence in the near-term prospect that advertiser budget growth would keep pace with Redeemer growth. The sentiment was that, for the time being, it would be prudent to observe whether advertisers would begin to treat promotional budgets as dynamic and essential to their ongoing marketing efforts.
Despite the potential benefits of Ibotta's partnership with Instacart (NASDAQ:CART), which could bring in additional advertisers over time, there is uncertainty about whether such collaborations will lead to proportional increases in advertising budgets. This uncertainty has led to a more cautious stance from UBS.
Furthermore, the firm has revised its financial estimates for Ibotta, reducing its FY25 revenue and EBITDA forecasts by 7% and 14%, respectively. These revisions account for a projected revenue acceleration from the high end of the fourth quarter 2024 guidance to the fourth quarter of 2025 and a slight deceleration in FY24 GAAP revenue growth.
The new price target is based on a 10x EBITDA multiple, which reflects a .18x EV/revenue/growth on the firm's FY26 estimates. This valuation represents a discount compared to the peer group average of .27x, mirroring the trend where internet company valuations are adjusted when near-term growth visibility is challenged, as seen with companies like Bumble (NASDAQ:BMBL) earlier in the year.
In other recent news, Ibotta Inc. has been the focus of several analyst adjustments following its latest earnings report. Goldman Sachs upgraded Ibotta from Neutral to Buy, citing a compelling valuation and promising risk/reward balance. This confidence is also reflected in the company's recent initiation of a $100 million share repurchase program, indicating potential future growth. However, other firms like Needham, Evercore ISI, and Citi have adjusted their price targets for Ibotta, reflecting near-term challenges in the company's advertising revenue. Despite this, they maintain positive ratings, with Needham in particular highlighting the potential of Ibotta's new partnership with CART. Conversely, UBS raised Ibotta's share price target to $129, emphasizing strong user growth and third-party redemption activity. These recent developments underscore the dynamic nature of Ibotta's operations in the current market landscape.
InvestingPro Insights
Ibotta Inc (NYSE:IBTA) presents a mixed financial picture that aligns with UBS's recent downgrade. According to InvestingPro data, the company's market capitalization stands at $2.3 billion, with a high P/E ratio of 215.95 based on the last twelve months as of Q2 2024. This elevated valuation multiple suggests investors are pricing in significant future growth, which may be challenging given the recent concerns about advertiser budget constraints.
On a positive note, Ibotta boasts impressive gross profit margins of 87.08% for the same period, reflecting the company's ability to maintain profitability on its core services. This aligns with one of the InvestingPro Tips, which highlights Ibotta's "impressive gross profit margins." Additionally, the company's strong revenue growth of 13.62% in Q2 2024 indicates ongoing business expansion, albeit potentially at a slower pace than previously anticipated.
Another InvestingPro Tip points out that Ibotta "holds more cash than debt on its balance sheet," which could provide financial flexibility as the company navigates the uncertainties in advertiser spending patterns. This strong liquidity position may help Ibotta weather near-term challenges and invest in growth initiatives, such as the Instacart partnership mentioned in the article.
Investors seeking a more comprehensive analysis can access 13 additional InvestingPro Tips for Ibotta, offering deeper insights into the company's financial health and market position.
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