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Ibotta’s expansion into enterprise should set the stage for a successful IPO

Ibotta confidently filed an S-1 with the SEC on March 22 with the intention of listing on the New York Stock Exchange. The 13-year-old cash-back startup is on track to make its public debut in 2023 after turning a profit and posting impressive revenue growth.

The company reported 2023 revenue of $320 million, a 52% increase from 2022 revenue of $210 million. Ibotta’s gross profit will increase 68% from $164.5 million in 2022 to $276 million in 2023.

The Denver-based company started as an app that lets consumers earn cash back on purchases through Ibotta’s brand partners. The company has since expanded into building back-end software for rewards programs for corporate clients such as Walmart, Shell and Exxon Mobil.

Nicholas Smith, senior equity research analyst at Renaissance Capital, said Ibotta’s move into B2B2C (selling products to companies and then using those products to sell to consumers) may be what investors are interested in in the IPO. a key reason. Pre-IPO and IPO-focused ETFs. Sales to companies may also have played a large role in Ibota’s recent financial gains.

“the fact is [Ibotta] It’s more of an enterprise software than Walmart, basically the back end of Walmart’s cash rewards program, which gives it more credibility,” Smith said. “[Compared to] “Hey, we have this app, we need to add users and continue down this path.”

The company began building an enterprise initiative called the Ibotta Performance Network (IPN) back in 2020. Its partnership with Walmart also began in 2020, but it expanded its IPN partnership with the retail giant in 2022. According to the S-1, this partnership has played an important role in Ibotta’s revenue growth.

“Our revenue growth has accelerated significantly as new publishers join IPN,” S-1 said. “Recently, our launch of offers on Walmart’s digital properties has attracted a larger audience, which in turn has led to the growth of CPG brands. Spending increased and the number of redemption offers increased. These developments enhance our scale, growth and profitability.”

Judging from Ibotta’s comments, its direct-to-consumer business will grow 19% from 2022 to 2023, which is a respectable number. By comparison, the company’s enterprise business (“Third Party Publisher Revenue” in its filings) grew 711% during the same time period, from just under $10 million to just over $80 million in one year Dollar. This growth and the resulting gross margin improvement – from 78% in 2022 to around 86% in 2023 – has helped the company move from consistent net losses to consistent profitability.

Ibotta’s quarterly numbers underscore how recently and quickly it has become a profitable company. The company’s net losses continued to decrease from the first quarter of 2022 to the first quarter of 2023. In the first quarter of 2022, its net income was negative $22.9 million, falling to $4.3 million a year later. Then, starting in the second quarter of 2023, it started generating regular profits, which grew to $18.6 million by the last quarter of last year.

Rapid revenue growth, an expanding secondary revenue line, improving revenue quality and GAAP profits all contributed to Ibotta going public. If it stumbles even with these enabling characteristics, a late-stage venture-backed startup might view its debut as a cautionary tale.

But there are reasons to expect its growth to continue. The company has signed IPN partnerships with Family Dollar, Shell, Exxon and Kroger, suggesting widespread enterprise demand, although the extent of those relationships is less clear compared to Ibotta’s partnership with Walmart . The S-1 did not clarify how long Ibotta’s partnership with Walmart will last, but it did mention that if the retailer did end the partnership, it would have a significant impact on Ibotta’s business.

The biggest remaining question is how Ibotta will price its shares. While the company may well have chosen to file its expression of interest now — it originally hired bankers in November — to ride the wave of recent successful IPOs from Astera Labs and Reddit, Ibotta is very different from those two companies.

Ibotta has seen virtually no secondary activity, according to secondary data platforms, making it difficult to gauge how investors currently value the startup. Smith said there could be a variety of pricing options, given that the company has multiple revenue streams that have traditionally been valued at widely varying valuations.

“It’s hard because there’s no perfect compensation,” Smith said. “It’s kind of like an ad tech company, maybe it’ll become something more [into] Enterprise software. [If it’s] From a technology perspective, it’s probably trading at a high P/E, and if it’s ad tech or even consumer, it’s probably going to be lower. “

If investors view it more as an advertising or marketing company, it could be priced similarly to what digital marketing firm Klaviyo did last fall, Smith added. Klaviyo was priced at $31 per share, $1 above its target of $30, giving it a valuation of $9.2 billion, slightly below its previous first-round valuation of $9.5 billion. The company currently has a market capitalization of $6.8 billion.

Ibotta has raised more than $90 million in venture capital from funds including GGV Capital, Great Oak Ventures and Teamworth Ventures, in addition to numerous angel investors including Beyond Identity co-founders Thomas Jermoluk and Jim Clark. The company was last valued at $1.08 billion.

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