Ibotta’s Operating Loss Reminds Investors That Growth Comes at a Price

The old saying in business is that you have to spend money to make money.

That means investments today are made in hopes of paying off in the future, giving some momentum to revenues, and upon scaling, to profits.

As of Wednesday afternoon (Aug. 14), investors are nonplussed by cash back rewards network Ibotta’s growth in sales, marketing and other expenses — the operating items that give rise to revenues. The stock is down more than 25% in the wake of earnings that detailed a wider operating loss than observers and analysts had expected, even as revenues jumped by 29% in the second quarter (on a non-GAAP basis).

In April, when Ibotta went public, shares leaped by a third, initially pricing at $88 and jumping out of the Wall Street gate on the public markets to $117.

After earnings were reported Wednesday, the stock dropped more than 26% to about $42.66.

Details From the Filings

The second-quarter earnings announcement noted that the company’s total redemption revenue was $74 million, up 27% year over year.

The company said its network had 13.7 million redeemers in the quarter, up 158% from the year-ago period, tied in part to its Walmart program and the expansion of that program through the last few quarters. Direct-to-consumer redemptions were lower year on year, and third-party publisher redemptions gained by triple digits. The total redemption revenue, on a per-redemption basis, was $0.92 versus $1.14 a year ago.

The company’s supplementals illustrated that sales and marketing expenses grew by about 125% year over year to $50 million in the most recent quarter. Research and development expenses jumped by 43% during the same timeframe, and general and administrative expenses were up about 126%.

In other words, most expenses are growing faster than sales, and in the second quarter, the company swung to an operating loss of nearly $22 million, where operating income had been positive for several quarters. Beyond the operating losses, investors may have been less than sanguine at the fact that revenue guidance for the current quarter has come in at 12% at the midpoint of non-GAAP growth.

In the meantime, the company struck a pact with Instacart to provide Instacart customers with access to Ibotta’s catalog of digital coupons, as Ibotta acts as a third-party coupon provider.

During a conference call with analysts, CEO Bryan Leach said the number of consumer redeemers was higher than the company’s seasonally strong fourth quarter last year.

“With persistent elevated prices and high levels of household debt, U.S. consumers are looking for value more than ever,” he said.

Interest from inbound partners also grew through the past few months, Leach said.

Separately, PYMNTS Intelligence data showed that card-linked and other rewards programs are valued by consumers, as 87% of consumers surveyed said they plan to use at least the same number of card-linked offers in the months ahead.

Investors want growth — and there’s growth in rewards and redemptions — but they also want to see consistent positive momentum on the operating income line.