Ibotta (IBTA, Financial) recently released its Q3 earnings report, which initially seemed promising for investors. The stock had surged 27% since October, fueled by high expectations after securing a significant deal with Instacart (CART, Financial) in August. Although IBTA exceeded EPS and revenue expectations in Q3, its Q4 guidance disappointed, leading to a sharp decline in stock value.

- Total redemption revenue increased by 28% year-over-year to $84.5 million. The number of redeemers on the Ibotta Performance Network (IBN) grew by 63%, reaching a record high of 15.3 million coupon redeemers. This growth reflects the company's resilience in challenging economic times, with many Americans living paycheck-to-paycheck and spending a large portion of their income on necessities.

- The growth in redemption revenue is primarily driven by third-party redeemers, including Walmart (WMT, Financial), Kroger (KR, Financial), and Costco (COST, Financial). Third-party publisher redemption revenue surged by 129% year-over-year, while the direct-to-consumer channel saw a 20% decline.

- IBTA is also experiencing strong growth in its consumer-packaged goods (CPG) client base, with a 65% increase in gross billings for its CPG redemption business in FY24.

- The company's strong performance has led to improved operating leverage, with Q3 adjusted EBITDA margin rising to 37% from 28% the previous year. Adjusted EBITDA of $36.5 million surpassed the company's Q3 guidance of $28-$32 million.

- However, IBTA's Q4 revenue guidance of $100-$106 million fell short of expectations. The company also anticipates a quarter-over-quarter decline in adjusted EBITDA to $30-$34 million. Typically, Q4 is the strongest quarter for IBTA, but this year, it expects reduced redemption revenue due to CPG customers depleting their 2024 promotional budgets earlier than expected.

- On a positive note, IBTA has received indications from its largest clients that they plan to increase their investment levels for 2025. Additionally, the partnership with CART is expected to make a more significant impact in 2025.

The key takeaway is that while IBTA's Q4 guidance is disappointing, it appears to be a temporary setback. The company's business model remains robust as consumers continue to be cost-conscious, and CPG companies seek competitive pricing strategies.