Rising Privacy Regulations Will Crush Digital Ad Prospects

Key Takeaways

• Intensifying regulatory pressures and shifting brand loyalty trends threaten Ibotta's advertiser base, constraining revenue growth and margin improvement.
  
• Rising competition from retailer programs and high technology spend limit Ibotta's ability to improve earnings, with organizational upheaval heightening sales and client retention risks.
  
• Strong product innovation, deeper partner integration, and favorable industry trends position Ibotta for improved growth, increased client investment, and expanding margins as transformation matures.

Catalysts

A technology company, provides digital promotion services to clients in the United States.

• Intensifying data privacy regulations and rising consumer resistance to digital advertising threaten Ibotta's ability to collect, use, and monetize user data for targeted promotions, which risks eroding advertiser interest and could drive a sustained decline in both revenue and margin over time.
  
• Shifting consumer and brand preferences toward private label and direct-to-consumer models are shrinking the pool of large CPGs willing to invest in broad-based, third-party promotions, undermining Ibotta's long-term advertiser base and significantly constraining revenue growth and earnings potential.
  
• Major CPG clients and retailers are increasingly investing in their own loyalty and digital rewards programs, enabling them to bypass third-party incentive platforms like Ibotta, which raises the risk of contract losses and weakens Ibotta's bargaining position, directly impacting recurring revenue and future margin expansion.
  
• Technology and product investments required to keep pace with both established competitors and fintech disruptors are likely to remain elevated for years, limiting any gains in operating leverage; this persistent high spend will continue to weigh on net margins and delay any meaningful improvement in earnings.
  
• Ongoing organizational disruption, including salesforce reorganization, high client account turnover, and a lag in ramping new performance solutions, creates a prolonged period of sales execution risk and client attrition, making it unlikely that revenue growth or EBITDA margins will recover materially before at least 2027.

Ibotta Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ibotta compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ibotta's revenue will decrease by 2.3% annually over the next 3 years.
• The bearish analysts are not forecasting that Ibotta will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ibotta's profit margin will increase from 26.2% to the average US Media industry of 9.9% in 3 years.
• If Ibotta's profit margin were to converge on the industry average, you could expect earnings to reach $34.0 million (and earnings per share of $1.54) by about August 2028, down from $96.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 18.9x on those 2028 earnings, up from 8.1x today. This future PE is lower than the current PE for the US Media industry at 20.5x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Ibotta Future Earnings Per Share Growth

Risks

• Ibotta's ongoing business transformation is resonating positively with both current and potential clients, particularly as they roll out innovative, more measurable performance marketing products that are beginning to attract interest from larger CPG brands; this suggests that revenue growth could reaccelerate once the transformation matures and adoption broadens.
  
• The company is experiencing increasing engagement and deeper integration with major partners like Walmart, as demonstrated by the rollout of new features (such as self-ID at checkout and expanded digital offers), which strengthens their competitive moat and provides increased transaction volume, improving long-term recurring revenue visibility.
  
• Third-party validation of Ibotta's new performance measurement tools has shown results even more favorable than Ibotta's own conservative analysis, increasing credibility among large brands and accelerating client willingness to commit to larger marketing spends, which could drive higher gross margins and stronger top-line growth.
  
• The substantial investments Ibotta is making in sales execution, go-to-market strategies, and automation of measurement and analytics (including recent leadership hires from major tech and promotions firms) are likely to result in improved sales efficiency and customer retention, supporting an eventual expansion in net margins and operating leverage as processes scale.
  
• Secular shifts in both digital marketing (as brands shift budgets from traditional to performance-based platforms) and consumer behavior (increased use of digital rewards and omnichannel shopping) favor networks like Ibotta that bridge online and offline incentives, positioning the company to capture a larger share of a growing, measurable ad market and potentially driving sustained revenue and earnings growth in the long term.

Valuation

• The assumed bearish price target for Ibotta is $24.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ibotta's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $38.0, and the most bearish reporting a price target of just $24.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $342.6 million, earnings will come to $34.0 million, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 6.8%.
• Given the current share price of $27.45, the bearish analyst price target of $24.0 is 14.4% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.