Ibotta, Inc. (IBTA) Earnings Call Transcript

And now we're officially live. [indiscernible] your voice. We're officially live now. So great. Let's kick off. So I'm Ron Josey, I cover the Internet sector here at Citi. And look, I'm happy to have with us today, Ibotta's CEO, Founder; Bryan Leach. Bryan -- I think you all know who Bryan is, your background from the legal industry to entrepreneur and now, call it disrupting the promotion industry, not disrupting, call it, evolving the promotions industry. I think there's a lot that we can learn from and go through. So Bryan, thanks for joining us today.

Thanks for having me.

So we're about 1.5 years post IPO, if I have that right. And I think for those in the audience that are less familiar with Ibotta, given we're still relatively new to the public markets, give us an overview of the platform, how the strategic focus has evolved for the most part? And and then we'll go from there.

Yes. So we're in the consumer packaged goods industry, helping these companies figure out how to deliver profitable revenue by using digital promotions. And so traditionally, in our industry, you had paper coupons, very blunt instruments, and they developed a certain conventional wisdom around that, that you do a certain amount of that, but not more than that because your fear was you might be subsidizing somebody who is already going to buy your product. And so it was a way of moving sales very quickly. It was a way of placating your retail partners through whom your products are distributed, but it wasn't necessarily agreed that it was a very profitable way to drive market share growth. It was still a large industry, an important industry, and we went a very long way initially as a D2C app, just disrupting the distribution of paper coupons and clearing houses and this sort of thing. So now you could have an app that you could download, it would work anywhere. You could go in and buy a featured item that you saw on our app and get cash back instantly on your PayPal account. So we gave away more than $2 billion to American consumers. We -- our mission is to make every purchase rewarding. And about 5 years into our business, we realized, gosh, we could take this and make it a much broader network. So we could distribute these same promotions on Walmart's website, on Dollar General's website, on Instacart, DoorDash, et cetera. And so we built out something called the Ibotta Performance Network. And the reason why it's called the performance network is that unlike traditional media where you pay for clips or impressions, you paid on a performance basis, a fee per sale, fee per redemption model. So it was lower risk. The evolution since then, since the IPO, has been the realization that the industry is ripe for a revolution in measurement. And so what has been measured in a very kind of course way, here were the sales in period A, here are the sales in period B when we ran the promotion, the difference must be lift. Well, the problem with that is there are many variables occurring between period A and period B. And so everyone is claiming that they cause the lift. And that's why you have things like mixed media models that are complicated and debatable. The gold standard is a true media lift study, where you have 2 statistically matched populations in the same time period, and you're looking at one is exposed and the other is not exposed. So you're isolating the variable of exposure and making claims about causation that are way, way more rigorous. And this is what Google does, Facebook does, the Trade Desk does. Everybody relies on these lift studies. We basically, since the IPO, built a system where we're able to measure incremental sales lift on a real-time rolling basis. And that statement, real-time measurement of incremental sales is truly a revolution in our industry. No one has done that, not just in promotions, but anywhere in the CPG industry because most of these products are sold, 85% of them in stores. And so unlike where you have a pixel or an SDK and you know which Google ad or which Facebook ad converted to an app download or a sale, it's very hard to do that in the physical world until now because Ibotta has millions of consumer loyalty card baskets that we can look at, and we can create these statistically matched audiences and actually track the number of incremental sales that our promotions are delivering down to the day, compare that to the cost and prove that it's actually profitable. So that is the big revolution that we've been working on the last year.

And so it's a big revolution. Measurement in all of advertising is always a challenge. And so we've seemed to have figured out that incremental lift. And we call that CPID, right, cost per incremental...

Cost per incremental dollar. And the reason why we express it that way rather than incremental ROAS or whatever is that we want you to compare the margin of your product and say, you know what, as long as my cost per incremental dollar is lower than my -- in light of my variable cost, I am contribution margin positive. Why would I ever turn this off and take it from a limited tactical some -- uptime some of the time to an always imperative thing I want as much of as possible.

So how do we do that? How do we develop this incremental measurement of sales that forever the coupon industry or the performance industry has not been able to do. So take us a little bit deeper into just how we did it on the technology side, and then I have questions about how we implement it.

Yes. So Ibotta is the first company that's had enough data and enough innovation capability to reproduce these best practices of media list studies on a rolling basis for promotions in the CPG industry. So we take millions of consumer baskets, and let's say, I'll exaggerate this for effect, but 1 million people were statistically matched to another 1 million people. And the only variable that's different is exposure to the offer or not exposure. And then we track how many of the featured items or related items are purchased by each group. And we only take credit for the difference between those, that's statistically significant. So I don't care about total sales. I care about total incremental sales only. So if you were already buying this product, that's fine. But if I got you to buy 2, then I take credit for that one that's above and beyond what you would have bought anyway. And I don't take credit for the other one, right? And so that responds to this fear of subsidization because you say, well, look, loading all that in, taking all that into account, had you not done this, you would have had $35 million of sales. Because you did this, you had $70 million of sales. So we'll take that $35 million difference, divide it into the fully loaded cost, not what the industry has sometimes done where they don't include the user awards or don't include the setup fees. No, no, no, no, no. We'll look at the fully loaded cost compared to just the incremental, and we'll prove to you that you're in the black. And that's a big, big, big turning point, right? And we -- the other thing that's happened since the IPO, Ron, is that we now have third-party validation. So this industry has graded its own homework for 140 years until this year, until this year. So there were occasionally data put into a mixed media model based on a generic idea of a coefficient of causality of coupons modeled after some 1980 survey. That's not what I'm talking about. This industry has never had a third-party measure lift in this kind of test versus control way. Now it has. So now from Ibotta, you'll be able to buy a lift study that says, don't take our word for it. These are other companies that have their own data, their own data scientists, their own statistical methodologies, and they will tell you the statistically significant lift to the 99% confidence level between the control group that didn't see the offer, the group that did see the offer across the network. They will tell you, here's how many incremental sales and here's your CPID according to us. That's a major deal, right? And if you look in the history of performance marketing, we think that, that is something that has always unlocked more investment. I should say it will be a major deal. We have only a couple of these studies right now. Until we got hundreds of them, I can't claim that we've shifted the paradigm, but we now have 2 companies, 2 separate companies that have produced reports that show that our methodology is conservative at Ibotta, which is a really exciting start.

That's great. And so that was the next question. So we have the validation, but we've also run 2 pilots, and we have multiple pilots coming up here of the cost per incremental dollar. And so tell us about the pilots thus far. And then how this third -- the third-party measurement, which might have come after the pilots or during the -- how has that changed your conversations with the buyers, if you will, the CPID?

Yes, it's a great question. I think the way I'll answer it is to say that we have all -- since the last year, we've built a system to measure the cost per incremental dollar using Ibotta's capabilities. But that has been more manual to calculate that. That has taken some time to do that, which has prevented us from scaling this across our entire client base. Now we've gotten that process down to a much, much more automated, shorter, and it's getting better all the time. And so what we'll now be able to do before too long is just make available to all of our clients. Here is your historical data for the last year of every campaign you run on Ibotta, here's your CPID. As long as there's statistically enough data there to make claims, most of our -- almost all our clients will see in a portal, all of a sudden, oh my gosh, there's this whole completely new world of data measurement, right, which is just activated, lit up for everyone, right? If they want, they can go check that with third parties, and we're now making that available if they would feel more comfortable taking that to their finance team. And that's a really big step because you don't have time as a person at one of these companies to go deep into Ibotta's methodology. You want to be able to say, I check with such and such third company, and they said it's good. And so I'm sort of politically in a much safer place to make a much, much larger investment in that company. I think that the automation of the process internally now allows us to where we'll be in a situation where we can have a conversation not just every other week about performance, but every week about performance. And then it will be every day they can log in and see the performance. So you're getting to this place where it really does start to resemble other forms of media that they're accustomed to, the Trade Desk, AppLovin, Meta, Google, they all have the ability to set targets, right? This is my cost per install. This is my cost per conversion. Ongoing measurement, I can log in weekly or daily and see how it's going. And the third principle, optimization. I don't want to wait until after the campaign. I want to optimize in-flight. So if you take these 3 ideas, set targets, measure in an ongoing way, optimize, we're just taking those very well-worn proven constructs and applying them to one of the last industries that doesn't have them.

And so we have a lot to jump off...

I know, I know.

So I love the comment, all the historical data will be available. This is for 800 clients. The questions we always get is what's the time line for this? And so talk to us about if I am one of your 800 clients, when does my portal for Ibotta get populated with histories? And then what's the process to get a third party to validate and things like that?

Right. So I don't know exactly by when because we do these things in phases, and we want to make sure we get through the first phase and that we incorporate learnings before we move to the second phase. But our intention is that within the next 6 months, we should be in a place where all the clients that have enough statistically significant data in our platform have access to our new measurement breakthrough, right? So they should be able to see their historical CPIDs and incremental sales, not just the CPIDs, but what -- how many incremental sales have they delivered for every offer filterable by brand soon. And the other thing people don't realize is that we're not going to make our clients come up with a net new budget to pilot this capability. They can take the dollars they've already allocated to Ibotta on our old rails, our old capability, and we can use those dollars to demonstrate. So they don't have to go -- there's something already in the budget. Let us take that and demonstrate the full power of these new optimization capabilities, in-flight measurement, in-flight optimization, using more machine learning-based recommendations. That's, I think, an important point to get across because it gives you more optimism that we'll be able to fairly quickly demonstrate the quantum leap that we believe we're bringing to the industry. As far as the third-party, part of your question, look, right now, a brand that wants to can say, I would like to get -- I'd like to purchase a third-party study from one of these 2 companies, and we're talking to many, many more companies. But these are the leaders in media list studies, and they can look at that analysis and decide if it's what they're looking for to corroborate. They have norms. They average for media. They can see that our is typically outperforming those norms by a pretty meaningful amount. They can see the breakdown of how am I getting to those incremental sales? Is it by greater household penetration? Statistically, what's the significance in the lift of net new households? They can see the buy rate. They can see the basket size. So they can actually see a subcomposition of how they're getting to those incremental sales on the third-party reports that are -- that speaks their language in an exciting way. So as they start to socialize those in the building, we'll see how many of those they want to -- it may turn out like Google and Facebook, where they check once or twice a year. It may turn out that we buy some of those for them. It may turn out that there's more of that going on in the early days and less of that going on as they feel, okay, this means I can trust the daily dashboard that Ibotta is giving me. We're going to have to see.

Yes. And so seating adoption. And so we've got some pilots coming on here. I would love your thoughts on the changes inside of your 800 or so clients, like how you go to market. So now it's a different conversation. You're sitting down, you're saying we can actually talk about the incremental dollar. So talk to us about how we go to market and the changes, we go to market to sell inside of CPGs.

It really is a great question because it's different. It's meaningfully different. We've been talking to the Center of Excellence, the procurement team, the folks that buy this thing, sometimes viewed as more of a commodity tactic that they need a certain amount of, right? And that might be the coupon team. We're now talking to the brand owner, the P&L owner, the people that actually are responsible for the need to deliver top line growth and bottom line growth. And we're saying to them, you can think about this as a promotions vendor, if you want. But a better way to think about it is we are an engine that can deliver a certain amount of profitable revenue growth. And if you want this much profitable revenue growth that corresponds to 1%, 2%, 3%, 4%, 5% year-over-year increase in sales, we're your Huckleberry. Would you like that? Here's a bundle of $100 million of incremental sales. Would you like to buy that bundle of $100 million of incremental sales for $25 million? Does that sound interesting to you? Great. Don't -- you want to try it out? Sure. Give me $5 million, I'll show you that I can deliver $25 million, and then you can test it out with a third party. And then as soon as you do, you're going to go, how much of this can you give me? How do I help you grow your network even faster?

And what were the conversations like before? Because you weren't talking to brand managers, you were talking to, to your point, the procurement specialists, if you will, the couponing team. So before you couldn't offer that...

No, I still want to stress like Ibotta is still beloved. I mean we've had over 95% client retention in our existence because we're the best at delivering promotions. We have the largest network. We have a fee per sale model. And so we were the sort of best in a confined space. But now it's a different conversation. There are companies that spend a lot of money with us that, that -- where the brands -- the people that own the multibillion-dollar brand P&L have never heard of us. And that's changed. And so I think it is a difference between what's the best company to do this thing that I want to do a certain amount of but not more to this is a unique company, I want as much of what they sell as possible. And that is a very palpable difference in the conversations. That just has to flow through to our financials. And I understand the investment community is waiting to see that happen, and we're waiting to deliver that.

Yes. No, no, for sure. And so we've got new -- and maybe last one, then we'll move on to a different topic here, similar but different topic. We get questions all the time. We had some pilots in the first half of the year. Some of those pilots have not renewed, timing issues maybe. But then we have multiple pilots coming up in the back half.

Yes. And I would say it's not that they haven't renewed. It's that there's -- they paused for idiosyncratic reasons. And I understand how if you're an investor, you're going, oh, so they paused for idiosyncratic reasons. That's convenient. But it really is what happened, right? The first client is a situation where they wanted to take a breath and prove it out with a third party because we're asking them to spend dramatically more than they've ever spent. I think we cited that they were up about 8x in their trajectory of their annual year-over-year spend. To get them to do that, it's understandable that they would say, well, now we need to show our finance team this third-party measurement study. We've now done that with not 1 but 2 companies. So we feel good about having carried the burden of sort of proof production persuasion on that. The other company is representative of, I think, what you see when you're in the middle of a budget cycle and you're asking someone for tens of millions of dollars that hasn't been allocated. You get into questions of, well, whose budget is this coming from and when is it being allocated? And they just have a lot of other things on their plate. So even if you're offering them $0.25 billion of incremental sales, that is important. That represents a meaningful market share gain, but they have a lot of other priorities in their business that are distracting them. And so we're having the meetings we need to have with the senior level executives that can authorize these things, and I feel really good. They're happy with the results. In either case, it's either side saying they're not saying this isn't what we hoped it would be. This isn't performing. I already have this, I've seen this elsewhere. Your competitors provide this. This isn't interesting to me conceptually. We're not hearing any of that. It's really important that I say that clearly because I can understand how the inference would be that they're dissatisfied with it. That is not what we're hearing.

Yes. That's a really key point. Okay. So it's exciting because the 800 clients will start seeing their data being populated with a CPID, they can get third party. Let's move on into the sales force side. So I think you brought in some new leadership there. We're now looking -- we're organizing, I think, as a shift to an industry versus a regional sales organization. So just talk to us the strategic rationale of changing the sales force and where we are in that process.

Yes. I think there are a couple of different components to this. I think, first of all, we brought in a leader who has seen later-stage multibillion-dollar revenue company scale, right? So he ran global revenue for Twitter. And his network brings in that digital media type of seller, someone who's gone in and built that really relational sale where they become experts in the business. And I think it's not just selling to that's -- on that scale, it's also operating at that scale. So what does sales operations need to look at like in a business that aspires to be what we aspire to be. And that is about having proper sales training and enablement, better B2B marketing. It's about better -- having better sales operations, sales finance. These are just functions that a smaller company at some point realizes that it lacks and needs. And so adding that supports our sellers so they can spend way more time actually traveling, meeting with our clients, listening to them, mastering their business. Client analytics becomes much more of an outside sales function, less of a sort of producing deck support. We're automating a lot of that so that the decks can be standardized, reports can be standardized. We don't spend as much time fiddling around with PowerPoint and more time selling. And then we're bringing in an upgraded caliber of talent. We're rethinking how we do our quotas and making those much more rational. We're paying more for top talent. So there's a lot that's going on in terms of the way we go to market, in terms of the people and the process. And then, of course, we have a whole new product, right, in which we're training them, how to talk about that product differently to a different audience, much more of a multi-threaded go-to-market sales approach where we don't just talk to the day-to-day buyer of coupons and wait for the phone to ring and go, oh, yes, we're the best at that. Here's a couple of options. Much more proactive talking to the CEO, CMO, Head of Trade Spend, Head of Commercial. I've had probably 10x more meetings in the last 9 months with C-level executives at CPG than I did in the previous 8, 10 years. Like it is a completely different situation because we're able to say, we're using principles of artificial intelligence to help you find the most efficient frontier for growing your market, and they're interested in hearing from a thought leader about technology. So it's this moment where they know AI is important. They want to harness it somehow. They're all -- a lot of them are suffering on year-over-year top line growth is down, so they're hungry for better solutions. We've got a scale that now reaches 200 million consumers. So it's -- wow, this really moves the needle for this, it's worth my meeting, I won't take this meeting. And it's starting to get through that now you've got third parties saying that -- and so what's happening is it's teeing up and people are having to decide, I don't want this incremental $150 million, $200 million of sales for $30 million, $40 million of cost. And a lot of people before they make that decision are going to go talk to a C-level executive. So we're penetrating a different tier within the company, but we still have to earn our stripes as a really strategic partner that's brought in much more upstream in their planning process.

And then to that as we -- so I mean, we started this conversation on post-IPO and the evolution of the company. And it seems as if we are finding something with CPID that is proving out the model in a way that maybe we didn't talk as much about during the IPO. We knew about it, we didn't see. So my -- and now we're optimizing the sales force to go after, and it's turning into better meetings or more meetings for the decision makers. Talk to us about the evolution of pricing.

Yes. I want to -- I just want to clarify one thing. So after the IPO, it was a quarter or 2 after the IPO that I went around and did a concerted listening tour. And I said, what would it take for you to spend 10x more money on this platform? It was that sort of set of meetings, August, September, October of last year, where we realized, okay, what got us here, we can continue to do this. We can continue to make refinements and improvements around the edges and still be the best in our industry, and we could grow, and we can be profitable. However, if we want to go for something in order of magnitude more exciting than that, there's an opportunity. But it's going to require us to make a different level of investment in R&D than we realized we might need to at the IPO. Sitting at the IPO, that wasn't clear. What became clear later was that this opportunity was really a bigger opportunity to really transform ourselves and measurement was at the heart of that. Pricing is also part of that. So I think it's important to maximize revenue, not maximize price per se. And I think we hadn't taken enough of a look at what is going to be consistent with delivering profitable revenue growth for each client. So for example, we have a pricing sheet that says from X to Y, maybe $2 to $2.99, you pay this, flat fee. Well, by definition, if your price is $2.99, this is this percentage of your price, $0.35, $0.40 is this percentage of $2.99. It's this percentage of $2. This is a very wide range in the percentage of the price of the product that you're selling. And so since that's an input into how profitable the whole thing is, that doesn't make a ton of sense versus a single fixed percentage. So whether it's $2.13, $2.72, $2.99, it's the same percentage. That's just rationalizing the pricing, right? And it's making clear that no matter whether you sell a $40 bag of dog food or a $4 single-serve Coke Zero, whatever, there's a way for you to use this platform and have it makes sense, right? And so that was part of the pricing. The philosophy of working with our clients to be more client-centric about pricing is part of it. And then I think just generally speaking, being able to demonstrate that even with our pricing, fully baked in with the user awards and so forth, it's still a very profitable thing to do. We realized that since we could put it all into one single simplified price, we don't need fees for setup and fees for termination and fees for targeting. People expect to optimize and target. That's just table stakes. So why are we charging people for that, right? So we just decided to radically simplify, make it more client-centric and make it more rational basically all at the same time.