Worth Hikes Ought to Energy Eventbrite (NYSE:EB)

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Self-service ticketing platform Eventbrite (NYSE:EB) has a number of catalysts that ought to assist the inventory outperform in 2023. Crucial is a current worth hike that isn’t presently accounted for in analyst estimates. The corporate must also profit from a return of company occasions, the continued shift of spending habits towards experiences, greater ticket costs, and better rates of interest given its giant money place.

Firm Overview

EB’s ticketing platform focuses on mid-market experiences that fall someplace between small gatherings and stadium occasions. Its platform permits hosts to create and promote tickets to reside experiences. This might be something from music to sports activities, foods and drinks occasions, enterprise gatherings, performing arts, training, or non secular outings, amongst others. The corporate lets creators of free occasions use its platform at no cost, whereas it prices creators of paid occasions a per-ticket payment based mostly on tickets offered.

In 2020, EB launched Eventbrite Increase, a advertising and marketing and engagement device for customers. This provides creators one built-in device for ticketing, analytics, social media advertisements, and e-mail advertising and marketing.

Traditionally, the corporate derived roughly half its income from creators who signed themselves up to make use of its platform and roughly half from creators acquired by way of gross sales channels, a lot of whom anticipate important buyer assist. Nonetheless, as a result of pandemic, the corporate has closely shifted extra towards self-service; final 12 months it started implementing assist service in India.

Frequent creators are its most vital buyer base. These creators host greater than three occasions per quarter, characterize a 3rd of its paid buyer base, and account for ~65% of paid ticket volumes. The U.S. represents about 69% of paid tickets, the U.Ok. 14%, Australia 7%, and the remainder of the world 10%.

Alternatives

EB continues to be within the early innings of development, and earlier this 12 months it raised costs for the primary time in its historical past. Beforehand, the corporate supplied three paid plans. Its Necessities bundle charged 2% + 79 cents per ticker, whereas its Skilled Package deal charged 3.5% + $1.59 per ticket, and allowed for various ticket varieties and for customers to promote on their very own web sites, together with different perks. It additionally had a Premium tier with customized pricing. All of the plans had a 2.5% processing payment.

Beginning this 12 months, EB eradicated its Important bundle within the U.S. and in another English-speaking international locations and started charging 3.7% + $1.79 service payment per ticket, together with a 2.9% cost processing payment. On condition that the corporate prices a proportion of the ticket worth, greater ticket costs must also be a tailwind.

The corporate additionally has alternatives on the promotions aspect of the enterprise with merchandise like Increase and Eventbrite Adverts. The advert budgets for occasions are a lot better than the budgets for ticketing, and the price of these merchandise as a part of general advert budgets is small.

With Increase, EB helps creators handle their advert campaigns and tie them on to the ticketing course of. EB not solely will get the advantages from the subscription sale to Increase, nevertheless it additionally helps promote extra tickets. In the meantime, about 25% of the tickets EB sells often comes immediately from its personal web site. With Eventbrite Adverts, it may possibly now receives a commission to advertise native occasions from its personal web site. These merchandise additionally assist it monetize free occasions that want some advertising and marketing behind them.

And, in fact, a one-stop product suite for ticketing and advertising and marketing may drive extra creators to the platform, which the corporate has been seeing. Administration is focusing its funding {dollars} on enhancing the platform’s ease of use together with features to assist drive ticket gross sales. On this entrance, the corporate lately employed Ted Dworkin to be its new chief product officer. Dworkin has expertise in product administration and improvement at Sonos (SONO) and Microsoft (MSFT).

Through the pandemic, EB additionally instituted a a lot leaner construction with a give attention to self-service. This may be seen in its gross sales and advertising and marketing prices going from $102.9 million in 2019 to solely $35.9 million in 2021. S&M is on monitor to be about $56 million in 2022, so, whereas up, it’s nonetheless a lot decrease than pre-pandemic ranges. It has lately funneled a few of these financial savings into R&D.

It is also value noting that EB’s income continues to be a bit beneath the pre-pandemic income of $326.8 million it recorded in 2019. A part of that may be attributed to its second-largest ticketing class: enterprise {and professional}. Thus, one other potential alternative for EB is the return of company occasions, which has been one space that has lagged getting back from the pandemic.

Nonetheless, each airways and rental automobile corporations have famous that momentum is beginning to return for company journey, occasions, and commerce reveals. In the meantime, a report from In-Home Company Occasions (ICE) in October projected that occasion spending inside the company sector would enhance 83% in 2023, though a few of that was because of inflation. In the meantime, Amex GBT’s World Conferences & Occasions Forecast stated that two-thirds of respondents thought that the variety of in-person occasions will return to pre-pandemic ranges inside one to 2 years. This might be a pleasant increase for EB.

Increased rates of interest may additionally doubtlessly be a possibility for EB. On condition that the corporate has a excessive float enterprise by way of carrying creator cash, it may presumably profit from greater rates of interest on this money it holds. At present it would not make investments it, however the money is unrestricted, so it may. A 4% rate of interest on its over $650 million in money on the steadiness sheet may add over 25 cents in EPS.

Dangers

The pandemic noticed most occasions canceled and was a serious blow to EB; an analogous outbreak that causes lockdown restrictions and occasions to be cancelled can be an enormous threat. Extra pertinent is perhaps how a weakening financial system or recession would have an effect on the variety of native occasions, costs, and attendance.

Whereas EB operates in a fairly area of interest market, there are quite a lot of ticket corporations on the market. Ticketmaster, owned by LiveNation (LYV), controls the big occasion market, and sure would not transfer downstream. Nonetheless, there are different well-known gamers like SeatGeek, Vivid Seats (SEAT), StubHub (EBAY), and even Spotify (SPOT) within the main and secondary ticketing markets that would transfer downstream. There are additionally quite a lot of quite a lot of smaller ticketing and occasion administration companies making an attempt to compete with EB on issues like worth and performance. Nonetheless, the corporate does appear to have a fairly sturdy market share on this house from the varied sources I’ve seen, which often pegs its market share across the 40% vary.

Dilution is one other potential threat. The corporate has 8.5 million non-option restricted inventory awards, which is about 8.6% of the shares excellent. Its vested choices are all presently underwater, however there are almost 9 million with a median strike worth of $11.79.

Valuation

EB trades at about 15x the 2023 EBITDA consensus of $33.1 million, and 9.8x the 2024 consensus of $50.7 million. Nonetheless, due to the big quantity of accounts payable it holds for creators, I believe its enterprise worth is a bit deceiving. In case you repay these accounts payable, it trades nearer to 25.7x and 16.8x 2023 and 2024 EBITDA, respectively.

On a income foundation, the inventory trades at a worth to 2023 gross sales ratio of two.5x based mostly on consensus income of $323.0 million, and a 2.1x a number of on forecast 2024 income of $388.0 million. Its income is projected to develop 24% in 2023 and over 20% in 2024. On condition that the corporate continues to be within the early innings of development and due to its sturdy gross margins (~65%), I believe a P/S is one of the best ways to worth the corporate at current.

Conclusion

EB was a scorching IPO again in 2018, closing its first day of buying and selling up almost 60% at $36.50. Right this moment, it is a damaged inventory whose enterprise got here out of the pandemic with a leaner price construction and a administration crew extra centered on product innovation and catering to its greatest revenue-generating clients. The corporate has but to return to pre-pandemic income numbers largely as a result of sluggish restoration of its second-largest class, company/enterprise occasions. Nonetheless, there are some indicators that this class is lastly set to awaken from its COVID-19 cocoon.

The mix of including customers (creators), offering advertising and marketing performance, elevated pricing, and better ticket costs ought to bode nicely for strong future development. Notably, EB raised costs with out discover to the funding neighborhood, so the worth hike just isn’t presently accounted for within the 2023 or 2024 numbers. Thus, EB might be set as much as concern sturdy 2023 steerage.

In all, EB seems to be like a greater firm than it was earlier than the pandemic, buying and selling at a 3rd of the worth. In the meantime, it is a fairly excessive gross margin enterprise (~65%) with average S&M spend (~20% of income), and good income development (over 20% projected) buying and selling at round 2x gross sales.

Whereas a better threat/reward inventory, EB may have upside to ~$14 based mostly on boosted income projections and a better P/S a number of.