The upcoming IPO of Eventbrite is a unique offering to take part
in the movement from material to experience. Let’s take a dive into the S-1 and
see how the firm is performing thus far.
The S-1 description of the firm is as follows, “We founded Eventbrite to bring the world together through live experiences. We believe live experiences are fundamental to fulfilling a human desire to connect. Our company serves event creators—the people who bring others together to share their passions, artistry and causes through live experiences—and we empower their success. The site first launched in 2006; in 2017 the firm had helped 700K creators issue over 203M tickets to 3M events in 170 countries. A few quotes that stood out to me when looking through their filing:
- “…we believe our platform can address certain additional potential market opportunities, including: tours and attractions, movie theatres, performing arts and spectator sports. “
- “According to an Eventbrite survey conducted by Crowd DNA, four out of five adults surveyed in our top four geographic markets in April 2017 attended a live event in the past year, indicating broad interest in events.”
- “Our platform is designed to be powerful, yet easy to use, and to seamlessly support the entire lifecycle of an event. Creators are able to use our platform without training, support or professional services. As a result, our platform reduces the time and effort necessary to produce live experiences. Creators can launch an event on the platform in a matter of minutes.”
- “Currently, our platform is hosted in the cloud by Amazon Web Services (AWS).”
In layman’s terms Eventbrite is a ticket platform and its ease of
use for the people organizing events is what will continue the firm’s growth in
its user base and therefor its revenue. From my understanding there are many
competitors in this industry including the public firm, Live Nation
Entertainment. The core difference between Eventbrite ($EB) and Live Nation
($LYV) is that $EB is not involved in the venue management aspect of the
business whereas $LYV is. For instance $LYV could purchase a venue for a
weekend and then begin the process of filling that venue with entertainers and
selling tickets. Alternatively $EB is used as a sales platform by creators who
already have venues with entertainers and are looking for a marketplace to sell
their tickets. $EB is available for any type of creator, from organizing free
events, to those organizing small paid event, to the larger market for those
organizing paid events for thousands of people. $EB seems like a much lower
risk business than $LVY given that structural business difference.
A large addition to the firm came in 2017 when $EB acquired Ticketfly from Pandora for $200M. Ticketfly was purchased by Pandora for $335M in 2015 and was being integrated into the Pandora platform in order to sell tickets using data about what artists consumers were listening to. $EB now has partnerships with Pandora and Spotify for this type of cross selling.1,2 Additionally, $EB has acquired seven companies since 2015 but Ticketfly was the largest. There was mention of a cyber-attack in June of 2018 that caused $EB to temporary shutdown Ticketfly; it seems no financial data was at risk from that attack but it is something to note as a potential threat.
I did give the $EB platform a try to see how easy it was to use. The service is what you would want from a ticketing service, I signed up for a free event and was emailed the ticket immediately with a barcode for scanning at the door of the event. Since $EB makes their platform easy to integrate onto creator’s own websites, the sales of an event can take place on the event’s site and on the Eventbrite website which is ideal for max ticket sales.
Looking towards the financials of $EB the overview is pretty standard for a young firm’s IPO. Revenue increased from $133.5M in FY2016 to $201.6M in FY2017 (a 51% increase). And the first six months of 2018 are up 61% from the first six months of 2017. Gross margins are consistently around 60% of revenue (compared to $LYV which had a gross margin of 25% for FY2017). While not yet profitable on the income statement, the loss from operations has been trending towards black. EBITDA has turned positive in the first six months of 2018 for the first time in the short financial history available for investors; showcasing the positive trajectory the firm is on.
The graph above depicts some of the $EB highlights from the income statement. With only three time periodicities to use it is hard to draw reliable conclusions; however, the first six months of 2018 do appears to be encouraging. As of June 2018 revenue is already above the entire 2016 fiscal year and EBITDA has reached positive territory. While net income is still negative, it is clear to see that if the firm continues to perform as it has been, the profits are not too many periods away.
Moving onto some ratios; in the graph above you can see the available data ranges from FY2016 to the first six months of 2018. The green line showcases the book value per share; this is an indicator of the assets minus the liabilities of the firm on a per share basis. Encouragingly this is quite positive and trending higher. The orange line shows earnings per share which, while negative, is trending positively as well. If $EB’s financial performance were to continue in a linear fashion, the firm would be net positive by the end of 2019. One point of concern to me at first glance was the interest payment total which is going up each period. The cash on hand ($259M as of 06/30/2018) and the positive cash flow from operations puts me at ease that this is not a material issue.
Turning to $LYV as a comparison is tricky because Live Nation has been a public firm for over a decade and is much larger than $EB on most metrics. In 2017 $LYV brought in $10.3B in revenue (up 24% from the year prior). Their margins are poor, the gross margin has not been above 30% in the past decade and the net margin has not reached positive territory for any fiscal year to date. On the positive side their EBITDA has been growing steadily and their top line growth is still strong. Below are a few highlights to showcase the valuation of $LYV in the public markets.
Since 2008 the firm has gone from under $10 a share to Friday’s (9/7/2018) close of $49.92. The price of the shares has increased faster than the revenue has, as indicated by the rising price to sales ratio (from .1X in 2008 to .9X in 2017). The book value per share has gone down in that time, as shown by the gray line (showing assets are rising slower than liabilities). Lastly the EBITDA per share has been trending upwards, from being -$1.74 in 2008 to $2.70 per share in 2017.
The graphic above from Bloomberg is the geographic breakdown of $LYV’s revenue. The firm is dependent on the U.S. economy (which made up 65.5% of revenue in 2017), but they do have 27% of revenue from various other countries and 7.5% from the U.K as well. Meanwhile, $EB had 73% of revenue from the U.S. in 2016 and 70% in 2017. This geographic breakdown comparison is very close; if $EB continues to expand their presence abroad this should give geographic diversification.
$EB’s debt is very manageable at current levels; as of 6/30/2018 the firm had $66.4M in long-term debt (due in over a year). Since the firm had a cash level of $258.7M as of the same period (and they will have incoming capital from the IPO), they seem to be in very good shape to handle their quarterly interest payments and principal payments when they come due. The financial picture is certainly not as clear for $LYV which posted a long-term debt total of $2.7B and short-term debt of $85M as of 6/30/2018. Their cash level does not quite cover that debt (cash stood at $2.3B as of the same period) but their current assets do exceed their debt level. Looking at the firm’s cash flow from operations it appears $LYV is not in danger of missing a debt payment if their operations continue to perform as they have the last few years.
There is a lot to take in and really not much data to go on (as is normal with S-1 filings). Personally I came away with a cautiously optimistic view of the firm as a whole. I agree with the findings that showed more and more people are interested in going to events of various kinds and I think a simple platform to search and purchase event tickets on is very valuable. The lack of a close competitor is not ideal for valuation purposes but it is telling of a moat for the firm and potentially implies a first mover advantage.
At an offering price of $21 (the high end of the range given) the
market value of the firm would be $1.66B. This would give the firm a price to
sales ratio of approximately 8.2X 2017 sales; projecting 2018 sales would fetch
a forward P/S of around 5X. While this multiple is much higher than $LYV’s ever
traded at, the gross margin difference of the two firms showcases the potential
$EB has over $LYV if it continues on its current trajectory. Management seems
to be making prudent financial decisions as indicated by the firm’s free cash
flow and the revenue growth shows the firm is still expanding at a fast pace. I
don’t see any liquidity or solvency issues in the years to come for $EB. One
potential danger of note for a tech services firm like $EB is continued
cyber-attacks (side note: I highly recommend having a cyber-security firm in
your portfolio); however, it is encouraging that the core Eventbrite platform
has not reported a hack and hopefully the firm is taking the appropriate steps
to bring Ticketfly up to the parent firm’s standards of security. If you believe in the company’s vision “to
bring the world together through live experiences”, and in the movement of more
live events reaching a greater audience across the globe, then Eventbrite could
be a position to hold on to as it continues to expand its presence.
All uncited data was collected from the firm’s S-1 public filing
through the SEC EDGAR website https://www.sec.gov/edgar/searchedgar/companysearch.html
Youtube video from Eventbrite explaining the business a bit: https://youtu.be/HbPcjwKH0HM