EB - Eventbrite: Strong Recovery And Growth Momentum At 1x Forward Revenue And Net Cash

Summary

• Strong secular trend towards experience supports EB's long-term growth.
• EB has a strong market position in the value chain, stemmed from its strong awareness.
• EB has continuously shown recovery and growth momentum.

Summary

I recommend a buy rating for Eventbrite ( EB ). I believe EB has done a great job in carving out a strong market position in this industry that has a strong secular trend. Given its strong value proposition and competitive advantage, I expect EB to continue printing strong recovery growth in the near-future.

Company overview

EB is a one-stop solution for: (1) Creators to manage events, ticketing and marketing (2) End-consumers to discover events and purchase tickets. Generally serving small to mid-size events. Revenue and profits are mostly from fees earned through paid tickets.

Younger generations value live experience more

It's no secret that the market for live events is huge and growing around the world. Categories that were previously underserved by event management technology represent, in my opinion, a sizeable portion of the EB market opportunity. Services to coordinate the many moving parts involved in event organization are few and far between. Creators resort to a wide range of strategies and methods to accomplish these ends. My opinion is that the EB platform has helped to foster the growth of businesses and the introduction of novel forms of live experiences because of the breadth of its features and the simplicity with which they can be accessed.

In my opinion, real-life interactions are crucial to satisfying the basic human need for companionship. Today, more than ever, people are inspired to organize a wide variety of events by a desire to connect with others, and these gatherings can be anything from purely commercial to deeply meaningful. Customer desires for unique and memorable experiences are at the heart of this phenomenon. Experiences, rather than material possessions, seem to be rising in importance in today's society. This means that face-to-face interactions are more important than ever before for bringing together businesses, products, and brands with their respective consumers.

There is no doubt that the advent of novel digital technologies like smartphones, social media platforms, and cloud storage has played a role in catalyzing events in the physical world. Online and mobile ticketing have become increasingly popular as the Internet and smartphones have become more widely used, making it easier for people to find events of interest and make purchases. Event organizers can save money and time by using social media as a free or low-cost distribution channel and promotion tool for their events.

EB has a strong value proposition

EB targeted markets are small to mid-size events creators, generally excludes big music concerts that are service by large ticketing companies. These creators typically do not have much brand strength to leverage off during marketing and/or marketing budget/capability to run large scale marketing to achieve desired distribution/awareness (i.e. compete effectively in SEO). By listing on EB, creators are able to achieve wider distribution via EB SEO prominence, enabling them to achieve wider distribution and higher traffic, translating to better profit economics.

Competitive dynamics and advantage

This is especially true in the events industry, where the middle market is vast and diverse, giving rise to intense, multifaceted competition. Universe, which is owned by Ticketmaster and thus has access to that company's resources as well as those of parent company LiveNation, is one of the more well-known brands that competes directly with Eventbrite. There are many private companies in addition to Universe that target the same communities of artists, venues, and events. In addition, there are potential competitors that could enter the market and pose a threat to Eventbrite, such as brand-new companies or existing public companies (like Facebook events or Google events) that could offer solutions that are similar to or even better than Eventbrite's.

Among the current options, Facebook (META) seems the most prepared to compete. If Facebook decides to enter the ticketing space, it could pose a more serious long-term competitive threat to Eventbrite thanks to its millions of SMB relationships and user accounts and its technical abilities.

That said, I believe the Marketplace dynamics in this industry is still taking shape. I believe that EB ability to aggregate supply, in the form of event creators, is a key factor in propelling growth and a key reason for its competitive advantage. Having a diverse and extensive supply base, like that of other marketplaces, attracts users, who in turn spread the word about the platform and spur its continued expansion of the supply base. To put it in the other way, the discovery feature needs improvement before it can attract enough customers to affect the flywheel, as such the event inventory is much more defensible-and thus difficult-competitive advantage to build due to the fragmented nature of this sector of the ticketing market.

In addition, EB competitive advantage also lies at the top of the marketing funnel - awareness - through its prominence in SEO (Google), translating to: Higher traffic to EB site leads to higher traffic and conversion rates for Creators on EB site, which draws in more Creators, leading to increase traffic due to higher number of events, a reflexive motion

Continuous recovery momentum since 2Q22

The revenue EB generated in the 2Q22 exceeded projections and hit the upper end of the guide that was raised midway through the quarter. In the second quarter, EB saw its highest level of consumer activity in two years, with more than 10 million unique buyers attending paid events. The average number of paid tickets sold per event also increased by 27% as creators hosted more events. Furthermore, EB is still on track to release new features and product enhancements, such as the closed beta launch of Eventbrite ads. Furthermore, while Eventbrite Boost is still in its infancy, I was heartened to see Boost contribute $0.04 to revenue per paid ticket in 2Q. Thus, I continue to have faith in EB's ability to innovate new products.

EB's 3Q22 revenue of $67.5 million met expectations and was near the high end of the $65 million to $68 million guide, but the company's adjusted EBITDA of $4.2 million fell short of the consensus estimate of $5.2 million. As holiday-themed events are gaining steam early in the fourth quarter, management issued a revenue forecast that was slightly higher than expected, at $69 million to $72 million.

Valuation

I believe EB there is 37% upside. I expect EB to continue growing revenue at a rapid rate, riding on the recovery trend, rising prices, and rollout of new modules. While margins is still a concern given that EB is still not profitable, I believe investors focus are now on growth and recovery, as such EB should continue to benefit by focusing on growth.

Risk

Competition

Even though competition is still as strong as EB right now, I think Eventbrite will suffer if any new entrants or existing players gain significant traction in the near future. Eventbrite has, in the past, relied on its strong SEO dominance (organic search rankings), if those rankings were to drop, it would likely increase the company's cost of traffic for a given growth rate.

Conclusion

I think EB has done a fantastic job of positioning itself to capitalize on the secular growth of this market. As a result of its compelling value proposition and competitive edge, I anticipate EB will record rapid and sustained growth in the near future.

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