EB - Eventbrite: Think Outside The Box

2023-10-30 14:25:25 ET

Summary

• Eventbrite, an online-ticketing company, has restructured its business and is prepared to take on the post-pandemic world.
• The company has seen double-digit revenue growth, diversification of events, and substantial margin gains.
• Millennials and Gen Z's focus on experiences, as well as improved profitability are driving bullish sentiment for Eventbrite stock.

When the markets are as tough as they are today, investors have to think a little bit "outside the box" in order to truly beat indices. This means patiently taking on longer-term positions in overlooked stocks, often small and mid-caps, that the mainstream investor has left for dead.

Eventbrite ( EB ) is one such name. This online ticketing company obviously struggled with near-extinction during the pandemic. A dearth of live events forced Eventbrite to shift to ticketing virtual events, which needless to say did not generate nearly as much traction as its live experiences. This, in turn, forced the company to restructure its business and slim down its operating expenses.

The net result is a company, in my view, that is prepared to take on the post-pandemic world especially as more consumers allocate more of their budgets toward experiences. Eventbrite stock is up nearly 40% year to date, but recent market turmoil has sliced ~30% off the stock from recent highs near $12, creating a strong buying opportunity.

I last wrote on Eventbrite a year ago , when the stock was trading closer to $7 per share. At the time I had rated the stock at neutral, citing a number of operational challenges while the company was getting back on its feet selling live events again, but at the same time also acknowledging Eventbrite's opportunistic valuation.

Since last year, a number of factors have shifted: Eventbrite has continued to generate double-digit revenue growth, as both ticket sales and the company's take rates have improved. The company has continued to diversify its pool of live events as well as virtual ones. And, Eventbrite's cost-cutting during the peak of its pandemic struggles has helped the company to generate substantial margin gains.

The snapshot below showcases the number of events Eventbrite has helped to power over the past year.

In light of all of this, I am now bullish on Eventbrite stock - and while I don't necessarily recommend taking out a huge concentrated position on this name, I think Eventbrite is worth a small nibble on its most recent dip.

In my view, here are the most compelling bullish drivers behind this name:

• More wallet share is going into experiences. Millennials and Gen Z famously spend less on things and more on travel and experiences. This will continue to support more dollars in the events ecosystem, driving creators to emphasize live events to promote their music and brands.
• Room for both small and large creators. Eventbrite powers home-grown, smaller events with less than 100 people (which helped sustain the company during the pandemic) to major tentpole events featuring well-known artists.
• Diversity of events. As showcased in the snapshot above, while music is Eventbrite's bread and butter, the company also hosts a nearly equivalent amount of business and professional events. Events around food as well as sports also are prominently featured.
• Profitability. Eventbrite's rigorous cost-cutting during the pandemic helped the company to rationalize down its expenses to a point where now when revenue is growing while opex is staying more or less flat, the company's high gross margin profile is helping to drive substantial adjusted EBITDA gains.

All in all, it's time to go long here.

Q2 download

Let's now go through some of Eventbrite's most recent fundamental trends to showcase the recovery momentum in its core business. The key top-line metrics are shown in the chart below:

Revenue grew 19% y/y in the quarter to $78.9 million, beating Wall Street's expectations. Paid ticket volumes rose 7% y/y, while net revenue per ticket grew 12% y/y to $3.39, with more value-added creator services helping Eventbrite to boost its take rates.

Eventbrite has laid out a formula for driving >20% revenue growth going forward. A number of catalysts can support this ambition: the company intends to grow its count of paid creators, boost the number of events each creator hosts, improve ticket attendance per event, as well as benefit from natural increases in ticket pricing as well as take rates as the company continues to roll out more and more services.

The company notes that it has successfully rolled out a number of discovery initiatives intended to attract a wider audience for Eventbrite events. Per CEO Julia Hartz's remarks on the Q2 earnings call:

To drive more traffic to event listings, we recently launched a video feature to give creators the ability to showcase their events more dynamically to consumers. Creators who use this feature saw a 74% increase in consumer traffic to those event listings. To increase relevance in SCO and on Discovery pages, we're using machine learning to deliver better personalization and event recommendations to our things to do and for you pages improving listing views by 64%.

To reach a wider audience, we've launched a new partnership with Eater, the digital media brand focused on dining and restaurant discovery which reaches 30 million people each month. A joint link curated collection of the best springtime food events in New York City became one of our most highly viewed city collections ever. We plan to do many more brand partnerships with Eater and others to boost consumer traffic and bring new audiences to Eventbrite events.

These initiatives and more increased our ability to drive ticket sales through notification, browse, and discovery channels. Eventbrite drove over 6 million paid tickets, which equates to $202 million in gross ticket sales and another 13 million free tickets in the quarter. We drove 4 million tickets in the music category alone."

The company is also just starting to kick off advertising revenue on its platform, with ad revenue reaching $1 million this quarter and growing 27% sequentially. A year ago, this revenue stream did not exist.

Alongside double-digit revenue growth, Eventbrite's opex in the quarter grew only 5% y/y. This helped adjusted EBITDA, after restructuring and other one-time costs, grow nearly 4x y/y to $12.1 million, reaching an all-time high margin of 15% and a 10-point improvement from the prior year:

Valuation, risks, and key takeaways

At current share prices just north of $8, Eventbrite trades at a market cap of $821.5 million. After we net off the $365.7 million of cash (net of funds owed to creators) and $356.6 million of debt on Eventbrite's most recent balance sheet, the company's resulting enterprise value is $811.4 million.

Meanwhile, for the upcoming fiscal year FY24, Wall Street analysts are expecting Eventbrite to generate $397.9 million in revenue, representing 22% y/y growth. If we also assume Eventbrite can hold its 15% adjusted EBITDA margin next year, it would generate ~$60 million of adjusted EBITDA on that revenue profile. This would put Eventbrite's valuation multiples at:

• 2.0x EV/FY24 revenue.
• 13.5x EV/FY24 adjusted EBITDA.

Eventbrite is cheap, but of course, it comes with risks. Competition is an obvious one: there is no shortage of platforms in the ticketing space, ranging from SeatGeek to Ticketmaster and Evite. Creators may also choose to bypass third parties like Eventbrite and manage their own ticket sales if take rates and fees continue to increase.

The bottom line, however, is that Eventbrite has dramatically improved its business in the post-pandemic era and is poised to continue its growth streak on the back of a younger generation that is spending more and more of its wealth on experiences. It's not a bad time to pick up a small position in this stock.

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