Summary
- Cvent reported its Q3 2022 results on November 3, 2022.
- The company provides event management software and services for in-person, virtual and hybrid events worldwide.
- CVT has produced growing revenue but substantial operating losses remain.
- With macroeconomic uncertainties ahead and the prospect of a higher cost-of-capital environment, I'm on Hold for Cvent in the near term.
A Quick Take On Cvent
Cvent ( CVT ) reported its Q3 2022 financial results on November 3, 2022, beating revenue and matching EPS consensus estimates.
The company provides a range of virtual and in-person event software and services to organizations worldwide.
While topline revenue growth continues, high operating losses also remain.
Given a higher cost-of-capital environment that punishes money-losing technology companies in the current market, I’m on Hold for Cvent for the near term.
Cvent Overview
Tysons, Virginia-based Cvent Holding was founded in 1999 to provide organizations with the ability to more efficiently manage their events, both in-person and virtual.
The firm is headed by founder and CEO Reggie Aggarwal, who was previously an attorney at Pillsbury Winthrop Shaw Pittman and a senior associate at PwC.
The company’s primary offerings include:
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Event marketing and management
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Exchange and sourcing
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Suppliers & Venues
The firm acquires customers through its website's free trial self-serve option as well as through inside and direct sales and marketing efforts for larger customer prospects.
Cvent’s Market & Competition
According to a 2017 market research report by MarketsandMarkets, the total event management software market was valued at $6.4 billion in 2017 and is projected to grow to $11.1 billion by the end of 2022, representing a CAGR of 11.6% during the forecast period.
The main factors driving market growth are the need for effective event management and the increasing adoption of event planning software and event registration software by Small and Medium-sized Enterprises [SMEs].
Major competitors that provide event management or discovery software include:
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Live Nation
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Eventbrite
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XING Events
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ACTIVE Network
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etouches
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EMS Software
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Ungerboeck Software International
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SignUpGenius
Cvent’s Recent Financial Performance
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Total revenue by quarter has risen per the following chart:
Total Revenue (Seeking Alpha)
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Gross profit margin by quarter has trended lower in recent quarters:
Gross Profit Margin (Seeking Alpha)
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Selling, G&A expenses as a percentage of total revenue by quarter have varied as the chart shows below:
Selling, G&A % Of Revenue (Seeking Alpha)
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Operating losses by quarter have worsened in recent reporting periods:
Operating Income (Seeking Alpha)
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Earnings per share (Diluted) have remained materially negative, as shown below:
Earnings Per Share (Seeking Alpha)
(All data in the above charts is GAAP)
In the past 12 months, CVT’s stock price has fallen 13.2% vs. that of Eventbrite’s drop of 36.9%, as the chart indicates below:
52-Week Stock Price Comparison (Seeking Alpha)
Valuation And Other Metrics For Cvent
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] | Amount |
Enterprise Value / Sales | 6.0 |
Enterprise Value / EBITDA | NM |
Price / Sales | 5.7 |
Revenue Growth Rate | 23.4% |
Net Income Margin | -17.0% |
GAAP EBITDA % | -2.2% |
Market Capitalization | $3,540,000,000 |
Enterprise Value | $3,630,000,000 |
Operating Cash Flow | $141,790,000 |
Earnings Per Share (Fully Diluted) | -$0.23 |
(Source - Seeking Alpha)
As a reference, a relevant partial public comparable would be Eventbrite ( EB ); shown below is a comparison of their primary valuation metrics:
Metric [TTM] | Eventbrite | Cvent | Variance |
Enterprise Value / Sales | 2.8 | 6.0 | 117.8% |
Revenue Growth Rate | 39.4% | 23.4% | -40.6% |
Net Income Margin | -21.2% | -17.0% | 20.0% |
Operating Cash Flow | $8,610,000 | $141,790,000 | 1546.8% |
(Source - Seeking Alpha)
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
Cvent’s most recent GAAP Rule of 40 calculation was 21.2% as of Q3 2022, so the firm is in need of improvement in this regard, per the table below:
Rule of 40 - GAAP | Calculation |
Recent Rev. Growth % | 23.4% |
GAAP EBITDA % | -2.2% |
Total | 21.2% |
(Source - Seeking Alpha)
Commentary On Cvent
In its last earnings call (Source - Seeking Alpha ), covering Q3 2022’s results, management highlighted continued growth for in-person events as the effects of the global pandemic wane.
The company has been implementing various cost-reduction initiatives, resulting in reduced SG&A expenses as a percentage of total revenue and lowered operating losses, although the company still has a significant distance to operating breakeven.
Management believes the firm’s ability to provide in-person, cloud and hybrid event management positions it well for a variety of economic environments, as customers reposition their event activities based on various economic demands.
As to its financial results, total revenue rose 20.3% year-over-year, beating its previous guidance by $2.3 million.
The company’s net dollar retention rate rose sequentially to 116%, indicating improving product/market fit and sales & marketing efficiency.
The firm’s Rule of 40 result has been mediocre, with a reasonably strong revenue growth result offset by a negative operating result contributing to a sub-par figure for this metric.
For the balance sheet, the firm finished the quarter with cash, equivalents and short-term investments of $110.6 million and $165 million in long-term debt.
The company has an untapped $500 million credit facility that it plans to use only for M&A opportunities.
Over the trailing twelve months, free cash flow was $134.2 million, of which capital expenditures accounted for $7.6 million. The company paid a hefty $54.3 million in stock-based compensation in the last four quarters.
Looking ahead, management guided full-year 2022 revenue growth to be 21.3% at the midpoint of the range and adjusted EBITDA to be $109.1 million at the midpoint.
Adjusted figures usually exclude stock-based compensation, which in Cvent’s case is substantial.
Regarding valuation, the market is valuing CVT at an EV/Sales multiple of around 6.0x.
The Meritech Capital Index of publicly held SaaS software companies showed an average forward EV/Revenue multiple of around 6.2x on February 23, 2023, as the chart shows here:
Enterprise Value/Next 12 Months Revenue Multiple Index (Meritech Capital)
So, by comparison, CVT is currently valued by the market at a slight discount to the broader Meritech Capital SaaS Index, at least as of February 23, 2023.
The primary risk to the company’s outlook is a macroeconomic slowdown or recession, which may produce slower sales cycles and reduce its revenue growth trajectory.
A potential upside catalyst to the stock could include continued strength in companies returning to in-person events and a resulting higher revenue growth result.
While the firm appears well-positioned to benefit from in-person, hybrid and online event planning, the uncertain economy ahead and the continued high operating losses give me pause.
I wonder how much more the firm can cut costs to reduce operating losses and the prospect of further interest rate hikes increases the already higher cost-of-capital environment that has been so damaging to money-losing technology stocks.
As a result, I’m on Hold for Cvent stock given its current financial performance.
For further details see:
Cvent Guides 2022 Final Results Upward But Faces Continued Operating Losses