Cvent (NYSE: CVT – $37.92) is using the internet to connect company event planners with venues and related services to organize and run events more effectively. It’s a great idea which the company started implementing back in 1999 which has enabled them to be the clear leader in the space.
We see the shares higher in future periods and have added the company to the IPO Candy Folio.
Goldman Sachs and Morgan Stanley led the successful IPO in August 2013 (5.6m shares at $21 above the $18 mid-point) and they are offering another 4.8M shares to investors at the current market price of about $38/share.
The stock has done well since the offering and at current prices represents a multiple of just over 10x 2014 estimated sales.
Spending on business meetings and events is a major category and we agree with the $7B TAM figure offered by Cvent management. That’s less than 2% of the total global spending figure.
Event planning and management has been notoriously manual, complex, inefficient, opaque and often unreliable. Putting process and tools around it is an undeniable step forward with solid ROI. Pressure on ROI from company events also helps to prod companies to use better tools. Using a platform also allows events to incorporate features like surveys, mobile access, social media sharing and interaction.
Cvent uses a recurring revenue model that consists of an annual subscription fee based on size plus variable fees based on number of attendees and mobile applications. For hotels and venues Cvent gives them a solution for marketing and responding to requests from potential clients.
Cvent has built a substantial database of venue profiles and a growing user base of companies and venue employees. Most of the competition is at the lower end and includes companies like Eventbrite and Andiamo. These companies do a good job with ticketing but are not geared toward enterprise use.
Growth has been solid at 35% YoY with positive adjusted EBITDA and free cash flow. The company has a long-term objective of 80% gross margins (from 76% today) and 25% adjusted EBITDA margins which is about where they have been on a full-year basis.
So what are the risks to this story and what could it be worth?
With the company already valued at $1.5B and insiders selling in this transaction the secret of their success is certainly out in the open. It’s worth noting that the insiders have been waiting for liquidity for over a decade so it’s quite normal for them to finally be selling some shares. Most will remain considerable shareholders and probably regular sellers over the next few years.
The biggest strategic risk to the story is that it’s still fairly early in this market, especially globally. If a large player like Priceline (PCLN) decided to get into this market they might be able to acquire and build something similar and then use their considerable clout with venue owners to make serious inroads into this market and put a dent in growth and profitability for Cvent.
Barring a major disruption to the growth story this company could reach $1B in revenues in the next several years at a 25% adjusted EBITDA margin. That would generate $250M in operating cash flow. By then growth will be slower so let’s put a 20x multiple on it for a $5B market value. That’s still plenty of upside from here. Using our “cut the bull case in half” rule of thumb one reaches a more reasonable price objective of $50 to $60/share.
A copy of the original IPO roadshow slides is available via this link.
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