The Eventbrite IPO

If you attend conferences, go to meetups or see local talent at smaller venues you have probably used Eventbrite (NYSE – $EB). Their IPO is scheduled for tonight (Wednesday) by Goldman, JPM, Allen and a few others. The proposed price range was just bumped up to $21 to $23/share.

EB makes their money with ticket fees but their platform is about more than selling tickets. Their solution is designed to help smaller producers make their events a success. Eventbrite isn’t competing with large ticketing platforms like Ticketmaster or Fandango, but rather a broad range of smaller events that skew more toward business, sports, causes, food, classes, and culture.

It’s all about the ecosystem

We’ll get into more details about the functions offered and how the system works but the key to understanding the long-term positioning of Eventbrite boils down to the ecosystem. Their target clients all use other SaaS tools to run their businesses. Eventbrite works with and partners with and offers enhanced integrations with these systems.

For a large set of this market, Eventbrite is simply the go-to solution and partner for handling events of all types. This isn’t a market for large companies like Ticketmaster and although there are quite a few point solutions that offer ticketing, these are mostly DIY which is a different type of market.

There’s more you can learn about how Eventbrite integrates for these services. It’s not easy to find on the website but they have a listing of extensions with many of these other systems that are already integrated with Eventbrite. You can browse them here: https://www.eventbrite.com/spectrum/.

Positioning and Competition

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At the top of the ticketing world sits the unloved but uber-powerful Ticketmaster. With estimated revenues over $7B and 7,000 employees, they are a force to be reckoned with. But Eventbrite is not in this large “stadium” market. Ticketmaster focuses large venues and high ticket prices. There are competitors at this stadium level market like Brown Paper Tickets and for movies (Fandango) but since it’s only an adjacent market we’ll save that for another time.

There are also platforms like StubHub (acquired by eBay in 2007 for $310M) which focuses on selling tickets in the secondary market. StubHub revenue should top $1B this year. Their position could be at risk as customers with contracts are looking to get a bigger piece of the action in secondary ticket sales and related fees which can be very high.

As shown below Eventbrite targets the mid-market and primary ticket sales. In this segment, their competition is diverse but fragmented.  There are dozens if not scores of smaller online ticketing solutions in the market with more being created all the time. However very few of these have attained anything close to critical mass and often cater to specific market segments or to those wanting to take a very DIY approach.

Eventbrite has made a number of acquisitions in the space as well. The most notable was Ticketfly which they bought in mid-2017 from Pandora ($P) for $200M. Pandora had paid $335M for Ticketfly back in October of 2015. It expanded the Eventbrite footprint and content in the music space, especially for smaller artists and venues. There is some decent competition in this space from Vendini who has a strong position in music and performing arts. Another acquisitive player to watch is Patron Technology which has acquired a 1/2 dozen companies in the process of creating “a fully integrated event technology solution.”

The online event ticketing market is so fragmented that often geographical players can get meaningful traction in a local market. Eventbrite has been fairly aggressive for a private company at making acquisitions as shown in this table from CrunchBase. With more cash and a public stock, we would expect them to increase their tempo of growth via acquisition and advanced payments where necessary.

If you ask about online ticketing platforms inside the ecosystem that Eventbrite serves you get the following feedback: It’s the number one choice among the other options with their strengths cited as ease-of-use, event tracking on any device,  and integrates well with social platforms like Facebook. There are a few areas cited that should be better like the ability to provide live customer event support, some issues exporting data and limited ability to customize an event page.

One site we checked listed over 250 companies in the online ticketing space. The number dropped to a still large 160 after we filtered for “event management” and 90 when we added a “four-star or above” rating filter. There are plenty of companies to acquire in this space over time.

During our site visits, we were pretty impressed with TicketSpice which is competing with better customization, high ease-of-use and lower pricing than other platforms, especially Eventbrite.

Numbers and Stock Conclusion

Eventbrite has been posting fairly consistent quarterly results. We do note that the June 2018 quarter was down sequentially which seems a bit unusual but it’s not something we’d make a case out of. Generally, growth and gross margins have been consistent and the company should be able to drive towards their target model, also included below.

We were a little surprised that the long-term target model doesn’t get the company to 25%+ operating margins. Questions remain about how they plan to spend over 22% on product development and run G&A at over 12% once the company scales. We put ourselves in the non-believer camp and think their margins will be higher than their LT model. They will probably end up spending closer to 15% on product development which leaves room for operating margins to reach 20%+.

In terms of intrinsic valuation, the shares have substantial upside from their proposed price range. As you can see we’ve modeled a higher LT operating margin than managment is guiding too but our growth rate and multiple assumptions seem conservative enough to account for it.

 

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