Description

A write-up on Eventbrite was posted on VIC last year, but I believe it presents a much more compelling opportunity at present (COVID-19 casualty), hence worth revisiting. 

Business

• Eventbrite ("EB") is a technology company. It runs an online platform that allows creators to better manage live experiences (events). Key features include event planning/management, ticketing/payments, on-side POS, cross-platform promotion/distribution (email, social, etc), reporting/analytics, CRM, finance, etc. EB's cloud-based platform has API-connectivity to some of the key tools/software used by small businesses, enabling them to seamlessly integrate live event planning into their existing workflow / tech stack. The technology is aimed at reducing friction and encouraging event creation and participation.
• EB’s moat is in its product (feature rich, easy to use, connectivity to other key pieces of the tech stack) and strong brand built around it. In many instances, small differences in the UI/UX of a product create a tremendous amount of shareholder value. Those who read “the everything store” will recognize the importance of the “buy now” button and how it made Amazon the behemoth it is today. Having been a user on both sides (creator and attendant), I believe EB’s product fits the category of a UI/UX winner.
• EB also functions as a marketplace, providing a discovery solution to potential attendants. Many of the listed events are free, fostering user adoption. Creators of free events convert into paid events at high rates – this is one of the key supply acquisition channels. 
• 4.7m events were run through the EB platform in 2019, helping 950k creators sell 309 million tickets (35% paid, 65% free). The average event size had ~66 tickets processed through the platform. EB's business is 2/3 US, 1/3 international (though the international piece is/was growing almost twice as fast).
• EB makes money by charging a fee (2.0-3.5% of ticket price, plus $0.80-1.60 per ticket, plus 2.5% payment processing fee) when a ticket is sold. The effective take rate is ~5-15% depending on ticket price. Creators have the option to absorb the fees or pass-through to customers.
• EB reports a ~60% gross margin but adjusting for the payment processing fee pass-through to customers (2.5%) it's more like >90%. As such, it's the kind of business that will exhibit tremendous operating leverage in a growth case.
• The business has negative NWC (as it keeps creator ticket cash until the event date) and hence if spits cash when growing. Clearly this is a double-whammy if sales are declining, but that's accounted for in the model. Also note that the business has a somewhat seasonal CF profile (Q1/Q3 are more cash generative as creator payables build up ahead of major Q2/Q4 events).
• EB was founded by Julia Hartz (CEO) and her husband Kevin (Chairman), who jointly own 8% of the equity, but 16% of the voting rights. Tiger Global/Sequoia each control 20% of voting shares.
• EB competes in the market for live experiences globally. The company estimates 1.1billion paid tickets get sold annually in the markets it is present in (festivals, music, registration events, endurance). Further, it believes the figure grows to 4.6bn tickets when growth markets are considered (tours & attractions, movie theatres, performing arts, spectator sports). The total addressable market is estimated at $14bn (of potential fees). The millennial mindset of “experiences over goods” suggests this figure will grow over time, potentially significantly.
• EB ended the year of 2019 with $327m revenue ($292m in 2018), $198m gross profit ($171m in 2018) and negative $5m EBITDA (positive $28m in 2018). In each year it has been cash flow positive.
• Competition: the market is heavily fragmented and many brands compete for the attention of creators, venues, and users. The most prominent competitor is LiveNation (LYV) who owns TicketWeb/Universe. Facebook is also a relevant competitor (and a likely buyer of EB in due course). The market is largely underserved, with 2/3 of EB’s creators not having used a ticketing solution before (instead relying on their existing invoicing solutions such as paypal/square and managing events ad hoc with the tools at their disposal).

Opportunity

• EB is a COVID-19 casualty. Its stock trades at $8/share. EB IPO-ed in late 2018 at $23/share and touched a peak of $38/share shortly after. A gradual decline towards ~$20/share endured until Feb-2020. It tanked materially since then as it became clear that social distancing measures would have a tremendous impact on event-related businesses in 2020.
• At $8/share, EB's market cap is $691m based on 86.3m shares outstanding. Net of $421m net cash position, you create the company at $270m (Enterprise Value). On a fully diluted basis (15.7m additional RSUs), the MC is $816m and the EV is $395m. When accounting for several years of additional SBC (assuming up to ~40% of current share count is issued in the next 5 years, always at $8/share - a very conservative assumption), you create the company at $970m MC and $550m EV.
• In April 2020, the CEO announced a cost cutting plan that terminated 45% of its workforce to save $100m/year on an annualised basis. The cash cost of implementing such plan is ~$10m. post these cost cuts, I believe the company has adequate liquidity to weather a very weak 2020 in terms of revenue, as well as the NWC unwind. 
• Further, I believe EB will emerge from COVID-19 as a leaner company, and eventually stabilise its fixed cost base at ~80% of the 2019 level. On a stabilized basis I believe EB can do >20% EBITDA margin.
• EB is priced to a potential bankruptcy. I believe recent management action has significantly reduced this risk. I can see EB weathering the storm that 2020 will be and emerging stronger. It does not need to do much more than return to the pre-COVID revenue levels and growth trends for the stock to be worth ~$20/share. I believe this is doable by 2022, though I assume 2024 in the below.
• There is more upside to this: if EB can get to $750m revenue by 2024 (~5.5% of their aspirational TAM, and a level that brokers were forecasting would happen in 2023 at IPO initiation reports), and SBC dilution happens at a blended ~$20/share (instead of current price), I estimate the stock will be worth north of $70/share by 2024.

Model Summary

Catalyst

Re-rating post COVID (2021-22 earnings)

M&A