Description

Overview:

SEAT is a leading online secondary ticket marketplace for live events. The company enables fans to purchase tickets for sports, concerts, theater, and live events. Vivid Seat’s market share is estimated in the 25% zone and 290K+ unique events were sold in 2023 with an average order size of roughly $358. The company’s asset light model turns 60-70% of EBITDA into cash.

SEAT guidance for the year at the midpoint calls for Marketplace growth of ~6%, Revenue growth of 15% and Adjusted EBITDA growth of 16.0%.

Thesis:

SEAT’s industry has compelling fundamentals.

The consumer demand for live concerts and sports is very strong, growing at a high single digit organic growth (mid-single this year since the industry is cycling Taylor Swift’s tour last year). Between 2014-2019, the live ticket market grew mid-single digit between 2014-2019, while the secondary market grew 9.5% as people like the flexibility to buy closer to an event or engage in spur of the moment or last-minute decision making. Another factor driving this growth is that Average Order Size has grown 3-4% historically. Further, there is strong demand for experiential events in the post covid world. Combining with these positive dynamics are strong motivations on the supply side. From the artist’s side, touring is now the primary source of income (90%) as little money is made from streaming. Live sporting events make significant money from merchandise sales and concessions. Filling the stadiums is necessary and critical and industry success here is a significant reason why the values of sports franchises have risen so dramatically over the years.  

SEAT is a scaled player/well positioned.

The industry is highly competitive with many tiny players. SEAT is known to have the best customer service and loyalty program in the industry. Its significant market share allows for a competitive advantage and overhead scaling benefit. Many of the smaller players in the industry are unprofitable due to their sub optimal scale. SEAT also benefits from having a higher exposure to concerts (52% of revs) than sports (33% of revs) which is a benefit as inventory on the sport side has some limits, while concerts more easily allow for incremental content and is growing faster.

The North American Secondary ticketing TAM was $20B in 2023 and is growing to $23B in 2024. International ticketing is estimated at an additional $40B which SEAT is entering later this year.

SEAT’s growth initiatives prove to be more meaningful than appreciated.

SEAT is expanding their geographic footprint. The company is expanding internationally by year end and has been investing in that initiative throughout 2024. The international opportunity can conservatively be a 2-5% growth tailwind for many years. Further are the opportunities around Skybox and Skybox Drive. Skybox is SEAT’s software platform that allows a seller to manage the entire process of selling tickets – adjust prices, fulfill inventory, see how tickets are moving and at what price. This is an important part of the secondary market for tickets because 80% of secondary ticket sellers are professional sellers. Within that universe, 55% of professional sellers use SEAT’s Skybox. SEAT is adding some features (for example, an automated pricing tool via Skybox Drive) which can be monetized and could be a material growth driver. This is largely underappreciated by the market. Finally, the recently announced AEG partnership, where SEAT is controlling distribution of all tickets, not just the secondary market for the inaugural college basketball crown tournament is an added driver as is the synergies and cross sell opportunities from Vegas.com.

SEAT’s valuation is compelling.

SEAT is trading at 6.4x 2024/5.3x 2025/4.4x 2026 w/FCF and the authorized $100MM buyback. The balance sheet is solid with leverage at 0.7x. FCF yields, given the asset-light nature of the business model, are double digits. Selected industry comps trade at double digit EBITDA multiples. There have been rumors of a Stub Hub IPO on the horizon with significantly higher multiples. Stub Hub was bought for 20x EBITDA in 2020.

Takeout potential.

SEAT would be a highly coveted acquisition for many industry players and internet companies. The synergies would be abundant.

The main reason why the stock is trading here is solvable.

The main drag on SEAT has been the significant stake of Hoya/GTCR. This 36% shareholder/~$360MM in value has weighed significantly on investor appetites to engage or get in front of a likely stock sale. The stake has decreased as it was once 60% but two secondaries (which creamed the stock) were done at $8 and $6.50. I believe the stake can be dealt with using a combination of buybacks, additional leverage and investor support. The company has initiated a $100MM buyback and is willing to lever up to 2.0x to take out the majority of the stake. Investor interest seems robust enough to satisfy the residual amount.

Price Target

SEAT is a low double digit stock in the next few years. I use a 10.0x Adjusted EBITDA multiple but its reasonable to think a decently higher multiple could be warranted. Every turn is worth roughly $0.95 per share depending on the buyback cadence.          

Risks

The main risk is a massive consumer slowdown. I do have some shorts on to mitigate some of that risk but I do think the fundamental industry drivers combined with SEAT’s unique growth opportunities can decently offset a slowing consumer.

Catalyst

Resolution of Shareholder Overhang

Growth Initiatives Realized

Takeout