Eventbrite (EB)
Author’s note: this was written prior to disappointing Q4 earnings that saw creator deceleration and negative paid ticket growth rates- indicating the company’s pricing pivot strategy is struggling. Growth & margin targets were subsequently pushed out a year.
Management’s credibility is in question & the company needs another quarter or two of proof the creator churn was temporary before I would have sufficient confidence in the model & investment opportunity.
Thesis
Eventbrite has been incorrectly characterized and subsequently punished by the market as yet another perpetually unprofitable, founder-controlled, tech company. This snap assessment misses the profound structural changes the company underwent over the past four COVID years as the pandemic lockdowns decimated its core business. Eventbrite has both demonstrated the ability and, crucially, conviction in generating meaningful free cashflow by cutting expenses, hiking prices, pursuing higher margin products, and increasing take rate.
As these improvements are implemented and mature, a fundamentally different business will emerge- one with a diversified revenue stream with a high-teens to low 20's percent growth rate, 20%+ EBITDA margins (with 30%+ incrementals), negative working capital- with interest income on the float, and an asset-light structure that allows for greater than 100% conversion from EBITDA- all driving significant free cashflow.
By the end of 2026, EB could produce more than $100M in EBITDA and $130M in FCF- about a dollar per share of FCF. At a 12x EBITDA multiple, this implies a $12.50 - 13.00 share price, for a 17-20% 3-year IRR.
Business
Eventbrite (EB) is a digital marketplace that enables event organizers ("creators") to sell tickets to their own hosted events. A creator posts an event (for example, a Taylor Swift Dance Party located in the East Village) on the website or app and sets terms (ticket price, quantity, etc.). EB collects the ticket revenue, takes a listing fee, a percentage cut of the ticket price, and a flat fee per ticket, before remitting the funds to creators within five days of the event’s completion- providing for a nice float dynamic. Monthly listing subscription options are also available.
Pricing shown for U.S., terms vary slightly by country
In contrast to the larger ticketing platforms, these are mostly amateur, small-scale productions with an average event size around 40-50 people and average ticket price of $38 (the aforementioned T-Swift Party tickets were going for $17.50). Positioned as a self-serve model, the creator bears all operational and (most) financing risk. EB also offers a suite of demand generation ancillary services including marketing (Eventbrite Boost) and advertising (Eventbrite Ads) tools.
History
(The June 2022 investor day provides an excellent overview of EB’s story)
Pre-COVID: Focused on courting and servicing larger event creators- human capital intensive with lots of hand holding, high S&M expense (31.5% sales in 2019 vs 19% in 2022 and an estimated 22-23% in 2023)
COVID: No surprise: event ticketing & EB’s business plummeted (though people were surprisingly supportive of event creators & few demanded ticket refunds)
Found cost discipline early: In April 2020, EB cut its workforce by 45%. A former employee described founder/CEO Julia Hartz as having a not previously seen, tough, but justified “ruthless streak” during this time. In 2023 interview, Hartz reflected on the period, “It turns out I ended up being a Great War time CEO.”
Conscious business pivot: move towards self-service model. Starting in 2021, S&M expense falls to low 20’s percent of sales and the operating budget shift towards (self-service platform) tech investments. Product Development rises from 20% of sales to the mid-30%’s. While the evidence is apparent in the numbers, there is no shortage of management commentary, decks, and former employee interviews that corroborate this spending pivot.
Today
Gross ticket sale value (i.e., GMV) is only 80% of its pre-COVID, 2019 peak. However, with a 200bps+ expansion in take rate, FYE 2023 revenue is at parity with 2019.
Positive and expanding EBITDA margins from both gross margin improvement (price increases, return of ticket volume on fixed cost base, mix shift with new, higher margin products) and operational cost discipline. Excluding one-time restructuring charges, EB is guiding FYE 2023 margins between 12 and 13%, with a further four to five points of improvement in 2024- a far cry from the perennial negative margins pre-COVID.
Tech-forward, self-service structure that improves operating leverage by reducing necessary sales and marketing incremental spend.
Greater monetization in core transaction (ticket sales) business: In early January 2023, EB quietly removed its lowest end paid tier (Essentials) and raised prices roughly 11% on its (formerly mid-range, now lowest-end) Professional tier. This change grew EB's take rate of the gross ticket value from 6.5% in Essentials to 11%+ in the repriced Professional tier. EB’s total take rate at the time was just over 8%.
In Q3 2023, EB introduced listing fees (“organizers fees”) for events with over 25 attendees. In 2022, the EB platform hosted over 5M events, but only 1.7M were paid ticket events where EB could take a cut. At an August conference, EB’s CFO estimated that 40% of total events (free and paid) would be subject to the $10 minimum listing fee- with a nearly 100% drop through to EBITDA.
Assuming a mid-teens 2023 growth rate in paid transacting events- at a similar proportion the 2022 reported total event figure- implies 2.3M events will pay the $10 minimum. The below illustrates incremental EBITDA contribution at various average listing fees:
High margin, ancillary services: as part of the listing fee debut, creators were given access to complementary (advanced features for an additional fee) email and social media marketing tools that allowed demand generation through the EB platform. This is a notable step towards EB’s ultimate goal of becoming the destination for people to start when searching for out of home event ideas.
“On a long enough timeline, everyone sells ads”: EB is no exception and released a promoted listing option at management-estimated 90% gross margin (vs. 70% in core ticketing business) with 100% sell out in the first few months of release.
The company has yet to formally break out contribution from either marketing or advertising services (aside from a possibly accidental June 2023 mention of an $11M annual run rate), but disclosed 25% of ad customers were those that offered free events (who make money “behind the gate” by charging for items like food and beverage)- a cohort that was previously unpenetrated. With ad budgets an estimated 2-5x larger than ticketing budgets, advertising represents an obvious, well-trodden, high margin TAM expansion opportunity.
At a sufficient scale, hopefully the company will publish these ancillary services’ economics- a catalyst that may entice the market to pay closer attention.
Negative working capital and float income: As EB receives and holds ticket sale proceeds for a period before and after an event, the company has negative working capital and carries a large, unrestricted cash balance (this “Creator Payables” line was $374M as of Q3 2023). Likely in response to higher rates, in Q3 2022, for the first time, EB began investing a portion of the balance in Treasury bills- earning $7.5M in interest income in the latest quarter (Q3 2023).
This cash balance has also been a source of funds for the advance financing of select, repeat, qualified creators. In January 2024, EB introduced “Instant Payouts”: for a 3% fee, creators can withdraw funds from ticket sales in advance of the event. Marketplace businesses tend to be fertile areas for various financing schemes- expect EB to continue to iterate on such additional sources of income.
Quantifying the working capital contribution to free cash flow is difficult. However, assuming the creator payables growth lags revenue growth and the balance is in line with the historical 5-10% of sales, free cash flow could see a $30 – 50M annual WC tailwind.
Still cost disciplined: In February 2023, EB announced an 8% workforce cut, real estate rationalization, and internal restructuring/consolidation to reduce expenses. The company also relocated 30% of remaining roles to (non-U.S.) countries with a lower cost of labor.
Bottom line: EB, today, is clearly interested in making money and has multiple levers to do so.
Valuation
At the June 2022 investor day, management put out long term 20% revenue growth and 20% adjusted EBITDA margin targets, along with the inputs (revenue & cost drivers) and their respective ranges to get there.
Taking the lower end of the drivers (and rationalizing each input- for example: assuming GMV take rates trend upwards due to the price hikes and growth of ancillary products in Boost and Ads), at FY 2026 ending 12/31:
$515M sales (16% CAGR) with $105M of adjusted EBITDA (50% CAGR) for a 20%+ margin.
$130M+ in FCF due to minimal capex, favorable working capital dynamics, de minimis (~$10M) interest expense more than offset by float income, and limited taxes (with nearly $500M of federal NOLs that do not expire until 2025)
A 12x EBITDA multiple is an EV of $1,265M, plus net cash of $310M is an equity value of $1,575M, 125M fully diluted shares outstanding (3-5% annual dilution)
$12.60 per share in 2026, for a 18%+ IRR from a ~$7.80 price today.
Risks
This is still a growth story, with multiple, unproven products (some of which have angered customers) and drastic internal changes.
Although Hartz has clear passion for the business and shown strong initial promise of being a shareholder-friendly CEO, EB retains a dual class share structure with founder control (Hartz’s husband is also Chairman). Any cash return to shareholders is likely years away and expect continuous dilution from stock-based compensation.
