Despite its controversies, Ticketmaster-parent Live Nation Entertainment Inc. has been a winning stock over the past few years. The very things that make the company controversial—high ticket fees and a stronghold on event venues—have helped the company deliver impressive results quarter after quarter.
Soon, investors will have another public ticketing company to watch, though it operates quite a bit differently. Eventbrite Inc. EB, +0.00% recently filed paperwork for an initial public offering and intends to test the market’s appetite for a small-scale ticketing business that deals with lower-profile events and doesn’t rely on exclusive access to major sporting events and the like.
Live Nation LYV, +0.59% has major promotional and venue-operations businesses, so it’s not a perfect comparison to Eventbrite, which mainly deals with ticketing and event management. Eventbrite ”doesn’t fit into any bucket” but Live Nation “is the closest thing you can get publicly,” said Phil Haslett, co-founder of EquityZen, an online marketplace for pre-IPO shares.
Both companies say they’re benefiting from increased spending on experiences.
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“There’s no sexy aspect of artificial intelligence or machine learning, just pure execution and aggregation of inventory” said Rohit Kulkarni, managing director at SharesPost, a pre-IPO marketplace
Eventbrite intends to go public on the New York Stock Exchange under the ticker EB. The company hasn’t yet said how many shares it plans to sell through the IPO. The company was valued at more than $1 billion in a 2014 funding round, according to The Wall Street Journal.
Here are six things to know about Eventbrite ahead of the offering.
Growing revenue but losing money
Eventbrite’s revenue grew by 51% from 2016 to 2017, and it rose 61% in the first half of 2018 relative to the year-earlier period. The company continues to lose money, posting a $1.98 loss per share in 2017, compared with $2.48 a year before. In the first six months of the 2018, Eventbrite lost 73 cents a share, relative to 44 cents in the year-ago period. The company is free-cash-flow positive.
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“Great top-line numbers while not burning cash is kind of the dream,” Haslett said.
On an acquisition spree
Eventbrite has been very acquisitive in its recent history, acquiring seven companies since 2015. These include Ticketfly, which was purchased from Pandora Media Inc. P, +0.65% for $200 million last year and recently suffered a data breach. Eventbrite disclosed in the SEC filing that it made a contra-revenue adjustment of $6.3 million in the first six months of the year owing to the breach, which allowed a hacker to steal customer data such as names, email addresses, billing address, and phone numbers.
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Integration of the various acquisitions remains important for Eventbrite, Kulkarni said.
“One way risk could manifest is if there is a lack of cost synergies with these platforms,” he told MarketWatch.
Kulkarni said that Eventbrite itself could prove an attractive acquisition candidate for a company like Live Nation, while Haslett said that it would been easier to do a deal if Eventbrite were to stay private. Likely there is “pent up liquidity” prompting the IPO decision, as the company was founded in 2006.
Breaking down a high loyalty rate
Eventbrite last year boasted a 97% “retention rate,” which referred to the volume of ticket fees the company generates from creators in 2017 versus in 2016. That number might not be as impressive as it looks, however, Haslett said.
“If you were to compare to tech companies, they want that number to be over 100%,” he said, which would mean that a company was able to upsell customers on new products and services in their second year of working together. “Not seeing that is a little troublesome.”
Some geopolitical risk
The company discloses among the “risk factors” in its prospectus that developments in Argentina could have an impact on its results. That’s because 111 of the company’s employees are based in the country, and most of them are engineers.
“If the peso strengthens against the U.S. dollar, it could have a negative impact on our results of operations as it would increase our operating expenses,” the company said in its filing. In addition, Eventbrite’s results could be impacted by labor unrest related to wages and benefits in the country.
The company has “a huge arbitrage on talent based in Argentina,” said Haslett, who hadn’t seen such a warning in a company’s prospectus before.
Another dual-class structure
The company will create a dual-class share structure, in which current shareholders get their stock converted into Class B shares, which are worth 10 votes each. Owners of the new class A shares will be entitled to one vote per share. Eventbrite is following in the footsteps of a number of prominent tech companies that make use of dual-class structures to ensure that voting power stays with current investors and shareholders.
Venture-capital firms Sequoia Capital and Tiger Global each own more than 20% of Eventbrite shares heading into the offering. Chief Executive Julia Hartz and Chairman Kevin Hartz, the company’s co-founders, own 17.4%.
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Client-acquisition conundrum
Eventbrite relies heavily on word-of-mouth to draw users to its platform; the company disclosed that more than 95% of the “creators” that use its service signed up for it themselves. “Substantially all creators who use our platform create and manage events without the need for service or support,” the company said.
Creators who signed up on their own generated 54% of the company’s net revenue last year, according to the prospectus.
Asks Haslett: “While you tout this low-touch, low-sales model, it reality isn’t half of revenue coming from a group that you probably pay to join Eventbrite?”
He wonders if the 5% of customers making up just under half of revenue will be sticky.
