“We are encouraged by the progress we’ve made in the year since becoming a public company.” That was Julia Hartz’s take on Eventbrite’s performance one year on from its IPO.
And it would seem – at least in the short-term – that Wall Street is in agreement, offering a 23 percent lift in the stock to $21.32 following the latest Quarterly Report.
(Chart Via Google)
This, arguably, goes some way to correct the disappointing performance since the Eventbrite IPO which launched 21st September 2018 at $23 initially soaring 58.7 percent in its first day of trading to close at $36.50.
(Chart Via Google)
Past records reveal that shares in Eventbrite stock declined following three different earnings reaction days, so what is different about this set of Quarterly Reports?
Eventbrite: From The Start To Year-One
In typical corporate-underspeak CEO Julia Hartz stated, “we’ve had some learning experiences”.
The first year for Eventbrite as a Public Company has been marked by questions over its corporate identity and mission i.e. what is it and how well is it executing on that vision?
In part this is a by-product of the initial development of Eventbrite, originally founded in 2006 as an online event registration and self-service ticketing solution which then grew partially via organic means but also via acqui-hires: Eventioz & Lanyrd (September 2013); Scintilla Technologies (October 2015); Queue (February 2016); and then via a series of acquisitions of predominately similarly designed event technologies: Nvite (March 2017); Ticketscript (January 2018); Ticketea (April 2018); and Picatic (August 2018).
However, the largest and subsequently most problematic acquisition was that of the live music-orientated Ticketfly in June 2017. This acquisition fundamentally changed the perception of Eventbrite and the criteria by which it would be measured.
In the year since its IPO the market has questioned is Eventbrite a ‘Sales Channel’ i.e. an events & concert discovery, ticket retail destination (and potentially a competitor to the consolidating ticket agencies), or an evolving ‘Self-Sign On’ event management tool for free or paid admissions?
Eventbrite is attempting to present itself as a hybrid of both and within the recent Quarterly Reports it identifies a range of performance metrics to show its progression towards that aspiration.
Eventbrite Q3 2019: Winning?
Net revenues for the Quarter reportedly increased 11 percent Y-O-Y to $82.1M, of which International (which represents both Self Sign-On & Sales Channels) grew by 14 percent to $22.7M, now representing 28 percent of the total.
(Via Eventbrite Q3 2019 Shareholder Letter)
But overall Eventbrite net revenues have plateaued (Q3 2018 – $75.9M, Q1 2019 – $81.3M, Q2 2019 – $80.8M, Q3 2019 – $82.1M) with approx. 7 percent lift across its first year since IPO.
Which means that where the company is experiencing growth is within the Self Sign-On and Non-Music client base – ‘Creators’ as Eventbrite identifies them – but is being held back by its static Music Sales.
(Via Eventbrite Q3 2019 Shareholder Letter)
Eventbrite Music / Ticketfly
Ticketfly was a ticketing platform founded in 2008 by Dan Teree and Andrew Dreskin (both previously at TicketWeb which, in turn, was acquired by Ticketmaster) to directly compete with the mainstream ticketing agencies with a slick UI, social media capabilties and an ‘independent spirit’.
Acquired by Pandora in October 2015 and then sold onto Eventbrite in June 2017 at the time it was working with approx. 1,200 venues and promoters across North America processing in excess of $500M and retailing 11.2M tickets.
Following the acquisition and then the Ticketfly cyberattack in May 2018, Eventbrite confirmed that its strategy was to operate a single technical platform globally, and in Q3 2018 Eventbrite announced the formation of Eventbrite Music ‘to streamline and improve ticketing, marketing and operations for independent promoters, venues and festivals around the world.’
In the Q4 2018 Shareholder Letter, Eventbrite stated that ‘progress was made on the migration of Ticketfly and we anticipate concluding this migration and sunsetting the platform in the second half of 2019.’
However, Eventbrite was historically a ‘GA (general admission) Solution’ designed for the a broad range of events management & registration, experiential, and consumer conference sectors (in the long-tail if ticketing). So the addition of more sophisticated venue box office requirements – such as reserved seating plans, multiple points of access control with real-time reporting, digital marketing campaign performance metrics & analytics etc. – subsequently proved more problematic than first envisaged.
In the Q1 2019 communique Eventbrite noted that whilst it had made progress on the migration of the Ticketfly platform, there had been some delay caused by the need for the addition of new music client-required platform features including ‘significant improvements to core functionality around reporting, payouts and settlements that will ultimately flow through to the benefit of all creators’.
It subsequently ackowledged that ‘ …we may see meaningful migration loss as we move to shut down the Ticketfly platform in the second half of the year.’
There followed a painful downward correction in Eventbrite stock.
Then in May 2019 Andrew Dreskin stepped down as President of Eventbrite Music.
In the Q2 2019 Shareholder Letter the company reaffirmed the 1st October 2019 deadline for all music tickets to be sold via Evenbrite and noted the growing momentum for migration from Ticketfly with ‘… the launch of 22 features since the beginning of the year.’
But approx. 100 clients remained including a number of larger and more complex venues. The 1st October 2019 migration deadline came, and went.
The ‘Power Outage’ at Eventbrite in mid-October further antagonised former Ticketfly clients, and there was press speculation about a number of marquee clients whom had apparently left the company ahead of any migration, including Peter Shapiro’s Capitol Theatre in Port Chester, New York, and the I.M.P.-managed Merriweather Post Pavilion in Columbia, Maryland.
By Q3 2019 the message was that ‘We have nearly completed the migration of Ticketfly customers to the Eventbrite platform’, and that plans to align product, marketing and service efforts would be focussed on retaining Music creators to ensure revenue growth. But that Eventbrite may continue to ‘experience elevated levels of churn’ and that whilst many of Ticketfly’s larger clients were migrated to the Eventbrite platform ‘we anticipate that some of these customers may not continue long-term.’
We presume that this is what they were referring to: ‘Five US venues ditch Eventbrite for AXS’ (06.11.19)’.
The jettisoning of the Ticketfly brand, platform, and personnel, and the forced migration to Eventbrite has ultimately cost the company dearly, in lost ticket volumes and revenues, goodwill with some key independent operators within the live music sector, and also in investor reputational harm as expressed by the downward pressure on the stock price.
Self Sign-On & International: Where It’s At
The immediate well-being of Eventbrite is therefore intrinsically linked to the global expansion of Self Sign-On.
(Via Eventbrite Q3 2019 Shareholder Letter)
Approximately half of Eventbrite revenue now comes from Creators via the Self Sign-On channel with net revenues growing by 20 percent during the last quarter driven by a 23 percent increase in paid ticket volume Y-O-Y. Self Sign-On paid ticket volume has in fact grown by more than 20% Y-O-Y in each of the last four quarters.
The further refinement of the self-serve platform with new features such as a ticket pricing tool (‘…that leverages machine learning and real-time data-driven insights, which enables creators to price their tickets more intelligently and maximize their ticket sales’), ‘Add-Ons’ – the ability to upsell merchandise or parking with tickets – and reserved seating functionality, will be added for all Creators as the company targets its core markets and categories which apparently represents an opportunity estimated at over $3Bn in sales annually.
The current business outlook provided by Eventbrite for 2019 suggests a range of $319M – $323M in net revenues. So, plenty of room for growth.
At the same time, these new features are costly with product development investment increasing 24% Y-O-Y to $15.9 million, or 19 percent of net revenue, up from 18 percent in the prior year.
Similarly, sales, marketing and support spend increased by 35% Y-O-Y to $28.6M in the quarter, or 35 percent of net revenue, up from 29 percent the prior year.
General and administrative expenses grew by 28 percent Y-OY to $27.2M, representing 33percent of net revenue, up from 29 percent in the prior year.
When combined this meant that Operating Expenses increased to $71.6M, a 30 percent increase Y-O-Y. Operating expenses in the quarter were 87 percent of net revenue compared to 75 percent in the third quarter of 2018.
This meant that Adjusted EBITDA was negative $6.5M in the third quarter, down from positive $11.2M in the third quarter of 2018.
A focus for Q4 2019 will therefore be on resource reallocations to lower cost domains, expense reductions with associated severance, and a careful review of the recently migrated Music Creators.
The business outlook for the full (2019) year is that the company will deliver a negative Adjusted EBITDA of approx. $5M.
In summary, the core strength of the company has (always) been the Self Sign-On platform which serves a diverse, fragmented market sector with a professional and robust solution. The growing international adoption of Eventbrite should enable the company to move towards profitability and beyond.
But, the strong internal belief in the uniqueness of the Eventbrite platform had possibly (mis-)informed the executive team to believe that the Ticketfly client-base would automatically change their cultural and commercial practises to suit the architecture of a ticketing solution.
It would be unfair to say that the Eventbrite executive are learning as they go along but the acquisition and migration of Ticketfly has been badly handled, and this has impacted the valuation of the overall business with a current implied market cap of approx. $1.8Bn from a one-time peak of over $4Bn. It’s a long uphill walk to get back there but, arguably, the latest Quarterly figures suggest the first steps have been taken.
OTHER ARTICLES IN OUR FINANCE INSIGHTS SERIES:
- (6 November 2019): LNE Q3 a bump in the road to growth?
- (28 October 2019): eBay flat, StubHub selloff inevitable
- (7 June 2019): Riding the rollercoaster with Accesso
- (31 May 2019): Millennial Ticket Discovery – TodayTix vs GetYourGuide
- (15 May 2019): LiveNation Entertainment Q1/19 Analysis
- (26 April 2019): StubHub’s performance in the wider eBay picture
- (19 April 2019): DEAG – Growing & diversifying the portfolio
- (4 April 2019): Eventbrite’s stock performance since IPO
- (22 March 2019): CTS Eventim’s dividends and performance
*ABOUT THIS ANALYSIS: This series of financial insights is provided by the The FP&A Team at TheTicketingBusiness. The FP&A Team comprises a group of industry finance experts who volunteer their expertise to provide ad hoc analysis of key industry financial, M&A, funding and investment news. All in an effort to better-inform the market and support the industry’s long term development. Any questions or feedback welcome to firstname.lastname@example.org
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