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Amid softer macro trends across the globe, many companies have taken to one overarching strategy for solving top-line pressures: increased pricing. I’m generally wary of this strategy as a lever to chase long-term revenue growth, as price increases are more of a one-time driver that fades from a y/y growth perspective as soon as the price increase is lapped.
Eventbrite (NYSE:EB) is one of the stocks that falls into this category. The online ticketing marketplace is experiencing pressure in tickets sold and creators on the platform, but it has started to charge event organizers new fees for posting their events. In the near term this has driven double-digit revenue growth: but over the long run, this strategy may spurn more churn than expected.
I last wrote a bullish article on Eventbrite in October, when the stock was trading closer to $8 per share. I have since gotten out of my position and am now neutral on this stock, especially after seeing the company’s recent Q4 earnings print which was poorly received in the market.
I see a number of risks on the horizon for Eventbrite:
- Unknown churn impacts from fee decisions. Eventbrite’s decision to start charging event organizer fees, arguing that creators should pay for access to Eventbrite’s audience reach, is currently driving double-digit revenue growth. But over the long run, it could steer more creators away from Eventbrite and toward competing platforms.
- Volume decline. To that extent, paid ticket volumes are also declining – a reflection of fewer events, fewer creators, and ultimately fewer buyers on the Eventbrite platform.
- Numerous competitors. We can’t forget as well that Eventbrite is one of a number of online ticketing platforms, including evite, Ticketmaster, Meetup, and other names.
At the same time, though, it’s not all bad news for Eventbrite. I do see a number of potentially positive catalysts on the horizon:
- Spend on experiences is still high. More and more of the younger generation continue to spend less on physical items and more on experiences, which drives secular tailwinds toward paid events in general.
- Good handle on profitability. Eventbrite’s rigorous cost-cutting during the pandemic helped the company to rationalize down its expenses to a point where now when revenue is growing while opex is staying more or less flat, the company’s high gross margin profile is helping to drive substantial adjusted EBITDA gains.
All in all, however, I don’t see too much on the bull side of this argument to justify buying into Eventbrite. I’d prefer to exit here and stay on the sidelines until the stock meaningfully retreats from here, or we see a path to continued fundamental upside/evidence of a sustained net positive impact from the company’s new fee decisions.
Q4 download
Eventbrite released Q4 results in late February, and after missing Wall Street’s top and bottom line expectations. First, a look at the core top-line metrics:
Eventbrite trended metrics (Eventbrite Q4 earnings deck)
In Q4, paid ticket volumes declined -4% y/y to 24.1 million, a sharp deceleration after growing 4% y/y in Q3. In spite of this, net revenue still grew 22% y/y to $87.8 million, though this slightly missed Wall Street’s expectations of $88.5 million (+24% y/y) in the quarter.
Commenting on this new fee strategy on the Q4 earnings call, CFO Lanny Baker noted as follows:
When organizer fees were widely implemented in September, October of 2023, this was the first time Eventbrite had imposed in charge associated with accessing our marketplace and our audience reach.
The larger objective here was to shift our model and our go to market and to reposition Eventbrite as a marketplace, delivering attendees for creators and serving up great live experiences for consumers.
We continue to have conviction in this strategy, and we are focusing on attracting creators of high-quality events who seek audience growth and showcasing the appealing events that feed strong consumer demand in order to improve paid ticket volume in 2024.
Nonetheless, we see recent paid ticket volume trends having a near-term impact, and I want to turn to what this means for our immediate operating priorities and then our business outlook for the coming year. We are pursuing three main levers to improve paid ticket growth.”
Note that these new organizer fees are on top of higher overall ticketing and servicing fees implemented in early 2023. So that’s important to keep in mind as we look ahead to 2024: the company will lap its “regular” fee price increases in early 2024, and then the new organizer fees in Q3 of 2024.
In spite of these tougher comps, Eventbrite is still guiding to a full-year revenue range of $359-$372 million, which represents 12% y/y growth at the midpoint.
Eventbrite outlook (Eventbrite Q4 earnings deck)
Given the exhaustion of pricing levers, this revenue outlook will genuinely depend on Eventbrite’s ability to keep true to its forecast for paid tickets, which is supposed to be ” lower year-to-year in the first half and down slightly to up modestly for the full year,” again per Baker’s comments. So far, trends are not looking well in this regard.
Another disappointing note: in spite of higher pricing, Eventbrite’s adjusted EBITDA is still lagging last year:
Eventbrite adjusted EBITDA (Eventbrite Q4 earnings deck)
Nominally, adjusted EBITDA dollars declined -21% y/y to $8.7 million, representing a 10% adjusted EBITDA margin: five points weaker y/y.
Valuation and key takeaways
At current share prices near $5, Eventbrite trades at a market cap of $524.6 million. After we net off the $642.9 million of cash and $357.7 million of debt on Eventbrite’s most recent balance sheet, the company’s resulting enterprise value is $239.4 million.
This represents a ~0.7x EV/FY24 revenue multiple against the midpoint of Eventbrite’s $359-$372 million revenue range for the year. And if we interpret the company’s “low to mid teens” adjusted EBITDA margin guidance as a ~13% margin (representing 4 points of margin accretion y/y versus 9% in FY23), adjusted EBITDA would be ~$47 million, putting Eventbrite’s multiple at 5.1x EV/FY24 adjusted EBITDA.
Needless to say, Eventbrite trades at discounted valuations: but there’s plenty of risk backing up that cheap valuation. I’d prefer to stay on the sidelines here.
