Eventbrite Q4 Thoughts

(Updated) Management announced a buyback plan worth $100M, currently about 1/5 of market cap. This implies management's sense of Eventbrite's value and a bigger commitment to rewarding shareholders for sticking on. We expect this along with better-than expected performance to drive superior returns.

Eventbrite now trades at $5.3 a share, a nearly 40% decline from pre-Q4 results were released.

Here's the facts:

• Q4 paid event count grew 2% year-over-year while Q4 total event count declined 2% year-over-year. 

• Only 8% growth in paid creators, compared to 30%+ growth in previous years. Paid creator count grew 3% YoY for Q4. 

• 7% decline in free creators. 

• Paid creator count down 1% from previous quarter when take rate went up. 

• Creator count totalling 850k, 6% growth YoY.

• Subscription revenue now 10% of sales

• Take rate now 10%, up from 8% last year. A 25% increase

• Gross margins 70% (Q4), from 65% last year. This is contributed from raised take rates and subscription model

• 25% top line growth, 13% growth guidance for next year
  

In summary, not looking good. Seems like the continued price increases (approx. 25% increase in Q4) have lifted margins, but is hurting growth.

Investors got spooked. Despite paid tickets and paid creators still being up YoY, management did not have a concrete strategy to mitigate churn when asked in the earnings call. Sell-sides have reduced price targets significantly (now at ave. $10/share consensus).

Our view is that the valuation has gone from reasonable to undervalued. Eventbrite is trading at 1.7x P/S (formerly 2.6x) and 10x EV/ NTM AEBIDTA (formerly 15x). We think this is a blatant overreaction to a hurt in fundamentals which are insignificant in the long-run.

We wanted to breakdown the churn between total Eventbrite clients and frequent Eventbrite clients. Frequent creators are small creators that typically host a few events per month with an attendee size of <100. These creators, despite being a third of the total creator count, make up 60-70% of ticket volume. Because their events are more commoditized (such as speed dating, nightlife, amateur comedy), they generally make a larger % of sales from Eventbrite's own marketplace and SEO ranking, typically greater than 10% and less than 50%. As such, these event creators depend more on the marketplace and are stickier than free or non-frequent paid creators.

We monitored a random sample of 40 customers (90% paid customers) over the past couple quarters and found that while total churn is approx. 20%, frequent creator churn is only 7%, meaning the leavers are mostly non-core customers. After speaking with some leavers, we learned that these creators typically made less than 10% from the marketplace. These creators were mostly free creators and paid creators that made non-commoditized events such as very expensive seminars or well-non conferences. They thought of Eventbrite just as a tool, not a marketing opportunity, so they were better off using Shopify or switching to a cheaper ticketing software -- makes sense.

We also conducted a reverse DCF valuation at the current market cap and determined that the market is essentially pricing in zero to low single digit growth for years 2025-2028, suggesting growth in ticket sales of less than 5M per year compared to 10M in our conservative estimate) and an exit multiple of around 7-10x EV/ FY2025 AEBITDA or 1.3-1.9x EV/ FY2025 Sales (holding margins and discount rate constant). Even with zero growth, our model suggests an upside of at least 50%, still a >14% 3-year IRR.

In terms of profitability, we think despite the price increases. Eventbrite will stay unprofitable for the next several years due to R&D costs to build out features. Eventbrite only focused heavily on their self-sign on solutions during the pandemic, so full feature roll-out will take time (they literally just added the video on landing page feature last quarter). At some point, we think feature development will reach quickly diminishing returns and hit a ceiling, at this point, R&D costs should go down.

The main risk seems to be management's execution. They need to find a way to get back on track and ease investor concerns. But we think the fundamentals and competitive advantages are still in place, and the growth runway remains long. If anything, focusing on the core customers means they will be able to focus on their needs better. This is something they've done in the past, i.e. the shut-down of their on-premise operations, which was half their revenue at the time.

At a valuation this cheap, even if Eventbrite doesn't reach our we still don't lose money. It's an opportunity to attractive to leave out.