How Brite A Future Is There In Eventbrite’s IPO?

Ticket to Ride
Spencer Platt / Getty Images
– Ticket to Ride
Traders on the floor of the New York Stock Exchange where Eventbrite, the ticketing company, will issue some $200 million of Class A common stock in its initial public offering

A key part in any analysis of Eventbrite’s pending initial public stock offering is the number of paragraphs until Ticketmaster is mentioned. A first- or second-paragraph mention is bad news for investors; the most salient of facts shouldn’t be about a competitor.
The outlook improves every paragraph. Here, after the previous mention, the ticketing giant won’t be mentioned until the sixth paragraph. Not bad. In the meantime, a look into Eventbrite can cover the company’s business model, financial performance, and opportunities. 
Eventbrite was launched in 2006 by entrepreneurs Kevin and Julia Hartz with Renaud Visage, the chief technical officer. Hartz made his money the Silicon Valley way: he was a seed investor in PayPal. He also founded Xoom, a service for international remittances that had an IPO in 2012 and was acquired by PayPal in 2015. In the meantime, the Hartzes and Visage saw an opening in the ticketing market: the do-it-yourself event organizers who might not otherwise use a ticketing service. Its first press release, from November 2006, painted the company as an equalizer with “self-service” and “low-cost tools” for the “Long Tail” of events. Its initial elevator pitch isn’t too different from how the company describes itself to investors today. 
The San Francisco-based company hopes to raise $200 million from an initial public stock offering on the New York Stock Exchange. No date has been set for the IPO. This has been a good year for stocks (as markets hit all-time highs). The IPO class of 2018 has included Spotify (music streaming), Dropbox (cloud storage), Carbon Black (cybersecurity), Pluralsight (online education platform), Zuora (cloud software), DocuSign (electronic signatures), Sonos (home audio), and Zscaler and Pivotal Software (cloud computing). In all, 60 companies went public in the second quarter, the most in three years. Some IPO stocks have doubled or tripled their IPO prices, creating an enticing environment for tech companies hoping to test the public markets. 
Eventbrite has a unique business model that serves a wide variety of event creators. It doesn’t focus on the world of high-value clients like arenas and amphitheaters. Instead, it’s a democratic tool that allows people to ticket events that may not have otherwise been ticketed. Events can range from book club meetings to fundraisers – anything that’s general admission rather than assigned seating – that might normally have operated with a convoluted RSVP process. Larger events, which have no shortage of options, might be attracted to Eventbrite’s reputation for ease of use and flexibility. For a paid event, Eventbrite typically takes 99 cents plus 3 percent of the ticket value. Tickets are free for free events and in 2017 was used in over 170 countries.
Investors will be asking if this tech company, still in a growth phase, can scale properly to cash in on market potential. The financial statements look fine. Net revenue was $201.6 million in 2017, up 51 percent from 2016 (with some help from the Ticketfly acquisition). Net loss was $38.6 million, about even with the previous year. Cash burn isn’t a problem: the balance sheet carries $258.7 million in cash and $34.1 million of working capital. But an IPO would provide funds to help grow the business. Early investors would benefit, too. Eventbrite has raised a total of $332 million (source: Crunchbase). Three 
investors – Tiger Global, Sequoia Capital, and T. Rowe Price – own nearly half of the shares. 

Co-Founders Kevin and Julia Hartz
The acquisition of Ticketfly in September for $201 million makes a large financial impact. Ticketfly had revenue of $40.6 million in 2016 and $33.5 million from January 2017 until it was acquired on Sept. 1. If Ticketfly’s revenue from January to August 2017 is taken into consideration, Eventbrite’s revenue growth rate climbs from 51 percent to 76 percent. It’s unclear to what extent the two companies can be merged, and redundant expenses eliminated, but Ticketfly gives Eventbrite a swath of large music venues and festivals in the United States and Canada. 
Investors can look to a few positives. First, Eventbrite has built a business where nothing existed. Small conferences and book club meetings would be using an old-fashioned RSVP system if not for Eventbrite’s free or inexpensive tools. In this way, Eventbrite does not directly compete with traditional ticketing companies. Second, Eventbrite has a freemium business model that uses free ticketing as a way to build relationships with users. The freemium model is used in everything from email services to music streaming services – Spotify and Pandora each have a free tier – to draw people to the paid tier. Free users can be good customers: since 2015, Eventbrite appears to have converted 17 percent of free users within 12 months. 
Comparisons to Ticketmaster are inevitable. The question surrounding this IPO is if Eventbrite can build a business while staying out of Ticketmaster’s way. Eventbrite will have difficulties wading into Ticketmaster’s arena, festival, and amphitheater business. But it’s possible to avoid Ticketmaster and find – or create – business elsewhere in live entertainment. Many mid-tier ticketing companies have specialties. is owned by Major League Baseball and services a variety of sports and non-sports events. Tessitura is built specifically for the needs of performing arts venues. Etix tickets over 100 fairs and festivals. 
A top-line comparison of the two companies isn’t close. Ticketmaster makes $10.42 per ticket, 3.7 times more than Eventbrite’s $2.84. Ticketmaster’s 2017 revenue was greater than 10 times that of Eventbrite, $2.14 billion to $201.6 million. There are two reasons for these discrepancies. First, Ticketmaster has many high-value clients, including the arenas, amphitheaters and festivals parent company Live Nation either owns or operates. Second, Ticketmaster’s average price includes both primary and secondary tickets. The company takes a fee when a ticket is sold at a premium on a Ticketmaster exchange. In effect, an expensive ticket gets more expensive. 
But Eventbrite is more efficient in generating sales. Even so, cost efficiencies will get Eventbrite only so far. All things being equal, Eventbrite would rather sell a more expensive ticket than a cheaper ticket. 
A couple notes on these calculations. Revenue comes from each companies’ fees, not the gross value of the tickets it sold. Each company makes money from the fees it charges on sales. Ticketmaster discloses its gross ticket value in its financial statements. Eventbrite did not provide its GTV in its IPO filing. Also, the calculations made here include only fee-bearing tickets. Eventbrite’s business model allows free events to “sell” free tickets at no charge. Free tickets account for 65 percent of Eventbrite’s total tickets issued. Similarly, 59 percent of Ticketmaster’s total tickets issue are non-fee bearing – season ticket packages, fee-free box office sales, and the company’s do-it-yourself platform. 
It’s been seen a million times: a money-losing technology company plans an IPO and has tremendous growth opportunities. This case is no different. Eventbrite is already working on its international business; sales from outside the U.S. grew to 30 percent in 2017 from 18 percent in 2012. 
Eventbrite will need to fit the service to a particular market, however. To that end, Eventbrite has recently acquired ticketing companies in Holland (Ticketscript), Spain (Ticketea) and Picatic E-Ticket (Canada). More acquisitions are possible. 
How does Eventbrite see itself? It’s an important question. In its IPO filing, Eventbrite describes two types of ticketing companies. One group of companies are the “event management software vendors” that focus on larger venues and often require “signing fees and advances to secure contracts.” 
This tier of company requires systems that are “impractical for the majority of event creators” and has “distinct factors such as widespread and unauthorized and often highly regulated secondary ticketing.” Ticketmaster falls into this category; its high-profile, high-value client list includes arenas, amphitheaters, festivals and large theaters – and some small venues, some through its Ticketweb subsidiary. 
The second group are the “smaller long tail providers” that “are typically smaller in scale and have limited technology and feature functionality.” Eventbrite doesn’t fit neatly into this group – it’s big and has good technology – but could buy this type of company to build its client list. 
The IPO filing says the company had 324 people in engineering, product and design teams, about 32 percent of employees. Product development expenses were 15.2 percent of revenue in 2017. 
A couple needs stand out. Eventbrite would benefit from large events and venues that bring higher-value tickets. 
And Eventbrite does not have much of a re-sale business. Ticketfly, acquired by Eventbrite in 2017, uses a third-party company, Lyte, to handle its customers’ re-sale tickets. 
But the IPO filing doesn’t mention the secondary ticketing market other than by calling it a challenging part of being a high-value ticketing company. Re-selling tickets is a lucrative business. In addition to Ticketmaster, StubHub and SeatGeek have built successful businesses on the re-sale of tickets. 
That said, Eventbrite counts some large festivals as clients: Lightning In A Bottle, Newport Folk Festival, Pitchfork Music Festival, Afropunk Festival, SnowGlobe, and High Sierra Music Festival, among others. It has built a product specifically for festivals that includes RFID and hardware for on-site use. 
At the very least, an IPO gives the company a large stage to promote itself. VeriSign’s CEO called it “a branding event” that helped customers understand the size of its platform. That kind of cache certainly won’t hurt Eventbrite when signing new clients. 
It’s not every day a ticketing company grows to the point where an IPO is possible.