Eventbrite CEO Julia Hartz and Executive Chairman Kevin Hartz combined their experience in entertainment and payments to create a billion-dollar business in live events.

In this segment from Industry Focus: Consumer Goods, Motley Fool analysts Vincent Shen and Nick Sciple discuss the origins of Eventbrite before looking at its target market and the scale of the platform.

A full transcript follows the video.

This video was recorded on Aug. 28, 2018.

Vincent Shen: The proposed ticker for the company will be EB. At its heart, Eventbrite is in the business of, as they say, "bringing the world together through live experiences." In other words, the company has a full platform for organizing live events. The company can offer what it calls creators, or its customers, everything from ticket sales to payment processing and analytics. For example, someone organizes or wants to organize a local marathon, they can turn to Eventbrite, put together a web page with race details, organize registrations and ticket sales for the race participants, and then help promote the race through social media and other channels, and ultimately, day of the event, get runners checked in and things along those lines.

That's really a small taste, though, of the many features that Eventbrite has built into its platform over the years. That's since 2006, when the company was founded by three people: Kevin and Julia Hartz and Renaud Visage. Kevin and Julia are husband and wife, and they're the current leadership duo at the company, essentially. Kevin previously served as CEO up until 2016, when Julia took over. He's now executive chairman. Founder-led management teams always add an interesting element to these stories and their backgrounds. The Hartz family really has a clear influence on the origins of Eventbrite.

One hand, you have Mr. Hartz. He was previously a co-founder and CEO at Xoom, a payments processing company that was ultimately taken over by PayPal a few years ago. On the other hand, you have Ms. Hartz. She worked in media and entertainment, developing TV series for Viacom and Fox. You bring together the payments processing and the entertainment sides, bring that expertise together, and you get to the core of what Eventbrite offers.

Before we get into the meat of the business, a few other things I'll mention. Eventbrite is another unicorn that's going public this year. This follows the big debuts of companies like Spotify, iQiyi, Dropbox, Xiaomi, and several others. Remember that unicorns are private companies with valuations over $1 billion. Eventbrite has previously raised about $350 million through private investments with firms like Tiger Global and Sequoia Capital, who remain major stockholders in the company, along with the Hartz family.

Let's talk a little bit about the business, in terms of the revenue model, target market, and some other important aspects of it. What do you think here? In terms of how the company generates revenue, can you give us a breakdown there?

Nick Sciple: Sure. Essentially, all of Eventbrite's revenue comes from ticket sales. They charge a 2.5% fee of the ticket price on every sale in addition to a $0.99 fee on each ticket sold. Now, this only applies to paid tickets through the platform -- about two-thirds of the tickets that they issue. We'll discuss this later, the free tickets. Their target market, this quote from Eventbrite is, it's the broad range of events between those where the venue dictates the ticketing relationship -- when you think about that, you're thinking of huge blockbuster concerts, pro sports -- and smaller events where there's no formal venue or event management needs. That's like small personal gatherings, having someone over to your home. They cover this broad range of the market, in that middle sector.

Shen: Well, let me add, their CEO has a great quote on this. You think about live events, this huge, multi-billion-dollar market, billions of tickets issued annually. The key thing to keep in mind for Eventbrite, you mentioned the middle of industry, the middle market, is really their sweet spot. Julia Hartz summed this up, basically saying, "Not birthday parties and not Taylor Swift at Madison Square Garden, but everything else in between." That is really where they saw the opportunity originally when they started the company. That still remains the strength of their model.

Sciple: That's exactly right. In 2017, Eventbrite, addressing this model, it helped more than 700,000 creators issue approximately 203 million tickets across three million events in 170 countries. To illustrate where that is in the middle market that that's an average attendee per event of about 68 people. These aren't huge events, but these are events that can be of some size.

Shen: And I'll add to that, too. In terms of this pricing model that they have, they offer these different packages, they call them the essentials, to professional and premium. There's some variability there, in terms of what the creators have to pay to Eventbrite. But it does appear that the company wants to move up and help with some of these more complex, larger events with their premium package, where the pricing is created on a custom basis.

Not only with those ticket fees, I also want to mention that 90% of customers use Eventbrite's payment processing as well. That generates an additional fee for the company. Again, some of the influence there of the founder, his background at Xoom, and how that's influenced the revenue model for this company. You mentioned the scale in terms of the hundreds of thousands of creators. Just in 2017, hundreds of millions of tickets. Eventbrite, I think I saw, has processed over $10 billion in gross ticket sales since its founding. Quite a bit of volume there.

With those events, the first thing for me, generally, that comes to mind for something like this is live music -- a concert or festival. But the range of activities can also be things like fundraisers, cultural events, fitness events, other activities. If we look at some of the trends and metrics that the company cites in the prospectus, I think we get a better sense of the company's strategy for growing its business and its market share, too. Again, for 2017, they mentioned that 95% of their creators using Eventbrite sign themselves up.

That seems pretty compelling on the surface. We will talk more about some of the challenges behind that, as well. But, what's your first take there? 95% of people going to Eventbrite. It seems like a pretty win-win situation, right?

Sciple: Sure. I mean, it's a great situation in that the company doesn't have to spend any money to attract these creators to their platform, don't have to spend dollars toward onboarding people onto the platform. It illustrates the user-friendly nature, which particularly for these smaller events, it's going to be a less sophisticated event planning professional. That really opens up the accessibility, especially for small creators, to use the platform and to get out there and plan their own events using Eventbrite.

Shen: They definitely tout it as being very easy to use, limited support necessary for these creators. Eventbrite wants to ultimately attract these customers or these creators at the early stages of their career or business when they generate lower revenue, true, not as valuable; but gradually, as they scale and grow, the company scales with them until they present more of a revenue opportunity for the company. This relationship, this strategy, really bears out when you look at their total ticket volume and break that down, in terms of their free vs. paid tickets. You mentioned the two-thirds number for the free tickets. That means 203 million tickets in 2017, only about 71 million were paid. Something important to definitely keep in mind there.

Going back to that number that we just mentioned, 95% of people signing themselves up, they only accounted for 54% of revenue last year. Remember, Eventbrite is free to use when the tickets to the event are free. For that other 46% of revenue, the company has to essentially send out a sales team to target creators who are popular and big enough to be hosting events with substantial paid ticket sales. In the first half of 2018, Eventbrite paid about $6.3 million signing on these creators. That's on top of another about $9 million in 2017.

Nick Sciple owns shares of PayPal Holdings. Vincent Shen owns shares of iQiyi and PayPal Holdings. The Motley Fool owns shares of and recommends PayPal Holdings. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.