With concerts and other events canceled around the world, the ticketing platform Eventbrite (EB -1.90%) has not been spared from the impact of the coronavirus pandemic. The company withdrew its first-quarter and 2020 full-year business outlook in March, and CEO Julia Hartz admitted then that the company was "seeing a material impact" from the pandemic.
But what happens after the company weathers this storm? Is there an opportunity for investors to obtain long-term value with Eventbrite? Let's dig into the company for answers.
Prior to the pandemic, Eventbrite was growing revenue. In 2019, the company generated $326.8 million from the service fees it charges event organizers (which Eventbrite calls creators) for ticket transactions on its platform.
But that growth was decelerating. Part of the revenue challenge last year was that Eventbrite's 2017 acquisition of Ticketfly, a ticketing site used by venues and music promoters, involved a migration of Ticketfly's customers to the Eventbrite platform, and that process resulted in a loss of about 30% of Ticketfly's book of business.
In addition, the company has not been profitable, incurring a net loss of $68.8 million in 2019 after a $64.1 million net loss in 2018. While technology stocks sometimes operate at a loss for years in favor of increasing revenue, Eventbrite's lack of profitability combined with a slowdown in revenue growth raises questions about whether its business is reaching a plateau. The company targets mid-market venues and event promoters, so its market size won't pull in the kind of dollars seen from the largest concerts and sporting events, although Eventbrite claims its addressable audience is a multibillion-dollar market.
The path forward
To address the declining revenue growth, the company's plans include expanding its platform capabilities to better support the creators who use Eventbrite most frequently. These frequent customers represent two-thirds of the paid tickets sold through the company.
Eventbrite is also looking to its music category to spur greater revenue growth. Ticket income in the music segment rose by over 10% last year, and the category accounted for one-third of the company's paid ticket volume.
But perhaps the most interesting growth strategy is its attention toward attracting and retaining the consumers who buy event tickets. By getting more consumers to buy from the platform's creators, Eventbrite generates a flywheel effect, helping creators increase ticket sales -- which, in turn, grows the company's revenue. To this end, the company provided consumers with a "follow" function to stay updated on their favorite creators. At the end of 2019, over 10 million consumers were receiving event updates. Additional consumer-related enhancements were planned for 2020.
But those plans must wait until the pandemic passes. The first half of 2020 is going to be tough due to social-distancing requirements causing widespread event cancellations. That's why in April, the company announced plans to reduce its workforce by 45% to curtail costs. This action saves an estimated $100 million in annual expenses. In the meantime, the company has shifted to offering online-only events.
One factor benefiting Eventbrite during this time is its strong balance sheet. The company ended 2019 with $420.7 million in cash and equivalents while carrying zero debt. Its total assets of $808 million were more than double its total liabilities of $382.2 million, and its free cash flow stood at $15.1 million. Considering its cash balance is greater than 2019's total revenue and the company's cost-saving measures, Eventbrite is in a strong position to weather the current economic uncertainty.
Eventbrite's strategies may need to shift to building its business back up once global economic recovery commences. Beyond that, its growth strategies are sound, and its platform provides a suite of end-to-end services for creators, from a self-serve sign-up process to the ability to market to consumers.
Given these factors, and assuming Eventbrite's more than 949,000 creators return to the platform once social distancing measures are removed, the company is in a position to continue growing. That's why Eventbrite is a stock to buy.