When it rains, it pours. That's probably how Eventbrite (NYSE:EB) shareholders feel today, as multiple news items are sending shares lower on Wednesday. As of 1:15 p.m EDT, the stock was down 18%.
The common thread across the news items is this: Eventbrite's business is hurting, as the COVID-19 pandemic has cancelled large live events around the world.
The headline-grabbing news was Eventbrite's business update. The company points out that paid ticket volume is up 33%, which sounds good at first. But this is only from April to May. Digging deeper, May ticket sales are still down a whopping 82% year over year. So live event activity is improving, but it's still nowhere near a recovery.
Understanding Eventbrite's current financial situation is complicated. Event creators and artists sell tickets through Eventbrite's platform, with the company generating revenue from things like fees. Typically, it doesn't pay out until the event is complete. But in some cases, it issues advanced payouts, referred to as APOs in its filings. If an event doesn't happen, Eventbrite needs this money back to refund customers.
Currently, Eventbrite's APO balance is $267 million. Until that money is returned, it creates a complicated liquidity issue for the company. To help with liquidity, today it announced a $115 million offering of senior convertible notes. Eventbrite will use some of the proceeds on capped calls -- a move that could limit dilution of shareholder value. But investors don't like the idea of any dilution.
Finally, there's one other problem that could be brewing. In a Securities and Exchange Commission (SEC) filing, Eventbrite disclosed it's been hit with a class action lawsuit regarding its refund policy. It's a lawsuit the company intends to "vigorously" fight, but it will likely use some capital that's in short supply these days.
Add it all up, and Eventbrite stock is getting hammered today. It's just the latest loss for this stock. It's down sharply since the company went public just under two years ago.
It's hard to imagine a business more impacted than Eventbrite. One might argue that online events generate revenue, and the company did point this out. In May, it processed 19 times as many tickets for online events as it did in May 2019. But revenue for online events is still minuscule. In reality, this is a business that does best with live events and big crowds. Until those things return (an issue outside of Eventbrite's control), the company will keep scrambling to mitigate the damage.