Along with other businesses that rely heavily on human interaction, Eventbrite (EB) is having a rough go of things this year. The stock is down 58% year to date, far worse than the 36% drop for sports and concert event manager and Ticketmaster parent Live Nation Entertainment (LYV 1.04%).
Eventbrite has been making progress adapting to the new digital-first reality, but event planners have nonetheless been hit hard; they've been issuing refunds and replacing their previously live gatherings with online ones -- often for free or at heavily discounted rates. For the technologist, which earns a cut from each ticket sold, some serious challenges lie ahead.
Don't call this one cheap
To be sure, the coronavirus pandemic hasn't changed the fact that humans crave social interaction. But social distancing and shelter-in-place efforts have made events of the in-person variety a thing of the past -- at least for the time being. In its place are online events, and companies like Zoom Video Communications (ZM -1.18%) that facilitate them have had a heyday.
Let's not pin the whole thing on the pandemic, though. Even before the lockdown started in mid-March, Eventbrite was quickly losing momentum. In the fourth quarter of 2019, year-over-year revenue increased only 9% to $82.7 million. Many companies out there would be more than happy with a high single-digit percentage increase, but Eventbrite was still operating in negative free cash flow territory (revenue less cash operating and capital expenses) as early as last year and needed that growth to attain profitable scale.
Its whole business model now needs revamping, with the future of episodic events like large concerts in question even after the lockdown starts to ease. Businesses are also shifting their annual events to online, and there's no telling when that might reverse course. And as for Eventbrite's first quarter of 2020, which didn't start to really feel the effects of COVID-19 until the second half of the quarter, revenue fell 40% from a year ago. Lower ticket sales were part of the problem, as well as the processing of $19.1 million in refunded ticket fees and the like. Free cash flow ended up being negative $52 million.
At the end of March, the company's cash and equivalent balance was $373 million with zero debt, but it's unlikely the cash burn situation reversed course in the second quarter. While paid online events reportedly increased 19-fold in May from a year ago, paid ticket sales overall were still down 82% from 2019 levels. Subsequent to the crisis, management implemented $100 million a year in cost cuts, with a renewed focus on self-service event planning. But term loans totaling up to $225 million were secured with private equity firm Francisco Partners, and $130 million was raised in June via a convertible debt offering. So much for the squeaky clean balance sheet.
At this point, Eventbrite has an enterprise value (market cap plus debt, minus total cash and equivalents) of just $770 million, but that will be in need of some serious updating once Q2 results are reported. Trading for a mere 2.4 times trailing one-year sales might look cheap for a tech stock, but likely continued losses and a mountain of new debt would say otherwise.
A rebound in the making?
That isn't to say one should give up on Eventbrite. On the contrary; though event ticketing is a crowded space with plenty of other software firms out there offering similar services, the company does have a partnership with Facebook (META -0.54%) processing ticket sales on the social media empire's platform. And the surge in online ticket sales could be promising. Pivoting to a leaner operating structure that favors digital-first might do the trick to help push this technologist into consistent profitability further down the road. Plus, there's no telling what the consumer will do once the novel coronavirus has been vanquished. Perhaps in-person events will return with a vengeance sooner rather than later.
However, the risks facing Eventbrite are too great for my liking. Growth was already stalling out before COVID-19 hit, and the burden of bearing debt makes the platform all that much less appealing to me over the long term. Once Q2 2020 numbers are posted I'll take another look, but barring a big surprise in revenue and profitability trajectory, I'm likely to pass on this one.