Please ensure Javascript is enabled for purposes of website accessibility

Why Eventbrite's Shares Should Bounce Back

By Christine Williams – Aug 13, 2020 at 11:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The pandemic cut this event management company's shares in half, but its future is brighter than it seems.

The coronavirus pandemic has wreaked havoc on many companies around the world, but perhaps none has felt the consequences as much as event companies. Event manager Eventbrite (EB -3.95%) saw its shares dive at the end of February, and it has yet to recover. Despite the severe financial waves the pandemic has created, however, Eventbrite has the foundation necessary to weather the worst. 

Friends sitting around a table and toasting.

Image source: Getty Images.

A brutal impact

Given the effects of a prolonged lockdown and continuing social distancing norms, the coronavirus pandemic easily swept in and singlehandedly ruined Eventbrite's last two quarters. Total revenues had more than doubled from 2016 to 2019, and that trend was set to continue through this year. But then the pandemic hit, and events were cancelled left and right. 

As a result, in the first quarter of fiscal year 2020, Eventbrite saw its quarterly revenue nearly halve year over year, plummeting 40% from $81.3 million in the first quarter of 2019 to $49.1 million. Gross profit also decreased 58% compared to the year prior, and operating expenses jumped by $96.5 million -- or 156% -- year over year to help pay for ticket refunds from cancelled events. In all, net losses soared to $146.5 million in the first quarter of 2020 from $10 million in the same quarter of 2019.

A semi-solid foundation

Nevertheless, Eventbrite was not doing particularly badly prior to the spread of the coronavirus and its enforced lockdowns. Business was increasing, as more and more people chose to organize their events on the platform, and the company had taken steps to acquire smaller competitors on its way to increasing its market presence.

Chart showing total revenue, gross profit, operating expenses and free cash flow for Eventbrite

Image source: YCharts

Total revenue clearly increased over the past four years, and the number of paid tickets (as opposed to free ones) had doubled over the last two, jumping from 44 million to 97 million tickets. Event creator retention reached 100% in 2019 as well, indicating high customer satisfaction and potential repeat business. With an increasing number of tickets for which Eventbrite can charge commission pushing total revenue upward, the company demonstrated an improved ability to turn a profit over time. 

The company's free cash flow, however, has bounced up and down over the years, perhaps due to the seasonal nature of its hosted events, as well as its expansion strategy. Eventbrite has been buying up overseas competition for a while now, which ultimately has contributed to around 30% of its total revenue. So when the coronavirus spread across the globe, none of its markets were able to balance the losses. 

Post-pandemic future

Despite all its turmoil, Eventbrite has taken immediate, important steps to counteract the effect of the pandemic on its core business. Company management slashed expenses to the tune of $100 million over the next year, which is significant, given that net losses in 2019 were just shy of $70 million. If the company is able to control its costs as planned, that suggests its years of posting net losses are due largely to its growth strategy, not an inability to turn a profit. Until the pandemic hit, the company's annual debt-to-equity ratio had also been falling in recent years, further supporting this theory. 

In the meantime, Eventbrite has already seen a small increase in ticket sales from the mid-March lowpoint, as in-person events were canceled and event creators turned instead to online events and small gatherings. The continued restrictions on live events and social distancing requirements will undoubtedly constrain ticket sales for a good while yet, and that is why the company has already confirmed a partnership with private equity firm Francisco Partners to extend up to $225 million in term loans, all to ensure that the lasting effects of the pandemic will not end in insolvency. At the same time, this shift toward online events may prove helpful for the future, pushing the company toward more digital business as the economy at large turns increasingly away from physical-only activity.

Overall, strong demand in other hard-hit stock market sectors indicate that, when post-pandemic events stage a comeback, Eventbrite events should also experience a fierce recovery. As such, it seems likely that, given enough time, this event management company will also recover to previous levels of activity. The question remains, though: When will everything return to normal?

 

Christine Williams has no position in any of the stocks mentioned. The Motley Fool recommends Eventbrite, Inc. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Eventbrite Stock Quote
Eventbrite
EB
$6.32 (-3.95%) $0.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.