StubHub IPO: Should You Buy In?

After a long pause, it looks as though the market for initial public offerings (IPOs) may be heating up again. Even amid tariff uncertainty clouding the near-term picture, several private companies are now on track to go public.

One interesting prospective IPO is StubHub, which filed an S-1 registration form recently and plans to sell shares soon on the New York Stock Exchange under the stock ticker symbol STUB.

The debut of the world's preeminent secondary ticket offering site offers investors an interesting candidate for their portfolios. The story includes a founder returning to lead a company from which he had previously been fired (Steve Jobs, anyone?), 30% growth in each of the past two years, and a new growth opportunity that management is only beginning to cultivate. But is the price right?

Image source: Getty Images.

StubHub's history: Coming full circle

StubHub was co-founded by Stanford MBA student Eric Baker in 2000 with a vision of becoming the premier online secondary marketplace for tickets to live events, including sporting events, concerts, and theater productions. Prior to online marketplaces like StubHub, secondary market ticket-seekers had to go through ticket scalpers near the venue or look up a professional ticket broker. Those options, obviously, were plagued by fraud, usurious markups, and an overall lack of transparency that online marketplaces bring.

StubHub found some success and built itself into a well-recognized brand, but Baker soon clashed with his co-founder over business strategy. With his co-founder owning a little more stock than he did and the board siding with his co-founder, around 2004, Baker was actually fired from the company he founded.

After getting fired, Baker went to Europe and founded a competitor, called viagogo, in 2006, which is essentially an international version of StubHub, as StubHub hadn't really managed to penetrate Europe yet. Eventually, StubHub sold itself to eBay in January 2007 for $310 million. While Baker was still a shareholder and did pocket lots of money from the buyout, he also thought StubHub had sold out too soon.

Baker was soon proven right -- or at least, he proved himself right. In 2019, Baker's viagogo agreed to buy StubHub back from eBay for a whopping $4.05 billion. Today, StubHub hopes to hit the public markets at a significantly higher valuation than that, as I'll discuss soon.

While the acquisition technically closed in February 2020, the deal then had to go through the U.K.'s regulatory review, which took 18 months. Of course, this coincided with the COVID-19 pandemic, when both businesses were under extreme pressure. During that time, StubHub had to lay off a majority of its staff and abruptly changed its cancellation policy, offering customers 120% credits instead of cash refunds to hang onto whatever cash it had collected.

While that may not have been the most noble move, it did allow the company to survive the pandemic. StubHub was subsequently sued by more than 10 states and the Federal Trade Commission but eventually settled, along with some penalties, in May 2021. However, by that time, the COVID-19 vaccine had been developed, and there was a line of sight to live events happening once again.

The U.K. authorities finally approved the StubHub deal in September 2021, which required StubHub to sell off its own fledgling international business. Upon closing the merger, viaogogo completed its integration of StubHub one year later, in September 2022.

Financials show strong growth since the merger

That emphasis on the date of integration is essentially management's way of saying investors shouldn't judge the company by its 2021 or even 2022 results but rather 2023 onwards. That's when growth accelerated in a big way, with the "new" StubHub's revenue growing 31.9% in 2023 and then 29.5% in 2024. While the company is slightly loss-making, that's mainly due to interest on its debt, as operating profits and free cash flow are both positive.

Figures in millions. Data source: StubHub S-1.

As you can see, StubHub has achieved some impressive revenue growth over the past couple of years. While profits trended down in 2024, this was due to a big increase in sales and marketing expenses. The outsized growth of marketing expenses was attributed to "investments in new initiatives, such as diversifying online marketing channels, to grow revenue."

Some extra positives

Besides the impressive top-line growth seen over the past two years, another positive element to StubHub's business is that free cash flow tends to be higher than operating profits, thanks to StubHub's negative working capital business model. Basically, StubHub gets paid up front for tickets, then remits payment to the seller at a later date. The result is that its cash balance tends to be higher than other companies that need to buy inventory up front, and this cash can be thought of as a costless short-term loan that aids StubHub's growth.

Alternatively, another positive element is that the company intends to use the IPO proceeds to pay down at least part of its $2.39 billion in debt across two term loans, which carry 9.11% and 7.86% floating interest rates at the time of the filing. The debt pay-down would help de-risk the company, eliminate the big interest expense, and make StubHub significantly profitable almost instantly.

Finally, StubHub has just begun cultivating a direct issuance business, through which it actually partners with content rights holders to distribute tickets directly on its platform alongside its core secondary ticket market. This carries some risks but also opens up a much bigger growth opportunity.

StubHub just began selling direct-issuance tickets in the second half of 2024, accounting for $100 million of its $1.77 billion in sales last year. However, the potential new initiative could open up much more of the $132 billion direct-issuance market in addition to the existing $40 billion secondary ticketing market it now serves. Of note, StubHub had $8.7 billion in 2024 gross merchandise sales, or about 21% of the global secondary ticket market.

Risks and negatives to be aware of

While StubHub has some interesting things going for it, it's also got some risks. On the subject of the direct issuance initiative, while it could be a new growth vector for StubHub, it also carries some potential dangers. These come in the form of other companies in direct ticketing, such as Ticketmaster, which is owned by Live Nation, coming after the secondary market in a bigger way. In addition, there is also a risk that the proposition of direct issuance sales dilutes StubHub's brand in the secondary market while increasing regulatory risks.

Another risk is that the overall live event market may slow down. Remember, after the pandemic subsided and live events began again in late 2021, people were hungry to go out and have live experiences again. Moreover, 2023 and 2024 were blockbuster years in terms of ticket sales, with Taylor Swift's The Eras Tour especially bolstering results. The Eras Tour was a massive moneymaker and ran from March 2023 to December 2024.

When you combine the ending of The Eras Tour with an uncertain economy and recent plunging consumer confidence numbers, StubHub may find it difficult to replicate the growth of the past two years.

In a related risk, rumors are that StubHub is seeking to sell stock at a $16.5 billion valuation. That's about 9.3 times StubHub's 2024 sales and 120 times its 2024 operating profit. That valuation would be massively more expensive than public company peers. For instance, Vivid Seats, a lower-scale competitor in secondary ticketing, trades at just 0.8 times sales, and Ticketmaster's parent, Live Nation, trades at just 1.3 times sales.

Now, StubHub is growing much faster than these two companies, as Vivid only saw flat sales growth last quarter, and Live Nation actually saw a slight sales decline of 2.4%. Obviously, StubHub's 30% growth last year blows that out of the water, suggesting StubHub may be taking market share.

Still, that's an awfully premium valuation, even for that kind of growth. The asking price may keep this investor on the sidelines at IPO time. However, I'll certainly be watching this share-taking, founder-led company with interest going forward.