EventBrite had a sparkling (pun intended!) IPO debut this week. They sold over $230M of stock and their fully diluted valuation now hovers around $3.4 Billion. Their S1 filing with the SEC provides a treasure trove of information that is very interesting to registration companies like RunSignUp. This will have implications that will impact the race registration business. Here are our thoughts on EventBrite, the valuation implications for race registration companies and the likely fallout that will occur.
EventBrite S1 Observations
EventBrite’s 2017 results are impressive given their growth rate of about 50%:
Their 71 Million paid tickets (they also had 130 Million free tickets) are about 14 times the 5 Million RunSignUp expects in 2018. They have higher per ticket revenue and gross profit.
Their valuation seems very aggressive in a couple of ways. They seem to be getting a multiple of about 11X on top line Net Revenue, and 19 times Gross Profit based on 2018 estimates of 50-60% growth. EventBrite seems to have shifted way beyond the valuation metrics of recent acquisitions in this space like Active and Ticketfly. Previous acquisitions were in the 4-5X Gross Profit number, although for companies that were smaller and did not have this level of growth. On the other hand, perhaps half of their growth is coming from acquisitions. And the prospect of getting to a reasonable Price/Earnings traditional valuation model seems a very long way into the future.
They are getting this great valuation for many reasons:
- Scalable business model in a market they say is 3-4 Billion tickets per year.
- Tier 1 investors like Sequoia and Tiger.
- Scale of Revenue – $300M in 2018
- Scale of Growth – 50-60%
- Relatively low churn, and low cost of sales with a self-serve model.
- The overall market is a bit “frothy”
- There is pent up investor demand for IPO’s, especially ones with recurring revenue models
Another attractive aspect of their business to investors is the fact they can finance a lot of their growth with their customer’s cash. As of December 31, 2017 they had $258M in cash and owed events $277M. This is fine for a large public company, but as we have seen with Race Partner, can really backfire with smaller companies with unsophisticated management and investors.
Endurance is a 60 Million ticket opportunity in their current addressable market of 1.1 Billion tickets and 4.6 Billion total addressable market:
This explains their refocusing away from endurance a couple of years ago to place more emphasis on music and festivals. For a company seeking 50% growth, the endurance market represents too small of a market (1%) to actively pursue. There are also a lot of special needs in the endurance market that tickets do not need. Their strategy with Tickeyfly was to migrate users to the EventBrite platform ASAP, so they seem smart enough to not pursue maintaining multiple platforms.
Implications for the Race Registration Market
Well, the first thing to state is that RunSignUp is not worth $150M+. Just because we are about 5% of the size of EventBrite does not make us worth 5% of their $3.4B valuation. Also, RunSignUp is a different kind of company that is built for staying private and focused on building great technology, making customers happy, and sharing profits with employees on a long term basis. We feel marching to a quarterly beat and having investors look over our back is not what we want to wake up to and come into work each day for.
However, I am sure there are plenty of registration company owners and investors who have some stars in their eyes. While it is true that a big part of valuation is “comparables”, the fact is that the registration vendors lack a number of things EventBrite has:
- Small, declining market
- Heavy technology requirements that are specific to endurance
- Lack of critical mass and scale
- Lack of self serve and automation in many cases
- Lack of Tier 1 investor backing
While race registration companies will not receive that valuation multiples, it is likely several may be able to raise rounds of funding that will serve to increase their development, marketing and sales efforts. These are likely to be the few companies that are after RunSignUp in the Registration Market Analysis report. This is good for the industry as it is likely to bring increased competition resulting in better products and lower pricing.
We also expect this to trigger some mergers and acquisitions – increasing the pace of consolidation that has been happening the past couple of years with companies like RaceIt and Race Partner going out of business, and consolidations happening like the one between GetMeRegistered and RaceWire. The main reason for these mergers to happen will be to get to scale where valuation metrics are better.
We expect smaller vendors to have a tough time given the increased scale and competitiveness in the market. They will also likely find larger vendors interested in doing an acquisition. RunSignUp will continue to be interested in doing acquisitions that make sense for both parties and help customers. Our transition to an S Corp and being employee owned will be positive for some vendors looking for more of a home than an exit, although with our new $150M valuation we have plenty of leverage to do those as well 🙂