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Events Britt Company (NYSE:EB) stock is rated Buy. In my previous launch article on April 12, 2023, I assessed EB’s financial outlook for fiscal 2023.
This latest update focuses on potential re-rating catalysts For Eventbrite. If Eventbrite aggressively repurchases its own undervalued stock and beats market expectations with first-quarter EBITDA, the company’s stock will perform well going forward (expected around May 3). Therefore, given the presence of positive catalysts, I give Eventbrite a Buy rating.
New share buyback program is the right capital allocation move
Last month, Eventbrite announced the launch of a new stock buyback program.
I am positive about EB’s new share buyback plan for three reasons.
this first reason Is the company’s new buyback plan significant? US$100 million, equivalent to about 18% of Eventbrite’s current market value.
In other words, assuming EB completes its entire $100 million stock repurchase program over the next year, its potential annualized buyback yield could be as high as 18%. Even if it takes Eventbrite two years to execute its entire $100 million stock buyback program, that would still translate into a pretty decent buyback yield of 9%.
this second reason It’s worth noting that the timing of the new share buyback program sends a strong signal about management’s view of EB’s valuation.
From early March 2024 to mid-April of this year, Eventbrite stock has been trading below 1x the next 12-month consensus on enterprise value to revenue or EV to sales. The current market consensus valuation of EB is a 12-month EV to sales multiple of 0.74x (Source: S&P Capital IQ), not far from the historical low of 0.65 times the three-year electric vehicle sales valuation. It stands to reason that EB management has realized that the company’s stock price is undervalued and launched a new buyback program.
this The third reason Eventbrite retains a lot of flexibility in allocating excess capital.
Unlike other companies that often choose to set a fixed schedule for their stock buyback programs, EB’s new $100 million stock buyback program has no expiration date. This means that Eventbrite could suspend share repurchases if its stock price recovers significantly in a short period of time, or if other compelling accretive growth opportunities arise to allocate capital.
All that said, I think Eventbrite made the right decision last month when it announced a massive stock buyback program.
Potential growth in first-quarter EBITDA could be a catalyst for re-rating
EB is expected to reveal the company’s financial performance for the first quarter of 2024 on May 3 this year.
In late February 2024, Eventbrite announced guidance for revenue of US$8.4-87 million in the first quarter of this year, as well as a target of “low to mid-teens” EBITDA margin for the full year of 2024. Wall Street analysts’ consensus forecasts for EB’s first-quarter 2024 revenue and EBITDA margin are $85 million and 11.6%, respectively. S&P Capital IQ data.
The company said in early March 2024 that Morgan Stanley (MS) Technology, Media and Telecommunications Conference “Ticket volume declined more than we expected” in the latest quarter. This explains why EB’s Q1 2024 revenue guidance implies that year-over-year revenue expansion will slow from +22.7% in Q4 2023 to +9.8% in Q1 2024 (the guidance midpoint).
But I think Eventbrite’s actual EBITDA margins in Q1 2024 may be surprising. B’s full-year fiscal 2024 EBITDA margin cap is in the mid- to mid-percentage range, while sell-side consensus forecasts for Q1 EBITDA margin are in the mid-to-mid-percentage range.
Specifically, I believe a larger-than-expected increase in non-ticketing revenue contributions could allow EB to report higher-than-expected EBITDA and EBITDA margins in the first quarter of this year.
In an earlier fiscal 2023 earnings briefing on February 27, 2024, Eventbrite revealed that “high-margin non-ticketing revenue from organizer fees and advertising” as a percentage of its total revenue increased from 2% in the fourth quarter of 2022 It rose sharply to 10% more than the growth in the fourth quarter of last year.
There are two key factors to consider when forecasting EB’s non-ticketing revenue and operating profitability for the first quarter of 2024.
The first factor is that Eventbrite starts charging organizer fees in the last quarter of 2023, so the company’s first-quarter 2024 financials will benefit from favorable year-over-year comparisons.
The second factor is that the company’s advertising services under the Eventbrite Ads brand have shown positive revenue growth momentum. As disclosed at a Morgan Stanley investor event in March this year, EB’s advertising business revenue grew strongly by 30% sequentially in the fourth quarter of 2023.
My view is that assuming Eventbrite’s Q1 2024 EBITDA is better than expected, the company’s stock price could be re-rated early next month. This may be due to higher-than-expected revenue contribution from the relatively higher-margin non-ticketing business.
Variation view
There are risk factors that may adversely affect EB’s future stock price performance.
One risk factor to be aware of is misallocation of capital. If Eventbrite aggressively buys back its own stock when the stock price is overvalued, or acquires mediocre businesses at high valuations, this behavior will damage shareholder value.
Another risk factor is Eventbrite’s first-quarter 2024 results and fiscal 2024 guidance disappointing the market. EB’s actual financial performance in the first quarter of 2024 may be worse than expected.
Additionally, Eventbrite may lower its existing full-year fiscal 2024 EBITDA margin guidance in the future. One of the potential drivers of lower-than-expected results and guidance was EB’s failure to significantly increase revenue from non-ticketing operations.
final thoughts
Currently, the market values Eventbrite at a consensus fiscal 2025 EV/EBITDA ratio of 4.2x. S&P Capital IQ data. Eventbrite, Inc. stock should be able to command higher EV/EBITDA multiples over time given the value creation leverage it possesses.
A key valuation-creating lever is engaging in accretive capital allocation initiatives, such as aggressively repurchasing undervalued shares. Another key valuation-creating lever is improving the company’s revenue mix by increasing revenue generated from non-ticketing businesses.
