We’re reiterating a Danger Zone pick that recently reported calendar 3Q21 earnings. After missing both top and bottom line estimates, this business has still not recovered from the COVID-19 pressures and looks increasingly unlikely to achieve the high revenue and profit growth implied by its stock price. Eventbrite (EB: $21/share) is in the Danger Zone.
We leverage more reliable fundamental data, as proven in The Journal of Financial Economics[1] and shown to provide a new source of alpha, with qualitative research to highlight this firm whose stock presents poor risk/reward.
Eventbrite Has Downside Risk
We put Eventbrite in the Danger Zone in September 2018 right after its IPO. Since our original report, the stock has outperformed as a short vs. the S&P 500 by 97%. After more than tripling from its March 2020 lows, and now trading at its pre-pandemic levels, the stock carries as much risk as ever. Add in the fact that the recent Astroworld tragedy will likely slow the return to pre-COVID “normalcy” for events, and the stock looks even more expensive.
Figure 1: Danger Zone Performance: From Original Report Through 11/5/21
Sources: New Constructs, LLC and company filings.
What’s Working for the Business:
Given the unprecedented economic shutdowns that largely remained in place across the globe in 3Q20, it’s no surprise Eventbrite reported impressive year-over-year (YoY) revenue growth in 3Q21. Revenue jumped 144% YoY, which actually came in slightly below consensus estimates.
On a non-GAAP basis, Eventbrite’s adjusted EBITDA improved from $4 million in 3Q20 to $6 million in 3Q21. Investors should note Eventbrite’s adjusted EBITDA removes real costs of doing business, such as stock-based compensation and “other expense”, and is a poor representation of the firm’s true profits.
Going forward, Eventbrite expects fourth quarter paid ticket volume and revenue “will be higher than third quarter levels.” Consensus estimates for full year 2021 revenue growth is 75% YoY.
What’s Not Working for the Business
Below, we highlight some of the key challenges Eventbrite faces that make it unlikely to achieve the expectations baked into its stock price.
Stock Price Recovered Faster Than the Business.
Investing in Eventbrite as a “reopening play” ignores that the company has yet to return pre-pandemic levels across key metrics despite many economies reopening around the globe. Furthermore, the event industry is likely forever changed by COVID-19, with so many events going permanently virtual for ease of access and cost savings. Meanwhile, Eventbrite’s stock price has tripled from its March 2020 lows and trades near its pre-pandemic levels.
Despite impressive YoY growth, Eventbrite’s revenue over the trailing twelve months (TTM) remains 53% below 2019 revenue. Core Earnings, at -$79 million over the TTM, are worse now than in 2019, when they were a company best -$59 million.
In other words, Eventbrite was unprofitable, and losses were growing, before the pandemic. Now, a challenging post-pandemic event world (with differing local regulations and restrictions and lingering hesitancy from consumers) makes reversing its pre-pandemic downward trend in profits even more unlikely.
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Check out this week’s Danger Zone interview with Chuck Jaffe of Money Life.
This article originally published on November 8, 2021.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, sector, style, or theme.
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[1] Our research utilizes our Core Earnings, a more reliable measure of profits, proven by professors at Harvard Business School & MIT Sloan and featured in The Journal of Financial Economics.
[2] Includes cost of revenue, product development, sales, marketing, and support, and general and administrative.
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Disclosure: New Constructs
David Trainer, Kyle Guske II, Sam McBride, Matt Shuler, Alex Sword, and Andrew Gallagher receive no compensation to write about any specific stock, style, or theme.
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