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.
Click here to read the full article
—
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.
Follow us on Twitter, Facebook, LinkedIn, and StockTwits for real-time alerts on all our research.
[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.
Click here to download a PDF of this report.
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.
The information and opinions presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or solicitation of an offer to buy or sell securities or other financial instruments. New Constructs has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor and nothing in this report constitutes investment, legal, accounting or tax advice. This report includes general information that does not take into account your individual circumstance, financial situation or needs, nor does it represent a personal recommendation to you. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about any such investments or investment services.
Information and opinions presented in this report have been obtained or derived from sources believed by New Constructs to be reliable, but New Constructs makes no representation as to their accuracy, authority, usefulness, reliability, timeliness or completeness. New Constructs accepts no liability for loss arising from the use of the information presented in this report, and New Constructs makes no warranty as to results that may be obtained from the information presented in this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information and opinions contained in this report reflect a judgment at its original date of publication by New Constructs and are subject to change without notice. New Constructs may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and New Constructs is under no obligation to insure that such other reports are brought to the attention of any recipient of this report.
New Constructs’ reports are intended for distribution to its professional and institutional investor customers. Recipients who are not professionals or institutional investor customers of New Constructs should seek the advice of their independent financial advisor prior to making any investment decision or for any necessary explanation of its contents.
In-depth risk/reward analysis underpins our stock rating. Our stock rating methodology grades every stock according to what we believe are the 5 most important criteria for assessing the quality of a stock. Each grade reflects the balance of potential risk and reward of buying that stock. Our analysis results in the 5 ratings described below. Very Attractive and Attractive correspond to a “Buy” rating, Very Unattractive and Unattractive correspond to a “Sell” rating, while Neutral corresponds to a “Hold” rating.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from New Constructs and is being posted with its permission. The views expressed in this material are solely those of the author and/or New Constructs and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
