Eventbrite, Inc. (EB) Earnings Call Transcript & Summary

Good morning. Welcome, everyone. I'm Kate Claassen. I lead our Internet investment banking team at Morgan Stanley, and I'm delighted to host Julia Hartz this morning. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Julia Hartz is the Co-Founder and CEO of Eventbrite. She founded the company in 2006 with a vision of enabling creators. And over this last year of the COVID crisis in 2020, creators had more than 4.6 million events, and Eventbrite has continued to bring the world together. So thank you for taking the time to join us today, Julia. I want to start by congratulating you for surviving the storm that was 2020. I note that Eventbrite was founded just prior to the Great Recession. In 2008, the U.S. was also in economic turmoil a bit similar to what we face. Let's just set the stage with your vision and the foundation that has remained in place for Eventbrite.

Thanks, Kate. Thanks for having me and to the entire Morgan Stanley team. This is an exceptional virtual conference, and I know I'm up against a lot of really compelling companies. So for anyone who's watching live, thanks for being here. When Renaud and Kevin and I founded the company back in 2006, we founded it with the vision of bringing the world together more closely through live experiences because we knew as the proliferation of technology continued to grow, that live experiences would be at a great premium. And so our mission was to build a platform that would effectively democratize event creation. And I give you that history lesson only because it seems so, so relevant today as we're on the cusp of coming back to be able to gather in person again. And I think that when I peer back more than a decade ago and certainly, prior to the Great Recession, but also just a different era of company founding. Money wasn't falling from the trees. And you really needed to show traction and a path to growth and profitability in order to get funding. We really decided to take a different route from the one that Kevin had taken previously in his previous company, Xoom, X-O-O-M, and bootstrap the company. And so we were able to spend a few years really building a strong foundation and that foundation really rests on 4 pillars. So we focused on self-service, making it easy for anyone to be able to publish an event. We focused on ease of use. So not only because -- could you be able to use the service on your own, but getting started was just completely simple and straightforward. We focused on taking a more platform approach so that we could focus on our core customer, which is the event creator, and help them get what they needed to get done faster, easier, cheaper through a platform approach. And finally, we focused on breadth. So we didn't worry about just launching in one geo or one category. We knew that if we did this right, democratization of events could span every type of event and every geo. And I think that now in 2020 -- 2021, rather, these attributes are self-reinforcing. And because we founded the company with those attributes as well as during a time where we couldn't just pour money into the company, that discipline really has endured. And I think that when I think back to the Great Recession, we saw a huge amount of growth in entrepreneurial event creators, and we're seeing that exact same thing happen again in 2020, into this year in 2021.

So it's been about a year now without live events. And take me back a year. I would like to hear where you are sitting on March 4, 2020, how did you, as a leader, as a business, navigate this pandemic?

I bet everybody remembers their last trip or their last big event before COVID happened and upended our lives, and we are at the cusp of the 1-year anniversary for many of us. For me, our last trip was to visit our team in Mendoza, Argentina. Kevin and I and our girls who were -- had the week off from school traveled down there. And coming back, we noticed that some people on the plane were wearing masks and we thought, "Wow, this -- if this virus gets any closer, it's going to be pretty scary, right?" And none of us could have prepared ourselves for what happened about just 2 weeks later. And so yes, we are in the week that we started to really grapple with the crisis of COVID and the way it would impact gathering. About 2 weeks from now, we'll be at the point where freedom of assembly was taken away, I mean for good reason, but we never contemplated a global crisis this big. And I'll tell you that there is no tabletop exercise that could prepare you for the magnitude of this type of business interruption. Ours came fast and furious. We saw the beginnings of the COVID crisis impact our business globally. And within 2 weeks from that point, we were processing more refunds than revenue, which I had been warned about from Bob Mylod, who was one of the many, many people I called at the beginning of the crisis to seek advice. I think that as I reflect back on this almost year anniversary, I'm really grateful for the support that I had. I'd say that a good life lesson is to marry your Co-Founder because Kevin was right by my side, willing to drop everything he was working on to help dig in. I think about things like we share a Google Photos album, and they're all these photos of our trip. Then there are some mundane photos of life in the beginning of March, the school dropoff process, and then it's dark. It's completely empty until there's a couple of shots from the war room, which was our home office, and we had -- Kevin had set up these gaming monitors. So we had almost a 360 view of everything from COVID cases to our stats to whatever next mountain we were tackling. And yet we weren't alone. It was -- we were surrounded by our village, our Board, our team, some of whom hadn't even been at the company for that long. And we just -- we completely trenched in. We got focused on saving the company. And we were going from -- a year ago almost to the week, we were full speed ahead on what we needed to do to really pivot the strategy, shore up our cost bases, raise money to make sure that we could endure however long of a crisis this would be and then help our customers endure the biggest crisis that they've faced in their lives.

It's remarkable. And I know over 0.5 million people have been vaccinated on Eventbrite, and potentially, that will be all of our new normal. More broadly, what's the future of live events look like? How is it going to be different? And how is Eventbrite poised to address that?

Well, I think that the activity that we've seen on the platform through 2020 to today, including, but not limited to, vaccine appointment registrations, but also the volume, 4.6 million events on the platform in 2020, almost the same as in 2019, is because of Eventbrite's position in being ubiquitous with live experiences. We've built a platform that allows anybody to be able to create, whether it's in-person or online, events, and that flexibility allows our creators to be adaptable. And it's also a platform that people turn to when they need to be able to register people quickly and gather them quickly, and we've seen that certainly with the vaccinations use case. I think that the future of live events is going to be really a by-product of the marketplace. The demand is going to be voracious. The supply is going to not only meet that demand but also flex and adapt to what consumers want. We've been surprisingly -- or we've been consistently surprised by our creators' ingenuity and resilience as they've met the challenges of this time. So whether it's a 3-day music festival that had been completely transformed into a drive-in music series with Magic Beans in Colorado or it's a hard seltzer tasting event held on golf courses so that you could be cleverly social distanced or it's an art series with London Drawing Group that had pivoted their events to online, and since then, have all been able to quit their day jobs and be full-time event entrepreneurs. There's just -- we have a treasure trove of stories like this. And so as we start to see restrictions easing and people start to get back together, it's going to be at first very hyper-local. People are going to take their nuclear pod and they're going to expand a little bit and it's going to ease back in. I think that you'll see a proliferation of small local events happening at much, much greater volumes in 2021, really giving rise to larger events in 2022. And I'll give you sort of one more interesting data point that we're seeing on the platform, which is that for the creators who are hosting events on our platform, they're hosting about double the number of events on the platform than they were previous to COVID because they're doing smaller, more frequent events, whether that's online or it's safely in person. And we think that's going to be a trend that continues to persist as we get through 2021, which is going to kind of come in seasons, and I think slowly over time.

So as we look forward at 2021, you have refocused Eventbrite, refocused the business for strength going through this pandemic. And you've outlined 3 priorities: 1 self-service; 2, frequent creators; and 3, driving attendees to creator events. So let's go through each of those in turn. First of all, on self-service and within that, the Self Sign-On channel for creators has grown over half of feed ticket volume, which is a transition for the business. How do you think about that channel over time and the creation of a market for new events?

Well, I think that we have very thoughtfully refocused around frequent creators who are also the creators that are succeeding on the platform through COVID. We have focused on those frequent creators because they are a perfect match for our platform. Now anyone can use Eventbrite. That's the beauty of it. But in terms of who we're building for, we're focusing on these frequent creators who are hosting at least one event per month because we know that they need a home base to run their business, and Eventbrite is that perfect platform for them. We focus on 3 things for those creators. We focus on how easy it is to use the platform, so efficiency, getting time back. We focus on how big of an audience they can build through Eventbrite. So that has to do with the pushing and pulling mechanisms of consumer reach. And we have -- and we focus on how we can help them be smarter in everything they do. And that's really, for us, it's fundamentally content creation and thought leadership around things like pricing. And these are our 3 elements that matter a lot in building creator confidence. We want these creators to come back time and time again and to grow their businesses on Eventbrite. And so that's our long-range focus. In terms of how we can benefit these creators. We know that they're going to be rebuilding their businesses through this year and beyond, whether they decide to do both online and in-person events or whether they decide to go completely back to in-person events. I see 2 key areas of opportunity for us. One is that for the creators who want to continue hosting online events because they've found a bigger, broader, global audience on Eventbrite, they're going to need tools to continue to build those audiences, especially when there's competition for time, right, when we're not just all sitting at home in our sweats, dying to connect with people online. Second is that when they do bring their in-person events back, there's going to be a different mechanism around how they can price that event. When you think about the voracious appetite we have for getting out and the demand, I see an opportunity for Eventbrite to play a role to help our creators become more savvy in both how they can execute those events safely, but second and really importantly, how they're going to be pricing those events and building audience for those in-person events. And so our acquisition of ToneDen was really, I think, a timely move. This is a social marketing platform that fits really nicely into the strategy and is also a product that our creators love. About 85% of frequent creators tell us they want help building audience, and this is a perfect time for us to be able to help them and be that tailwind to their growth.

I know that this year, you attracted more than 330,000 new creators, which is really remarkable given the environment that we're in. Are these similar to prior creators? Do they look different? How does that reflect on your market opportunity?

We're seeing a greater share of creators coming in through our Self Sign-On channel as well as frequent creators retaining on the platform. So we're seeing 2 trends that are working in -- to benefit our long-term strategy. And it is remarkable that over 330,000 creators came to the platform for the first time. We also saw over 37 million new consumers on the platform as well. And if you're sort of at home, scratching your head saying, "How is this possible when we were all supposed to be staying isolated at home?", it's really driven by 2 things. It's driven by online events, which were up 20x year-over-year on our platform. And it's also driven by small in-person events in regions like Australia and New Zealand that were able to hold the virus at bay for longer and have more periods of sort of reopening than countries like the United States.

And we have a clarifying question in the queue here, but I'll pose it now, which is, can you talk about your free and paid mix that you had the same number of events, however, revenue was down?

Yes. So when we -- so for online events, the vast majority of online events are still free events. So free events were up a lot year-over-year. We are seeing creators who have been hosting online events for some time start to find that path to monetization, which is an exciting opportunity. We're not exactly sure how big it is, but we're keeping an eye on that and helping creators through our content understand what they can be pricing for their online events as they continue to host them. But by and large, there was a great growth of activity on the platform. And whether you're a free consumer or a paid consumer, you're still registering on Eventbrite, so you're creating that relationship. And if you opt-in to receive our event recommendations, that's a viral loop that we continue to build. So all told, yes, absolutely, we were affected and still continue to be affected on the revenue front. However, the activity and what that opens up for us in the future is something that I keep an eye on, and I think is indicative, again, of our place within live experiences and the ease of use of that platform.

You mentioned in your shareholder letter for the most recent quarter the new focus on engineering and product development as opposed to sales and marketing. And that in your new cost structure, those 2 have really swapped positions in terms of your investments. Can you talk about some of the enhancements you're making on the product side? You mentioned pricing, find a new creator or an existing creator or a consumer coming to Eventbrite? What will I see that's different? And what are your focus areas?

Well, when we had to make the very hard decisions to not only pivot our strategy but also reshape the company, there were a few elements that we knew, right off the bat, we would accelerate, and one of those was having a larger share of development within the company. And so while saying goodbye to 45% of our teammates back in early April 2020 was incredibly heartbreaking, it also, a, that move saved the company; and b, we were able to kind of reshape the company quickly to where we knew we wanted to be. And seeing that play out over the last year has been one of the most gratifying journeys of -- certainly of my tenure as CEO. And I think that as we look forward to what that means, it means that Eventbrite has become a stronger, more focused company that's product driven. And you can see that through our P&L and where we're investing in the future. So what that means for our customers is that over the last year, we haven't just been sitting on the sidelines or lying in wait for live events to return. We've been ripping and replacing parts of our infrastructure that were old. I mean we're a 15-year-old company, so there are things that need to get updated. And we took advantage of the -- this period of time to be able to do that. We have a lot of work to do on platform and really building stronger infrastructure, and we're focused on doing that. The second part is creating a more superior product experience, especially for frequent creators. So when you're doing something over and over again, any type of activity, whether it's publishing an event or promoting a series of events or being able to dig into our reporting to understand what's working and not working and how you're reaching and building audience and converting audience into attendees, there are actions within each of those that can be incredibly repetitive if you're doing it for more than just one event. And so we're focused on making that product experience just much more superior, easier, friction-free and more effective so that event creators can spend their time on creating the content that is really driving these live experiences. And the third thing is -- so there's platform, there's really the product experience for creators. The third thing is how easy it is as a consumer to find a great live experience. And that's something we know is going to be incredibly important for not only our creators, but everyone as we get out of our shelter in place and look to gather with other people live.

Can you tell us more about your ToneDen acquisition?

Sure. So ToneDen is a brilliant small team led by Tim Thimmaiah. They're based in Los Angeles. We have worked with them for over 2 years as partners. So they were in our ecosystem as a platform partner. And because we've seen ways that we can help our creators meaningfully drive audience for their business, we will continue to invest in that strategy. And this part of it is really teaching our creators how to fish. So with any budget, you can apply that towards social marketing. And the ToneDen team plus the Eventbrite platform and the data that we have creates these playbooks for creators, and it's all automated. So as a creator is onboarding to Eventbrite or setting up their event, they can choose to turn the ToneDen paid social marketing feature on and they can build an audience right there in the Eventbrite experience. And they can choose any budget that they have to put towards paid marketing, and their ROA is incredibly strong because this is this is what the ToneDen team has been building over several years and this is all we do. So putting the power of the platforms together has been -- has shown to be really helpful and additive for creators and we think will be an incredibly important part of the rebuilding strategy as you see live experiences come back.

Let's shift gears to financials, and this will also address one of the questions in the queue. So you mentioned the hard moves and pulling $100 million of cost out of the business. As a result, your cash burn's around $4 million a month as we sit through the rest of this pandemic, and you have $332 million of liquidity, so a very strong position. Can you give us high-level information about how the recovery is going to flow through your P&L?

Sure. So when you think about the streamlining we've done to the cost structure, this is a permanent shift. This wasn't just a temporary move to withstand the crisis. And that was really evident from day 1, that anything we were going to do, we were going to do to benefit the long-term viability and picture for the company. So as live events return, what you can read through that is just a stronger structure of profitability and a clearer path to growth and profitability. And I think that's really important to note because everybody kind of got through this crisis however best they could. One thing I'm very proud of for Eventbrite is how we within 1 month of being impacted by COVID had made these moves. So we're pretty battle tested at this point, and we'll continue to grow in this leaner manner, where we're focusing and investing on our product and able to really drive growth through efficient channels like Self Sign-On. And so that's something that I'm definitely looking forward to as live events return. It's not going to be easy. There will be challenges along the way, no doubt. It will be harder to rebuild than it was to tear down. But I think we have the wherewithal and we've been operating in this manner now for almost a year to really prove out that structure and to grow in this manner.

Let's talk about your creator community and the way you support them as well with advanced payouts. So you only incurred $2.4 million of chargebacks and refund losses versus an initial balance of more than $350 million about a year ago. So that's an incredible testament, I think, to the trust among your community of creators and attendees. What surprised you the most about the community? And we also have a question in the queue, when do you think you're going to be able to open that aperture more broadly to creators given how critical working capital is for the creators?

Yes. I mean I think that for us, observing the connection between creators and attendees through really the spring and summer of last year was something that surprised us, frankly. We knew that those community bonds were strong. I think we were heartened by the humanity of attendees saying, "I'll hang on to my ticket, I want to support you" or "I'm going to take credit for your next event" or "I'm going to donate the value of my ticket." I mean there really is a strong humanity element in this, and I think that drove some of what we're seeing as the net outcome here. I also think that we are seeing a -- the impact of our tickets being lower-cost tickets that maybe consumers aren't going to come back to redeem. And I think that for creators, by and large, what we saw was a vast, vast, vast majority wanting to do the right thing and showing up and refunding their attendees because, again, their reputation is incredibly important. This isn't a faceless promoter that's hosting these events. These are real humans that have connections with their communities and want to continue to either be successful in that community as a small business or want to support that small business, whether it's a small venue or it's an educator who's hosting workshops. So I think it's really a testament to the types of people that come together on Eventbrite. And I also think that working capital is really important to event creators because as they're selling tickets and building demand for their events, they are putting out deposits for a venue, they're putting out deposits for vendors. Now that hasn't been as much of a need during this crisis, frankly, because online events are much more simple and almost rudimentary in the setup and much more cost-efficient. So it's just been the sort of blessing all around for creators. But as we see live events -- live in-person events return and as we see the creators who are hosting frequent events and are selling tickets with a clear plan for whether or not they need to postpone or cancel that event and as we see creators with the capital to really be able to withstand any type of business disruption, we're looking at how we can bring our advanced payouts program back. And we plan to absolutely do that. I think we're one of the strongest companies in that regard, given the data we have, the relationship we have with our customers and our ability to really withstand the -- frankly, the unthinkable.

And I have a couple of questions in the queue about Self Sign-On before my final question. The first is, can you tell us long term how you think about the mix between sales and Self Sign-On? And the second related is, it's LTV to CAC is -- in Self Sign-On is 30x, as you've talked about it in the past. Why is the #1 focus functionality for creators versus acquiring new creators as you come out of COVID?

Cool. Thanks for the questions, by the way. So I see the long-term mix of Self Sign-On to sales at about 70% to 30%. And Self Sign-On being a faster growing, higher-margin business, but sales being a very important channel for us to be precise in which kinds of creators we're bringing on to the platform. And I'll just mention that our sales strategy going forward is to find creators who will successfully self-serve on our platform. We will put some really good time and energy into onboarding them and their team. And we believe that the right kinds of creators are going to be able to be successful on Eventbrite without a dedicated back-office management -- account management program. So that's the bet that we're making for the future, and that's why we're focused on product functionality. This is a way for us to really double down on the retention of creators and their ability to succeed on the platform and keep coming back and build their business on the platform. The second thing I'll say about acquisition is that while it's incredibly important, I mean we acquired 330,000 new creators just in this past year alone, we have a really strong muscle of bringing creators in through word of mouth, SEO and paid marketing, and we'll continue to lean into that. I think that where we are unique is in the ability to drive growth through things like content creation and SEO. I mean if you Google right now online events, Eventbrite will be organically very, very high up, and that's years and years and years of compounding efforts. So acquisition is certainly a part of the puzzle where we see a big opportunity is in retention, and that's where it comes back to the product experience.

Clarifying question, is that 70-30 mix by tickets or revenue?

Both.

Great. Okay. My final question, everything is in place and you're ready to support your creators as soon as it's safe for us all to spring back into hosting live events. What do we have to look forward to once we can all get off of the Zoom and get out of our homes?

Well, for those of you who watch the Golden Globes, I feel like it was a 3-hour PSA for why live experiences cannot be replaced. Gathering together and the energy around that live gathering is critical. I think that never, never underestimate the feeling that people have of deserving something. When you look at -- I've been reading a lot of books around the Roaring Twenties lately. And you look at that voracious appetite to be out into -- and where hedonism comes from, it's really about that feeling that I've been held back or something has been taken away. And now it's back, and I'm going to take full advantage of it. I think that we'll see just a great surge of live experiences in the next 18 to 24 months. I think that we'll see people appreciate the value of being around other humans and the energy that, that really creates. I think we'll see creators as entrepreneurs show up to host these experiences, whether it be more intimate local experiences as we start to get out again or, over time, larger scale gatherings and I think we'll see a new environment for live gathering. No doubt innovation will prevail. We've already seen multiple different formats be born from this time, and I expect that to continue. And I think that we'll be better for this time that we've had to spend socially isolated. But I think that we've proven time and time again that humans need to connect. It's part of how we survive. And we're really looking forward to being the sort of fast follow to creators who are rebuilding this live experience economy and doing everything we can to create a product that supports their efforts and ultimately allows them to succeed.

I think I speak for all of us here, I can't wait for that day to come. So with that, thank you very much, Julia. It was great to see you.

Thank you, Kate. Take care.