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

All right. Let's get started. Welcome, everybody, to the Eventbrite fireside chat. Before we start, I want to note the important disclosures, including my personal holdings disclosures and Morgan Stanley disclosures, all appear as a handout available in the registration area and on the Morgan Stanley public website. And with that, please welcome Julia Hartz, Co-Founder and Executive Officer of Eventbrite and Lanny Baker, Chief Financial Officer. Julia, Lanny, thanks for joining us.

Thanks for having us.

Julia, let's start with you. You announced some pretty meaningful changes to the organization last week. What do those changes say about your longer-term focus for the business and your strategic priorities?

Well, I think some of the changes we enumerated in our earnings call last week are really about creating efficiency in our core business and investing faster into the future. And our legacy core business has been the scaled mid-market creator ticketing platform that served last year, hundreds of thousands of creators hosting millions of events. And we've done a great job of not only rebuilding that from, I would say, ground zero of COVID, but also tailoring the product experience to meet the needs of frequent creators for about 30% of our creator base and they create -- they produce about 60% of our ticketing volume today of revenue. And the #1 job to be done by these valuable creators on Evenbrite's part is to help them gain greater exposure and to sell more tickets to their events. And I'll break down kind of what an event means on Eventbrite because I think it's important in terms of understanding the landscape. These event creators are oftentimes solo entrepreneurs, small business owners. They have small teams, not very large budgets to produce these events. They're producing events at least once a month for a community that they've already established, and they have found content or a format that really works. So yoga felstivals, salsa workshops, food and art and wine festivals. And they are looking to gain a greater number of people at that event because not only is it meaningful to them in terms of ticket sales, much more importantly, it's meaningful to the total revenue of their business, whether that's the food and beverage that they're selling at the event and merchandise the brand awareness, the lead gen. So if you think about our position in that, we have a unique advantage point to be able to help them gain a greater following as well as sell more tickets faster because Eventbrite is a scaled consumer destination. And so we're leaning much more into that evolution of Eventbrite as a 2-sided marketplace. And in order to do that, we needed to change the way we were structured. I mean I think anybody could attest to the fact that great businesses are constantly rethinking about how to get to their goal faster. And that was really the headline of what we announced in terms of our team restructuring as well as our focus for the future.

Great. You mentioned more of a focus on marketplace. And I think 2 of the products that you guys have developed to help push that have been Eventbrite ads and Boost products. You disclosed that those generated $1.7 million of revenue collectively in 4Q. What makes you confident in the opportunity for those products? And what does success look for you, look like for you over time?

So the core ticketing business is based on a transaction fee. We're paid about 8% of the face value of the ticket for the tickets that are sold on Eventbrite and historically, 3 events, which is 2/3 of the Volume 1 of Evenbrite have not been monetized at all. So the opportunity is that we step into this market by offering creators a way to actionably take advantage of the scale that we have to become better marketers of their events through Evenbrite Boost, which is a way for them to be posting paid social advertising and e-mail marketing and adjust a much more effective manner for 2 reasons. One is that we're the first party transaction platform. So they have a faster feedback loop. And two, they could use our aggregate consumer data to build look alike audiences. The second thing that they can do now is that they can sponsor a listing. They can buy ad space on Evenbrite to promote their events. And that's a unique capability that we haven't had before that firmly steps us into marketplace dynamics. When an event creator thinks about Eventbrite, they're typically thinking about Evenbrite for the ticketing capability and maybe reporting in some promotion. But now we're starting to really turn the table and put forth to them these products and features that they get very clear that they can now use Eventbrite to actually reach a wider audience and sell more tickets. And the reason why that is advantageous for the business is because they're paying that 8% take rate on the face value of the ticket, well, they're spending about 20% to 50% of the face value of the ticket on marketing. And prior to this launch of Evenbrite Boost and ads, they weren't spending that on Eventbrite. Now we've given them a really tight feedback loop to be testing different marketing tactics and really understanding the value of Evenbrite as a marketplace.

What kind of investment does it take to drive success with those products?

It's mostly product. And I'm really proud of how we've scaled our product and development teams, both in India and Spain and a lot of our restructuring was around consolidating and simplifying our development hubs in addition to the United States. The second thing is that it takes -- and the reason why it's probably is so important is that giving creators the signal beyond just the marketing message that you'll sell more tickets, actually putting in their hands tools that they can use to be a part of that equation and really drive their business is the most meaningful thing we can do to prove out this thesis and the value proposition. But the second thing we need to do is we need to really help consumers understand that Eventbrite is a place where you can go to find great things to do. And I'm sure if you looked in your phone today, you'd find a whole host of events that you've attended on Evenbrite that sort of make up your life, right? What you spend your time doing. But you don't think about Evenbrite as the first place to go when you want to rally a group of friends to go do something on a Thursday night. And I think that's an obvious opportunity for us. But the benefit is that we don't have to go out and just pour a bunch of money into consumer marketing. We actually can utilize the creators and how they're using Eventbrite boost, how they're adopting Eventbrite ads as well as natural benefits that we have through SEO to boost that consumer reach and really draw more consumers in. Where we're net new investing in the product is around search and discovery. And I think there's so many exciting things that we can use to scale efficiently and personalization, not least of it, which some of the latest discoveries in AGI helps somebody come to Eventbrite tell us exactly what they want to find, find it quickly and be able to buy tickets.

You mentioned highlighting these products to creators. How do you ads and boost change or evolve the way that you interact with creators.

Lanny, do you want to speak to that?

Well, I think first and foremost, we want to change the conversation to be you're coming to Eventbrite because you are listed on Evenbrite because this is the place where your confidence level about selling out that event, finding new attendees is highest. So I think the presence of these 2 products, as Julia said, they really are a very visceral way to show creators, we can help you market your event. And we have consumers on our property coming to Eventbrite not yet concluded on which New Year's Eve event they're going to attend, which business conference they're going to attend. And using Evenbrite to discover that kind of inventory and we can put your event in front of them on a sponsor basis, and you'll sell incremental tickets. So I think that the presence of these products is really important in changing the perception of from kind of that ticketing utility that Julia talked about to being a demand generation marketplace where it's kind of like I can't afford not to have my event listed on Eventbrite. And I think success for us will look like creators coming to us, first and foremost, for the consumer demand rather than coming for ticketing and then also buying consumer demand. And then recognizing that yes, I'm going to stay with Eventbrite because it is the place where I'm being introduced to new audiences and incremental growth. I think one of the things we're so excited about is that competitively, our audience reach across the life of [temp] attendant business is really unmatched in the middle market. We had 1 billion visits to our website last year, we had 90 million different consumers purchasing tickets for free and paid events. We had over 200 million searches where they didn't know the name of event they're searching a category or they're searching a locality. And those numbers are literally an order of magnitude larger than the competitor set, any one of the competitor set not to mention putting a bunch together, most of the competitors that we face are very category specific, and they've tailored their ticketing technology to that category. But that also means that their user base is everybody in that category, their knowledge of consumers is limited to that category. And yet most -- while creators tend to be kind of category-specific, consumers are really broad. And that's an advantage that I think we're -- it's like kind of the sleeping giant of Eventbrite is our audience reach that is exactly what we're trying to awaken.

We've been focusing mostly on helping creators sell more tickets post more events. Another growth opportunity for you guys is just growing the creator base, which is one of the more frequent questions I get from investors, which is sizing the TAM in terms of how many creators you guys can reach. How do you think about that internally?

Well, we've sized the ticket fee market globally at about $3.2 billion based on third-party research that we've done. And we have a level of confidence we can grow our creator count at a high single-digit, low double-digit rate year-over-year. And the way that we do that, is by not only solving their core ticketing needs but by being really the destination where they can find incremental audiences. That does a couple of things. One, it brings -- we can foster the growth of successful creators by introducing them to incremental audiences. As creators see other creators being successful on our platform, that helps us acquire them. as we become really instrumental partners in their relationship with their audiences, there's a stickiness kind of a CRM type stickiness. Like I got these customers on eventbrite, right, I'm going to go back to Eventbrite for them. So some of those things are key to driving that growth in the creator volume. We also know that there's a huge TAM opportunity for Eventbrite sitting right next door to, as Julia talked about, the ticketing, where we make our 8% on the face value of the ticket. There's another 20% to 40% plus of that face value that's going into marketing, which is a really exciting incremental revenue opportunity for us. So we'd like to say there's TAM within the tickets that we're already delivering. And then we have, for every one paid event ticket that we support on the platform, there are 2 free event tickets that are running through our platform. And often, I think people dismiss the free events as if there's nothing going on there, but that's not the case. These are maybe it's free to get in through the front door, and they want to make sure that you're 21 before you get in and take advantage of everything that's going on, food and beverage and merchandise, as Julia said. So there's an advertising and marketing imperative behind those free events that we're already seeing 25% of the customers adopting Eventbrite ads are creators of free events. And even amongst the paid event advertisers, we're drawing ad dollars that aren't just the ticket value. They're the value of the whole event. We have international opportunities that we really have not focused upon. As we hone this 2-sided marketplace model, we think our engine will be a lot more efficient to go look at international expansion. So as far as we see, we see TAM in a bunch of different directions.

The other really common question I get from investors is the one around competition. You guys have characterized your competitive environment as being highly fractured or fragmented. How has the competitive environment changed recently, if at all?

No, I think we've broadened our perspective on competition. And I think that the pressure has increased, and that makes us very excited. We look at beyond just the subscale ticketing platforms that are focused, as Lanny said, on categories or [geos] and kind of play in niche markets and just don't have the economics or the scale that we have and certainly can't provide the demand generation that we provide. We look at things like marketing tools with Event Bright Boost being something that we know creators want, we know they need that they're seeing success same-store sales a 63% increase for our creators who use Boost for their events versus not. We see there being a whole host of competitive pressures or threats in that. So we're looking to unseat whatever they've been using prior to marketing tools, whether it's a DIY approach or they're using some of their software. We also map our competitive landscape against things like distribution platforms and audience aggregators. We've been deeply integrated with platforms like Facebook for many, many years. Facebook was one of our first integration partners in 2008, and we actually see them as a great benefit to using Evenbrite. It's not -- we're not building a closed wall garden. We're building a place where distribution and destination can coexist because it benefits the event, right, and the event creator. And so we always are looking at how we can stay close to the big guys and continue to reap the reward while also understanding that competitive pressure. I'd say the newer one would be online event streaming that came into the market during COVID with a vengeance, and we saw it ourselves. We integrated with Zoom within probably a month or 6 weeks after COVID really starting to tamp down live event gathering. We integrated deeply with them eventually using their SDK to make it easier for event creators to post an online event using Evenbrite because effectively, we're at the front door. And we want to make it easy to any type of format, and we're pretty agnostic. We've seen that grew to be 90% of our business at the height of COVID and now has come down to single digits. And so -- but the competitive threat there is some categories, especially like business and professional and wellness, they took their businesses online. And so we're aware of the fact that some of those businesses may not come back to Eventbrite because they're actually using an integrated streaming partner. So I think competition is all around us. We are up for the challenge. We look at what we do as being primarily and historically creator centric, but I can't stress enough how much there is to do on the consumer side of our marketplace as well as just how much benefit we can reap from that.

Makes sense. I want to move from kind of talking more broadly and longer term to moving into the outlook that you guys provided for '23. You guided to $312 million to $330 million of revenue this year, growth of about 20% to 26%, I think. What elements of your revenue model do you see driving that growth this year?

Well, when you said short term, I'm impressed to you one for the year, not the quarter. But let's see. This is the first time we provided an annual outlook in 3 years. And I think there's some -- there's a little bit of a message behind that, which is things have stabilized a bit. I think we really had -- it was hard to look beyond 90 days for a period there in 2020 and in 2021. But some visibility has returned to the business. I think things have stabilized, and we've got product momentum, and we've made such progress on customer retention and acquisition that we feel good about providing that full year outlook. I would say that we talk often about -- and we think -- and we run our business against sort of 5 levers that drive our revenue. And really 4 of them that we influence. Those 5 levers are the number of creators on the platform, the frequency with which they're holding events, so events per creator, the attendance of those events. So tickets per event. And then the ticket price and then the take rate, you multiply those 5 like a DuPont formula and you get our revenue. The one that we don't have so much influence over is the ticket price that's set by the creator and they have great knowledge of what the right product market fit is with their audience. But the other 4 we really drive. And as we look at our growth this year, we'll have -- we raised prices for our platform on January 3 by what is effectively about 10% price change. That applies today to about 70% of our ticket volume. There's a 30% that's under longer-term contracts. And we'll see as that rolls off, how prices adjust. But you can think of that as feeding directly into the take rate. So that will be a big driver for us. One of the components as you think about getting to that 20% to 26% revenue growth rate, pricing is a large portion of that. With the investments we're making in the consumer experience, search and discovery, personalization we think we're going to achieve our sort of long-term goal, which is mid-single-digit growth in tickets per event and events per creator. And then as those things are playing out, the health of the market, the strength of our product is also going to give some growth and some lift in the greater number in our expectations. So one thing we like about our model is that there are multiple levers to pull relatively this year, 2023 compared to 2022. The take rate will be bigger. There's a price change. Also as the ad dollars grow, that feeds into the take rate. As the subscription dollars grow, that feeds into the take rate. So a little bit different growth profile this year than last year, but very consistent with the long-term targets that we've laid out.

The first factor that you mentioned was the price hike, which I'd like to dig into a little bit more. How should we think about just the timing of how that will come into numbers? When should we expect to see it really moving the needle? And over what time frame will we see it kind of run through the P&L?

Yes. Well, so the price increase went into effect -- we tested it a little bit in the fourth quarter in some smaller markets, but it went in effect kind of globally...

To call it an elegant price adjustment kind of [indiscernible].

Yes. Okay. It went into effect on January 3. And events that were on the calendar prior to January 3 are going to be continued to tick it under the prior pricing. And as I said a moment ago, we didn't adjust the long-term pricing in the middle of the pricing on the longer-term contracts and the middle of these contracts stays the same. So I think by the time we exit the first quarter, I would anticipate that probably 80% or 90% of the tickets that we're selling will be under the newly established pricing levels. And then it will climb up a little bit from there over the course of the year. And then we'll see what happens with those longer-term contracts. To Julia's point, I think as we thought about it, the investment that we've made in our product to really suit the needs of frequent creators has shown up in customer retention, customer success, Net Promoter Scores. And that made us feel, hey, we're delivering value, and we should have that conversation with the creators. We also wanted to signal that Eventbrite has been, frankly -- Evenbrite-driven tickets are growing faster than the non-Evenbrite-driven tickets over the last couple of years. And we want to use that moment to introduce the idea that, hey, we're -- as we drive more and more of the value in the marketplace, that's going to be priced for. And then there were some competitive things where we looked at what we were charging like on just some of the very basics within that pricing structure like processing credit cards, and we were a little bit off where the market was. So those are some of the factors we considered. I would say, just like as we look ahead, we're not -- I don't think we'll become a company that raises prices on some date every year. It will be this nice balance of what's going on competitively, how much are we adding value to the product. And in the longer term, being able to really drive that demand generation is a pricing opportunity that we think is the biggest one in the long term.

I want to make sure that we get back to the reorg. Before we get into the financial impact of that, why was now the right time?

Well, I would say it's never a great time to do any sort of restructuring. It's difficult in a company like Eventbrite with a culture that we've been known for and that we've worked really hard on. It takes a lot of cognitive sweat to have this go right. For instance, instead of sending a company-wide e-mail announcing that people would be losing their jobs, I did a live all hands and then we had every single employee notified live one-on-one or in a small group conversation within the first 8 hours. And that kind of heavy lift is what it takes to be a people-centric company. And so I obviously take pride in that even in difficult times. But when we look at where we're going, we could either restrain growth and add incrementally as we call the base of the core business, or we can make a much bigger change. I would say the signal of the much bigger change is in -- you can correlate it to the opportunity that we see ahead and how clearly we can see where we're going and the acceleration benefit of that. So this is what great businesses do. They constantly look at how they can be running more efficiently in order to invest some of those savings into the future, and we'll also see some of it drop to the bottom line. I think that's appropriate for a company like Eventbrite. But again, it's not an easy thing to do. I think it's easy to imagine it from this perspective. And certainly, as I see the shape of the business, it was easier said than done, but we've done a good job of bringing the company through it and we're going to be okay.

You mentioned it dropping to the bottom line. What you've said is that the midpoint of your guidance kind of underlines a path to 10%-ish adjusted EBITDA margin in '23 and then an exit rate in '24 of around the 20% adjusted EBITDA low. Can you elaborate on what that trajectory looks like for us? Is it just kind of gradual improvement over the next 8 quarters or ...

Yes. I think it will be fairly steady. We haven't given -- we've given you a full year target. And part of the reason that we gave a full year talk about in each 1 of the quarters this year is we've got a lot going on. As Julia mentioned, we're exiting 8% of our team in this first quarter. we are also moving 30% of our roles to new locations. And as much as we will endeavor to make it seamless that the roll stops on this day and the next day starts, and that's not going to happen. There's going to be some overlapping expenses as we set up those centers in the new locations. So I think the progression should be fairly steady throughout the year, but like there's a lot of execution in that, that we -- as soon as we get the teams in place, we'll make the moves to wind down other parts. So it will be fairly steady through this year. And then as we get into next year, I think you -- we'll be in a really good position to get the full benefits of everything we're doing this year. So it's probably the case that the things we're undertaking have more economic like to the bottom line impact that you're going to see this year, but that will start to show up next year of being in stabler environments where we believe there are deeper pools of the kind of talent that we need and lower cost as well.

You talked about hitting the 20% margin level at the Investor Day last year. And as part of that outlined kind of where you expected to see operating leverage in the business across the OpEx line? As we look to the exit rate next year and hitting that threshold, are the ingredients for achieving that similar to what you laid out last year at the Investor Day?

Very much, very much. And so that would be I think in the quarter we just reported, there was 300-plus basis points of leverage on the G&A line, and we'll continue to keep the general and administrative cost, fairly controlled and focus more where we are investing more, it will be on the things that go to market that meet the consumers and meet the creators and really deliver value and impact to them. So that will be product, as Julia said, first and foremost, backed by market.

What about on the gross margin side? You've talked to that reaching into the high 60s over time as ticket volumes and revenues ramp -- Any help in terms of thinking about the scale of revenue or paid tickets that you need to reach in order for it to get into that range?

Sure, sure. So the way to think about it, I think last quarter, we were at a 66% gross margin, and that was about 7 points better than the same quarter of 2019 on less revenue. So that speaks to how we've improved the take rate, how we've improved the cost of goods and the efficiency of our model. I think incremental revenues just in the core ticketing business have probably between a 70% and 75% incremental gross margin. So you can use those numbers to back into like how much more ticket volume you need, and it's not a whole lot more to get the margins from 66% up to the very high of 60% range, just on the core ticketing business. Now what's going to become more important over time, by the time we get later this year and into next year, is that those advertising dollars and subscription dollars, which you said were a little bit less than $2 million last quarter. As those grow, those have a very positive effect on gross margins because they have probably 20-point higher gross margins than the core ticketing business because within our 8% ticketing fee, we also pay a 2% credit card processing fee associated with the face value of the ticket. That's why I said it's about 75% as the incremental margin there. But the margin on the advertising side and on the subscription side is really great because there isn't that dynamic. And so the more the model blends to those being meaningful and larger revenue streams that will be buoyancy for the gross margins as well.

Great. Maybe to wrap, there's always been a decent amount of debate amongst investors at so either not to deduct stock-based comp. In '22, that came in for you guys around 20% of revenue. But in the years leading up to the pandemic, I think it was broadly in the 5 to 10-ish percent of revenue intensity range as we think out to see intensity kind of moderate back to those pre-pandemic levels? Or how should we think about I think it'll moderate back toward those.

Yes. I mean we've put in place cash bonus programs and shrunk the eligibility -- the sort of the breadth of participation in the equity programs. We think our equity is precious at these levels and want to make sure that we're using that judiciously with like the talent that has both the most interest in equity compensation, the most influence on the equity value of the company and where we really want to use the retentive benefits of that currency. And then we'll manage the size and shape of those activities. I think competitively, the market has eased off a little bit in terms of new sign on equity grants and the like. But we also look at the rate of dilution on the share count, and we'd like to get that number into a low to mid-single-digit annual kind of dilution rate over time.

Makes sense. I think we're out of time. Thank you both for joining us.

Thank you. Thank you, everyone.

Thank you, Cameron.