Vivid Seats Inc. (SEAT) Earnings Call Transcript & Summary

All right. I think we're going to go ahead and get started. Stephen Ju with the Credit Suisse Internet Equity Research Team. Joining me on stage is Stan Chia, CEO of Vivid Seats. So welcome back.

Hi, Stephen.

It's been a whole year. Yes.

Yes. It's been a year. Thanks for having me again.

Yes. Awesome. So I guess, just to kind of kick it off for those listening and in the audience, who might not -- who might be a little bit newer to the story, could you provide a brief overview of the business? And I think you just recently went public and hit the 1-year milestone, the Company has been around for quite some time since 2001, right? So why is now an interesting time in the Company's life cycle?

Yes. Great. We are a really interesting story. We've been now public for just over a year. We hit the public markets October of last year. Since then, we've posted 6 record quarters. So I think we're one of those few stories that I think is in the tech marketplace space that has continued to demonstrate both scale, growth and profitability. We continue to look at the environment. We joke about, we talk about. There's a lot of excitement around events. And while certainly consumer discretionary, as a category, behaving a little bit different than most, right? I think Taylor Swift and maybe some of the excitement around that. I don't think you get that excitement around like the newest dishwasher model, right? So I think you've got consumer discretionary behaving a little bit differently than our category that continues to shine through, I think, in our results. And when you look at the space, right? So we're a marketplace business, connecting buyers and sellers. You look at the industry, we still look back at 2019 as probably the best barometer of kind of full industry size, an $11 billion industry, where in '19, we were [ 2.3 ] out of that. And our investments since then, have continued to be focused on product and platform enhancements that drive real value to our users across both the buy side and the sell side. And I think we sit in a great spot, kind of as you asked, like why is this exciting time for us. I think we're really excited because our investments have been in driving long-term stickiness to the platform through product enhancements. And we sit here as the only people in the space with a loyalty program that is both economic and experiential. Within our platform, we now have a real money daily fantasy product that allows lots of engagement for users in between transactions in a low frequency category. On the sell side of the marketplace, we have the #1 ERP for the seller community in our SkyBox platform. with over 55% of professional sellers on that platform now. And then I think beyond that, we have a distribution platform that continues to allow leverage on our technology and investments that most recently, we announced Power and Capital One Entertainment. So across that space, I think we sit in a spot of really strong product and platform investments that we believe will yield us lots of fruit over the long term.

Now one of the things that investors have raised is that the market is fairly saturated with high online penetration, right? So there isn't as much of that white space share gain potential, and then there's a few scale players that exist out there. So can you provide, I guess, a brief overview on the competitive landscape today? And what is your differentiation and value proposition, you touched on this a little bit with the loyalty program, but if you can expand on that a little bit?

Yes. Sure. Look, I think the best -- I'll start again from 2019 and an $11 billion North American industry TAM, if you think about that. StubHub at the time part of eBay, disclosed they were $4.5 billion of the $11 billion. We were [ 2.3 ]. And I think Ticketmaster doesn't necessarily disclose exactly what their secondary is, through SkyBox, we can triangulate to a certain extent, we thought they were about [ 2 ], right? So $9.5 billion sitting within the top 3 scale players profitable. Of those 3, we were the only ones growing everybody else at subscale, losing money, trying to figure out if there was a niche they could perhaps gravitate and hold on to. And you fast forward to where we are here, this year, we're guiding to over $3 billion in GOV this year. So I think commensurately, you can look at everybody else and kind of roughly figure out, where they are and where that's come over, but certainly some nice gains. And I think most importantly, when you think about what and how we have achieved those gains, I think there were certainly some economic benefits to the pent-up demand coming back and people really excited about all of that. But I point back to you when you look at every single competitor out there, you name it Ticketmaster, StubHub, SeatGeek, any of these, it is a transactional business that they have built, where a user buys a ticket from them. And there is no other reason for them to go back other than perhaps they like what the brand itself is if that brand message has [ seeped in ]. But there really is no mechanism to bring you back in or really encourage you to come back. That's where our differentiation, I think, has been in over the past 3 years, investing in things that give you really strong financial and experiential reasons to come back whether it's our rewards program with the Buy 10 Get 1 Free program. Our cost structure allows us to give already competitive pricing out of the gate. And once you have currency with us, why would you buy a subsequent transaction anywhere else. DraftKings, which invested in us also provides loyalty perks now as you continue to gain loyalty tiers, you get free DraftKings dollars. And then beyond that, for our loyalty members, we provide experiential benefits like access to parties with exclusive performances and experiences, and we also selectively upgrade your ticket, so you have a better experience. All of those tied to, I'd say, keeping you in the ticketing space, where everybody else sells one ticket, and that's it. Beyond that, I think we've noticed, hey, this is a low frequency category. So beyond just, hey, how do we get you to come back for the next ticket transaction. The question for us is always how do we keep you within our ecosystem? How do we keep it? How [ do we ] keep ourselves top of mind with you, but also, while we're keeping you top of mind, well, where we're keeping ourselves top of mind, can we then learn more about the user? Can we then keep you in the system and perhaps accelerate that next transaction with us when you enter our Vivid Picks product. So Vivid Picks, as you look at that, is a real money daily fantasy product every single one of those transactions happens where you pick and you tell us your preferences in terms of players and teams because it's a real money product, we also know exactly where you are. So Stephen, who is in New York and is playing games with Aaron Judge, as long as Aaron Judge is Yankee, we then know, for example, hey, he probably likes the Yankees. Not only can we surface you that ticket that you are now playing a game, you can surface that to your friends. There are social components of that. We learn more about that. We learn. Do you just like Aaron Judge? Do you like the Yankees? We know that. So again, there's an ability to keep you in the ecosystem, keep you engaged, continue to add value to you. And by the way, even though we describe a lot of that, and we see that internally as a very large engagement and marketing channel, it is also monetizable, right? So over the long term, we expect that, that beyond being just an engagement platform that drives call it, flywheel benefits to our ticketing product, we can monetize that actual engagement channel, too. And I think we get excited about all those prospects.

So there, I say that this could potentially be a negative cost customer retention vehicle.

I think that is certainly the hope as we get that to scale, that could absolutely be that.

Now a bit more on the industry before we move on to other topics. I guess what is your long-term outlook on the mix of secondary versus primary ticketing? And should we anticipate secondary to gain share?

Yes. I think if you look historically at a bunch of reports, and I think secondary has always slightly outpaced primary growth, I think one of the old studies. So I think the primary business over the past 5 years, not counting COVID probably has about just under 5% CAGR; and secondary is always somewhere in between the 7% to 10% range. So I think historically, that's always been true that secondary has continued to outpace. And I think you've got a bunch of different things driving that. One is just more adoption and more acceptance of secondaries of vehicle. The second part of that, I think, is much more aligned to consumer purchasing patterns. And as you think about primary and what used to exist largely in -- you can think about it as sports and season tickets or you think about it as concerts and buying way ahead of time, primary tickets and the timing between when you buy is so lengthy to the actual event. I don't even know what I'm doing next Friday. And when you buy season tickets for baseball, you're buying 81 home games. Can you really commit to 81 games? If you're buying for Taylor Swift [ or ] maybe the Swifties are a little bit different, but you really know for a fact what you're doing in June of next year. So I think the secondary in general allows that flexibility, which is in line with demand consumption of buying closer to the event being there. So we continue to see, I think, acceptance and adoption of the secondary along those dimensions, which drive some of that outpaced growth.

Now I can't let you walk out of here without asking you the macro question, and this is foremost in investors' minds, aside from the World Cup playing outside. So what does the world look like next year? And what are you seeing or anticipating in terms of the strength of the consumer and the willingness to spend on live events, you touched on the Swifties. But we understand that there's a robust concert calendar for next year, but what are the puts and takes here?

Yes. I think -- look, it's certainly a somewhat 10 years' time, right, as we look at all the things, the backdrop of lots and lots of inflation, potential recession, all of those, I think we're certainly not going to be immune from that. But as we've described, I think our industry and our business, in particular, has been reasonably resilient, I think, is the right way to put it, almost as we talked about earlier, and you can use a lot of different examples. This is a category, where folks appear to see it more as [ filmos ] than a one-off transactional purchase, whether it is -- we're headquartered in Chicago. And I guarantee you if the bears make the Super Bowl, it doesn't matter. Bears' fans are going to go to that game. And so whether it's that Elton John on his farewell tour, Metallica announcing yesterday, this tour of their stretching into 2024, where they're playing 2 shows per stop, and actually, each night is going to be a different show. I think all of these elements of live events tend to be more [ filmos ]. And so we've certainly seen resilience versus what I would say our other consumer businesses more directly showing a near-term impact to the macroeconomic environment.

Okay. Speaking of music and the tour calendar, we've all seen the headlines about Taylor Swift and her tour next year. So do these mega tours really substantially move the needle for GOV for Vivid?

I always go [ back then ], I probably incorrectly over embellished that here, even in our early conversation, there's a lot of -- there's a lot of commentary and PR around the top events. I think the reality of our business is that we are quite diversified amongst them. And so when you look at, I think, for '22 to-date, all of the top tours collectively, they represent less than 1% of our GOV. So while that is going to be a fantastic tour and has certainly lots and lots of demand in terms of our over dependency or connection to just one tour, I think we're diversified enough that it's not going to be that big.

Now let's switch gears a little bit to the product and what you're doing. So I think last year, you did a strategic brand update with an updated Web 2.0 and app version 3.0 experiences and the new loyalty program, which you just called out and the new brand strategy. So can you unpack each of these updates and how it has impacted your retention, repeat rates, et cetera, versus the [ act ] that you probably -- as you said earlier, just going out there and yelling on paid media to get that one transaction.

Yes. I think we are [indiscernible] we're just super stoked about everything that we've built because our focus on the platform has really been building product that drives long-term value, that allows consumers to be sticky with the product. When you look at the things that we've done and what we talked about in our last earnings call, I think the strongest testament to a loyalty program and whether it's working or not is when you go back and you say, why did you do it? Well, we did it because we wanted people to come to us more frequently and directly and largely because our repeat users are 10x more profitable than our new users, right? And for us, even when you look at the platform, our new user acquisition is still [ first ] transaction profitable. So for us, it's looking at how do we continue to drive that acquisition strategy and then accelerate the repeat behavior that has goodness into the rest of our business. The #1 metric that we've talked about publicly when we look about at the success of that is, what do repeat rates look like? And as we started that endeavor early, we talked about NHL, NBA, right? If you remember a year ago, when I was here talking about, hey, early signs our repeat rates are up in that category. Then we progress to the baseball season, and we said, "Hey, wow, look, baseball season repeat rates are up too, for that. Now that we've had over a year of that, and actually, we're beyond, I would say 2021 was a year to where all that pent-up demand came out. We're at a point now, where we can say our repeat rates are higher than they were pre-COVID. They are higher than they were in the prime period, where pent-up demand was being released. And so we feel really good that what we've built in has driven a really sticky and more frequent user experience. And that's through all of the benefits that we've done on the financial and experiential side. And when you look at the core tech and the user experience, clearly biased, but I think our team has done a really nice job building an experience that allows relevancy, right, both across when we acquire a user, making sure that we meet users, where they want to be met, whether that's on the performance side or we lend you on web, whether we bring you into app, as we bring you into app, then using all of the signals that you tell us with preference, whether that's browse data, whether that's what you tell us [ explicit view ] that you like, whether that's us working with you and looking at what's in your Spotify library, whether those are the games that you play on Vivid Picks. We learned so much about the user and then surface that to you in a very relevant way in our CRM and in our apps that I think have driven this behavior. So we're sitting here a year later, and we're really proud of, I think, the results that the investments have yielded.

And also at the beginning of the year, I think you talked about -- I think you had earmarked about $24 million for -- of incremental brand in sports gaming investment. So I think looking back in the year and you touched on this a little bit, did you track ahead or below these expectations, especially as the bottom end of EBITDA, right, was -- guidance range was maintained, while the GOV and the revenue expectations exceeded estimates, right?

Yes. I think -- I think is exactly right. I think when we looked at 4Q last year, we said we would spend about $20 million on brand and $4 million on our Vivid Picks investments. And when you look at the leverage and where we've kept that in line, I think we've largely seen, I think, the increase in our -- we'll call it, profitability pressure come in the form of competitive marketing, right? I think we've talked about that, and I think that's certainly true. As we've seen competition in this space as one that continues to be resilient. I think our competitors look to make sure that they are relevant in the space and product investments take a long time, right? As we've been up here talking years about the things that we've done. And I think the way you can compete in the near term if you haven't been thinking about that, is to exert pressure on both the marketing front and potentially the price front. And certainly, we've seen that, which I think has rippled through more in terms of to our EBITDA line and certainly, where we've held our guidance, it's from competitive pressure versus any sort of overspender not hitting the mark on our brand or picks investment.

Keeping on topic with the marketing angle, I think last quarter, you mentioned leaning into -- towards influencer marketing to target the younger audience. And at the time of the -- you were going public, I believe you disclosed that 10% of your buyer base was 18 years to 24 years old, right, which was the second smaller subset. So is there an effort to increase this demographically your presence within this demographic and what is the rationale?

I don't know if it's so much an increase in presence in the demographic, but I think our view has always been, I want to make sure we are appealing and relevant to that demographic, so that as they age into the next demographic with purchasing power that they are aware of who we are and are using us. So I think as we've continued, call it, our investments into now diversified marketing channels, where we had largely been performance-oriented that. We certainly stood up a lot of our social channels, everything from our own [indiscernible] channel, looking at influencers, working through NILs and college athletes. So I think we've certainly moved to make sure that, again, as we continue to invest in our product offerings that our marketing capabilities across channels and demographics is in line with that. And like I said, I don't think it's about growing that segment as much as it is making sure we hit them, so that as they age into a different segment with potentially more purchasing power that we are front and center for them as well.

And staying on the brand campaign angle, how should we be thinking about sort of incremental potential for brand advertising dollars heading into next year? Do you feel like you want to lean in there a little bit? Or do you feel like you've built up enough of a presence on the top of funnel and seeing unit economics sort of improve to harvest?

Yes. I think we're continuing to learn, right? I go back to a year ago, we were here talking about, look, we're beginning this journey into some of the more brand channels in the space, and it's a low frequency category. So we've got to figure out what works. We started with some of the mass media buying, right, like testing TV, testing some of these channels. And certainly, I think from our appetite being a little bit more disciplined in how we do it, no one's watching a TV ad and saying, I'm going to buy a ticket right now. So I think that long-term view on that channel and the amount of dollars, we thought there was a better way to drive brand dollars. Conversely, we've certainly seen a lot of subscale competitors buying media, which to us is a little bit head scratching in an environment, where I think profitability matters. That being said, we have looked at other channels that have been working quite well for us in terms of looking through most notably, I think, partnership angles for us, right, which are certainly extension of brand. ESPN has been a great partner for us, right, where we're able to get in front of extremely high-value audiences with a lot of relevancy and we've talked about our awareness after working with them [ or ] Bleacher Report or the New York Post, right, 2 sports properties or Rolling Stone, 2 sports properties, the premier music property and then a great media outlet in New York, where we've traditionally been under indexed. I think those are great channels that we continue to invest in. And every time we invest in those channels, we've seen that the propensity of users there to purchase is 2x to 3x what it is if they're not there, and awareness is at least 2x before that. So those look like very economic and efficient channels for us to continue investing in brand, and we're continuing to test to learn. And every time we find a rationale channel, we will double down on it.

We touched on this a little bit earlier also, but it's also been about a year since you acquired Betcha, right? And [ like ] it's been about 3 months to 4 months, as you rebranded and launched Vivid Picks, right? So could you walk us through the acquisition rationale in the first place and as well as the rebrand drivers there? And have you observed a lot of the [ cost ] usage and the desired synergies and benefits thus far? And what's next in terms of the integration?

Yes. I think the thesis was really clear and exciting for us, right? So we have a low frequency category. This is a high-frequency play product, where every single entry actually gives us insight into user preferences. And beyond that, we really like the team. So the team has been massively, I think, accretive to our team. And there were capabilities beyond the gaming itself and the preferences that we thought were great. Social gaming, if you open -- social elements of this. If you go into our Vivid Picks app now, there's a social feed that allows you to see both the games that your friends are playing, but also beyond that, it shows them the events that your friends are going to. Of course, if you have allowed your friends to see that. So I think there are now social elements, where, oh, cool, Stephen is going to the next game this Friday, I want to go too. You go, you coordinate. So you've got all these elements that we thought were very, very exciting to combine with our core ticket buying experience. And as we look to integrate and drive the brand, [ it became ] how do we put that experience together and how do we move people into this new flywheel and then start spinning it faster. So in August, we rebranded it under Vivid Picks, which allows us the umbrella halo of a brand. And we go out and advertise, you get that leverage now across multiple properties, where before we were getting one. And I think the best testament -- maybe 2 things that I think we've talked about that are great [ proponents ] is every time we brought a Vivid Picks player into buying a ticket, they are now a better user than they were before. And conversely, every time we make -- we show a ticket buyer, the Vivid Picks game and they start playing it, they become a better user than they were before. So I think those 2 things have been really encouraging to us. And perhaps the best sign of that is, if you think about that flywheel of play a game, buy a ticket play game, buy ticket, because of our scale on the ticketing side, we started there with how do we move people into the games and then get the games to come right back to us. When you think about e-commerce and typical CRM or e-mail campaigns, 10% open rate, anywhere from like a 1% to 3% click-through is a really good thing on a click-through basis. Our campaign, as we started running on telling people, who bought event said, "Hey, we've got this great app and game you can play with your friends that are relevant to the thing and win real money. And we had an over 1.5% account creation coming out of those campaigns, which is our, by far, our best-performing campaign in our CRM category, and I think is outstanding in terms of even industry comps on that. So all of these signs, I think, give us a lot of exuberance around the ability to continue to drive synergies and create this new flywheel of engagement.

Let's switch gears a little bit to the seller side. I think you reported that you added [ 110 ] sellers on SkyBox year-to-date, and this is on the previously disclosed base of about 2,500 sellers. So how difficult is it to onboard these sellers on to the platform? And are these net new sellers that were previously on different platforms? I mean, can you give us some sense of what the normalized churn might be for some of these sellers on SkyBox.

Yes. I'd start with on SkyBox, it's pretty low churn, right? And when you go back to all of the things that we look to offer sellers, I think are both attractive reasons for them to come on to the platform in terms of incremental benefit. But when you look at those incremental benefits, they also become somewhat of a moat for, if they want to leave, they are hard things to leave behind, right? So when you go through SkyBox and you say, what does it offer? First thing, it's a free-to-use product, right? And so when you look at the competitive landscape, that's not true of the [indiscernible] ERP. So right away, if you're ever going to switch off on to another product, just like coming on, you save costs when you come off -- if you have to incur cost that makes your inventory or your margin less competitive if you want to deal with that. As we then look at the other things that we've built onto it, very scalable, reliable performance platform based in the cloud with a lot of autoscaling. And even though it's 2022, I think it's still an odd statement to make. That's not true of all of the other products, where in this business, again, when you have hyper demand spikes, reliability and performance is huge. So I think if you don't have the engineering or spend the time engineering that we have, again, a reliable product is something you might not have. We have that. And then when you look at then 2 other things, APIs that we've built to allow sellers of all sizes you think about it, are you more sophisticated in how you want to make inventory decisions as a seller? Are you monitoring social media and you want to integrate that into either how you price or procure. We have APIs that allow you to very seamlessly build on top of our platforms. That's what you'd like, whereas, again, on other platforms, that's not the case. So building new capabilities that platforms don't allow, I think, is another very challenging component. And then 2 services, I think that came out of COVID, which have continued to be really strong for us. One, we stood up a fulfillment service for sellers. So when you think about fulfilling tickets, that's operating expense for everybody. When COVID happened, a lot of sellers cut that OpEx because there were no events happening. We took the opportunity to stand it up because at scale, we said we should be able to do as cheaper and better than most. That has proven to be true. And so well, sellers love hopping on to that platform, as we can do it better. That's still probably our fastest-growing team internally, where we can't hire fast enough to meet call it, the pipeline of demand that's out there. And then working capital, right? So when you come on to SkyBox, we give you slightly better payment teams. And if your business is requiring capital to acquire and reinvest into more inventory, that's an important dynamic, right? So all of those things have allowed us to acquire more and more users as others haven't focused as much on this side of the marketplace. And conversely, when you think about churn, that's a hard thing to swallow. If you are coming to us, you have better payment terms, you have no cost, you have better tech and you have us to fulfill your service. All of those things you would have to find someone else to do and no other product offers that comprehensive offering and no other provider can do all of those things for you similarly. So I think all of those things have allowed us to continue to, I think, win happy users on and deepen the moat that we have on that product platform.

Now we have a few minutes left here. So once again, let's hop in a time machine and we're sitting here a year from now, late November, early December of 2023. So what do you think we're going to be talking about in terms of what you've accomplished in the trailing 12 months?

So I think it would be really interesting is to see how -- we talk about the competitive landscape in a year from now. I think that's the biggest thing, right? I think we're in a really unique spot. Like I said, we have continued to invest in products that drive stickiness to users, all of the while being cognizant of the public markets and being very, I think, responsible to our shareholders, right? In a -- I think if you go back to certain earmarks on the profitability, we've had growth all along the way. As a private Company, we steadily generated 25% plus EBITDA margins in the height of the pent-up demand release, where even our public company costs weren't fully built out, and we hadn't scaled up for the requisite volume. We generated [ 30%-plus ] EBITDA margins. And in the most recent quarter, in a quarter with hyper competitive pressures, we generated 18% plus EBITDA margins. All of that would tell you that when competition is hard, we are still able to be resilient with a better product, we're still able to generate cash, be contribution margin positive, and we have a strong balance sheet to support any strategic decisions we want to make. I think that is not true of the rest of the competitive landscape, where I think the vast majority of players are likely making uneconomic positions for near-term transactional volume, right? When you can't win on product, you have to win on giving the product away in price or you have to win in spending irrationally on marketing. I think that's happening now. I think as balance sheets get more [ stressed and burdened ] in the coming year, and if the capital markets continue to say that actually making money matters, I think next year is going to be a really interesting conversation to see what the landscape looks like because we are not someone, who is in a position saying, we're worried about generating profit or cash. We can reliably and have consistently done that and have a business model that I think allows a lot of leverage, as we continue to invest in things that we think will help us win.

It sounds like rationalization or consolidation in the coming year.

We would welcome either.

Sounds good. All right. So with that, I think we'll wrap it up. Thanks so much, Stan, for joining us once again, and best of luck in the coming year.

Thanks. Thanks for having us, Stephen. Appreciate it.

Take care.