Culmination of the thesis
I believe that Vivid Seats Inc. (NASDAQ: HEADQUARTERS) is now undervalued. SEAT is one of the leading companies connecting the public with its celebrities. While other companies offer ticketing services for only a category of shows, Vivid Seats has a wide range of events under its umbrella, a modern tech stack, and most importantly, a good reputation, which would continue to bring users back to its platform.
The goal is to connect fans and celebrities, helping fans discover their idols in the flesh. Live events provide some of life’s most exhilarating moments. SEAT offers its customers reliable and easy-to-use marketplaces that allow fans to attend live events and create lasting memories. SEAT has a digital marketplace where shoppers can easily purchase tickets from third-party resellers. It is a deal in which all parties win. Buyers can experience top entertainment shows in real time, and third-party resellers can earn money.
Currently, SEAT operates in two segments: Marketplace (the majority of the business) and Resale.
Benefits of investments
The industry has demonstrated a long history of growth
With a long, century-long history of growth, the live event ticketing business has seen accelerated growth. Consumer trends have changed, leaning more towards experiences than material goods. Studies have shown that people are happier when they spend money on experiences rather than things.
Additionally, the growth of music streaming services in the mid-2000s forced artists to rely on touring rather than album sales to generate revenue. Performers, aware of the relatively low income that accompanies album sales, have embraced live performances to fill this void. This change has increased the number of multi-city musical tours and shows, with the Top 100 North American tours raising as much as $3.7 billion in 2019. According to data cited in SEAT’s S-1 of the 2019 Pollstar business analysis, this value increased by nearly $1 billion from 2015. The rise of the “experience economy”, with the financial outlook involved, has led artists to use touring as a major source of income. This created a virtuous circle of supply and demand.
Further, management estimates that the primary and secondary live event ticketing market in the United States was estimated at $39 billion prior to COVID-19 (2019), with the live event secondary market representing $11 billion. sum dollars. This is a growth of 57% since 2014.
Customers are more likely to make a purchase if they can choose when and how much they spend. The secondary ticket market meets this need by providing customers with a range of options to purchase tickets when it is most convenient for them. In the typical sales model, tickets are made available before the events themselves, often as part of a larger package (such as subscriptions). The customer will have to rearrange their schedule to use these tickets, which may not even be valid for their travel dates.
The live event ticketing secondary market makes it easy by giving buyers the flexibility to buy tickets whenever they want, even as they may be seeing sold-out events. Buyers can also resell these tickets if their plans change.
A wide range of choices is key
SEAT is renowned for the wide range of announcements and ticketing options it offers shoppers. This is due to the long-standing relationship with the seller and the efficient tools at their disposal. Vivid Seats is the marketplace of choice for sellers to list and sell their tickets. Thanks to its large customer base, SEAT is able to provide a wide range of ticketing options while minimizing risk. To allow diversification, there is a wide range of products in each category:
- Sports: The sports category includes four professional leagues (MLB, NFL, NBA and NHL) and college sports. There are other varieties of sporting activities, such as golf, auto racing, rodeo, boxing, and mixed martial arts.
- Concerts: The concert category features musical acts from multiple genres touring large venues, small venues, and music festivals.
- Theatre: This category includes Broadway and Off-Broadway plays and musicals, family entertainment events, comedies and speaker series.
Modern technology stack for better user experience
Thanks to its scale, modern technology stack, variable cost structure and lean operations, SEAT is able to offer tickets at competitive prices without hurting the company’s finances.
On top of that, it also offers Vivid Seats Rewards, the only such loyalty program among its large-scale competitors. It allows shoppers to earn rewards on purchases made on the Vivid Seats mobile app or website. The loyalty program brings additional value to buyers and links them to SEAT against the competition. This gesture means that customers will be motivated enough to transact on SEAT’s marketplace, while creating new opportunities for customer interaction, improved personalized promotions and increased engagement. Over time, these incentives are set to be strengthened.
When it comes to helping suppliers, SEAT goes above and beyond with features like free use of their Skybox platform, open integration and value-added technology. In this case, the conditions of sale and payment made available to sellers are very favorable.
Reliability is what brings users back to SEAT
There is always a quality for which customers favor one company over others. In SEAT’s case, it’s the quality of reliability and a secure user experience that allow fans to purchase tickets and other items that sellers have listed. Its straightforward information provides a seamless ticket purchase process that’s also quick and easy. An anti-fraud team is also dispatched to monitor transactions and ensure user safety.
Building on its track record of providing excellent customer service and its commitment to customer satisfaction, SEAT has twice been named #1 in Newsweek America’s Best Customer Service for Ticketing Services. There is a 100% buyer’s guarantee for its customers, designed to develop peace of mind, security and safety. The SEAT team provides all the dedicated help and assistance customers may need while maintaining the confidentiality of private and personal information. During delivery, the team works with vendors to ensure orders are dispatched in time for the event.
My model suggests a price target of $12.07 or a 50% upside in year 25 from the current stock price of $8.02. This assumes revenue growth will pick up in the mid-teens, EBITDA margins will stay at 20%, and the forward EV/EBITDA multiple will be 12.5x in FY25e.
For FY22e, I used the midpoint of management advice during 2Q22. As for the 23rd year, I assumed a slowdown in growth due to the weak macroeconomic environment. Going forward, I expect growth to be around the mid-teens, indicating that SEAT is taking market share and growing with the industry.
In terms of adj. EBITDA margins, I assume margins will remain flat going forward. It would be nice to see the margin flex, but we don’t need it to make good returns based on today’s valuation.
As for a valuation, SEAT is currently trading at 12.5x forward EBITDA, and I assumed there would be no change in the multiples.
Business is the 2n/a derived from live events
Ticket sales are sensitive to changes in the number of entertainment, sporting and theatrical events offered by promoters, teams and facilities. Any unfavorable trends in these areas may negatively affect the business. SEAT relies on third parties to create and perform at live shows, sporting events and theatrical events. A decrease in the number of performances or game shows will limit the ability to generate revenue. In addition, SEAT depends on these third parties to anticipate and respond to market demand.
SEAT faces competition from other national, regional and local ticketing service providers, both primary and secondary. Every business thrives on its ability to secure and retain existing sellers and buyers. Resale markets are also an important competition. Online technology has made this competition even more difficult, and the stakes are now higher than before.
I think SEAT is undervalued to this day. As a company that knows how to secure and satisfy its customers, earning twice the first place for its excellent customer service, its customer base is expected to increase in the future. SEAT’s wide range of services ensures that it always has enough to satisfy its customers.