Vivid Seats: Riding On The Live Events Secular Trend (NASDAQ:SEAT)

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thesis highlight

I believe Vivid Seats Inc. (NASDAQ:SEAT) is undervalued as of today. SEAT is one of the foremost businesses that connects the audience with its celebrities. While other businesses offer ticketing services for just one category of shows, Vivid Seats has a wide array of events under its umbrella, a modern tech stack, and most importantly, a good reputation, all of which would continue to drive users back to its platform.

Company overview

The objective is to connect fans and celebrities, helping the fans experience their idols in the flesh. Live events deliver some of life’s most exhilarating moments. SEAT provides customers with trusted, easily operated marketplaces that allow fans to attend live events and create lasting memories. SEAT has a digital marketplace where buyers can easily purchase tickets from third-party dealers. It’s a deal in which all sides win. The buyers are able to experience the best entertainment shows in real time, and third-party dealers are able to make money.

Currently, SEAT operates its business in two segments: Marketplace (majority of the business) and Resale.

Investment merit

Industry has demonstrated a long history of growth

With a long history of secular growth, the live event ticketing business has experienced accelerated growth. Consumer trends have changed, leaning more toward experiences than material goods. Studies have shown that people are happier when they spend money on experiences rather than things.

Also, the growth of music streaming services in the mid-2000s has compelled artists to rely on touring instead of album sales for generating income. Performers, conscious of the relatively low revenue that comes with album sales, have adopted live performances to fill that vacuum. This shift has increased the number of multi-city road shows and music shows, with the top 100 North American tours amassing as much as $3.7 billion in 2019. According to the data quoted in SEAT’s S-1 from the 2019 Pollstar Business Analysis, this value has increased by nearly $1 billion from 2015. The rise of the “Experience Economy,” with the financial prospects involved, has led artists to use tours as a major income source. This has created a virtuous cycle of demand and supply.

In addition, management believes the United States primary and secondary live event ticketing market was estimated at $39 billion before COVID-19 (2019), with the secondary live event market taking up $11 billion of the sum. 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 caters to this need by giving customers a range of options to buy tickets whenever it’s most convenient for them. In the typical sales model, tickets are made available in advance of the events themselves, often as part of a larger package (such as season tickets). The customer will have to rearrange his schedule to use these tickets, which may not even be valid for his travel dates.

The secondary live events ticketing market makes things easy by allowing buyers the flexibility to purchase tickets whenever they want, even to the extent of being able to attend sold-out events. Buyers are also able to resell these tickets if their plans change.

Wide range of selection is key

SEAT is renowned for the wide range of listings and ticketing options it provides to buyers. This is due to the long-standing seller relationship and the effective tools at its disposal. Vivid Seats is the marketplace of choice for sellers to list and sell their tickets. With the large customer base it possesses, SEAT is able to provide a vast array of ticketing options while minimizing risks. To allow for diversification, there is a broad range of products under each category:

  • Sports: The sport category contains four professional leagues (MLB, NFL, NBA, and NHL) and college sports. There are other varieties of sporting activities, such as golf, car racing, rodeo, boxing, and mixed martial arts.
  • Concerts: The concert category offers musical acts in several genres touring across major venues, small venues, and music festivals.
  • Theater: This category includes Broadway and Off-Broadway plays and musicals, family entertainment events, comedy acts, and speaker series

Modern tech stack for best user experience

With its scale, modern technology stack, variable cost structure, and lean operations, SEAT is able to offer tickets at competitive prices without hurting the business’ finances.

In addition to that, it also offers Vivid Seats Rewards, the only loyalty program of its kind among its scale competitors. It enables buyers to earn rewards on purchases made on the Vivid Seats mobile application or website. The loyalty program brings extra value to the buyers and endears them to SEAT as compared to the competition. This gesture means that customers will be motivated enough to transact business on SEAT’s marketplace, while also creating further opportunities for customer interaction, improved personalized promotions, and increased engagement. As time goes on, these incentives are set to be enhanced.

When it comes to assisting vendors, SEAT goes above and beyond with features like free use of their Skybox platform, open integration, and value-added technology. In which, the terms of sale and payment made available to sellers are very favorable.

Reliability is what drives users back to SEAT

There is always one quality for which customers favor one business over the others. In SEAT’s case, it is the quality of reliability and a secure user experience that allows fans to shop for tickets and other items sellers have listed. Its straight-forward information provides a transparent ticket-buying process that is also quick and easy. A fraud-fighting team is also sent out to keep an eye on transactions and keep the users safe.

Armed with a 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 guarantee for its customers, designed to develop peace of mind, safety, and security. SEAT’s team provides all the dedicated help and assistance customers are likely to need while keeping private and personal information confidential. In delivery, the team works with sellers to make sure that orders are sent out in time for the event.

Valuation

Price target

My model suggests a price target of $12.07 or 50% upside in FY25 from today’s share price of $8.02. This assumes that revenue growth will grow in the mid-teens, EBITDA margins will remain at 20%, and the forward EV/EBITDA multiple will be 12.5x in FY25e.

Valuation

Own estimates

For FY22e, I used the midpoint of management guidance during 2Q22. As for FY23e, I assumed a slowdown in growth due to the weak macroeconomic environment. Moving forward, I expect growth to be in the mid-teens range, which indicates SEAT is capturing share and growing with the industry.

In terms of adj. EBITDA margins, I assume margins will stay flat moving forward. It would be nice to see the margin inflect, but we do not need that to make good returns based on today’s valuation.

As for a valuation, SEAT currently trades at 12.5x forward EBITDA, and I assumed no change in multiples.

risks

Business is the 2nd derivative of live events

Ticket sales are sensitive to changes in the number of entertainment, sporting, and theater events offered by promoters, teams, and facilities. Any adverse trend in these areas may negatively affect the business. SEAT relies on third parties to create and perform at live shows, sporting events, and theater events. A decrease in the number of performances or game shows will limit the ability to generate revenue. Also, SEAT depends on these third parties to anticipate and meet market demand.

heavy competition

SEAT faces competition from other national, regional, and local ticket service providers, both primary and secondary. Every business thrives on its ability to secure and retain existing sellers and buyers. Resale marketplaces also pose significant competition. Online technology has made this competition even tougher, and the stakes are now higher than they were before.

conclusion

I believe SEAT is undervalued as of today. As a business that knows how to secure and satisfy customers, getting #1 twice for excellent customer service, its customer base is projected to increase in the future. SEAT’s vast array of services ensures that it always has enough with which to satisfy customers.

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