StubHub IPO: Ought to You Purchase In?

After a protracted pause, it appears as if the marketplace for preliminary public choices (IPOs) could also be heating up once more. Even amid tariff uncertainty clouding the near-term image, a number of personal firms are actually on observe to go public.

One attention-grabbing potential IPO is StubHub, which filed an S-1 registration kind just lately and plans to promote shares quickly on the New York Inventory Trade underneath the inventory ticker image STUB.

The debut of the world’s preeminent secondary ticket providing web site presents traders an attention-grabbing candidate for his or her portfolios. The story features a founder returning to guide an organization from which he had beforehand been fired (Steve Jobs, anybody?), 30% development in every of the previous two years, and a brand new development alternative that administration is simply starting to domesticate. However is the worth proper?

Picture supply: Getty Photos.

StubHub’s historical past: Coming full circle

StubHub was co-founded by Stanford MBA pupil Eric Baker in 2000 with a imaginative and prescient of changing into the premier on-line secondary market for tickets to reside occasions, together with sporting occasions, concert events, and theater productions. Previous to on-line marketplaces like StubHub, secondary market ticket-seekers needed to undergo ticket scalpers close to the venue or lookup an expert ticket dealer. These choices, clearly, have been suffering from fraud, usurious markups, and an general lack of transparency that on-line marketplaces deliver.

StubHub discovered some success and constructed itself right into a well-recognized model, however Baker quickly clashed along with his co-founder over enterprise technique. Together with his co-founder proudly owning a bit of extra inventory than he did and the board siding along with his co-founder, round 2004, Baker was truly fired from the corporate he based.

After getting fired, Baker went to Europe and based a competitor, known as viagogo, in 2006, which is basically a global model of StubHub, as StubHub hadn’t actually managed to penetrate Europe but. Finally, StubHub offered itself to eBay in January 2007 for $310 million. Whereas Baker was nonetheless a shareholder and did pocket plenty of cash from the buyout, he additionally thought StubHub had offered out too quickly.

Baker was quickly confirmed proper — or at the very least, he proved himself proper. In 2019, Baker’s viagogo agreed to purchase StubHub again from eBay for a whopping $4.05 billion. Immediately, StubHub hopes to hit the general public markets at a considerably greater valuation than that, as I will talk about quickly.

Whereas the acquisition technically closed in February 2020, the deal then needed to undergo the U.Okay.’s regulatory evaluation, which took 18 months. After all, this coincided with the COVID-19 pandemic, when each companies have been underneath excessive stress. Throughout that point, StubHub needed to lay off a majority of its employees and abruptly modified its cancellation coverage, providing clients 120% credit as a substitute of money refunds to hold onto no matter money it had collected.

Whereas that won’t have been probably the most noble transfer, it did enable the corporate to outlive the pandemic. StubHub was subsequently sued by greater than 10 states and the Federal Commerce Fee however finally settled, together with some penalties, in Might 2021. Nevertheless, by that point, the COVID-19 vaccine had been developed, and there was a line of sight to reside occasions taking place as soon as once more.

The U.Okay. authorities lastly accredited the StubHub deal in September 2021, which required StubHub to unload its personal fledgling worldwide enterprise. Upon closing the merger, viaogogo accomplished its integration of StubHub one yr later, in September 2022.

Financials present sturdy development because the merger

That emphasis on the date of integration is basically administration’s approach of claiming traders should not choose the corporate by its 2021 and even 2022 outcomes however quite 2023 onwards. That is when development accelerated in an enormous approach, with the “new” StubHub’s income rising 31.9% in 2023 after which 29.5% in 2024. Whereas the corporate is barely loss-making, that is primarily attributable to curiosity on its debt, as working earnings and free money circulation are each optimistic.

Figures in thousands and thousands. Knowledge supply: StubHub S-1.

As you’ll be able to see, StubHub has achieved some spectacular income development over the previous couple of years. Whereas earnings trended down in 2024, this was attributable to an enormous enhance in gross sales and advertising bills. The outsized development of promoting bills was attributed to “investments in new initiatives, comparable to diversifying on-line advertising channels, to develop income.”

Some additional positives

Apart from the spectacular top-line development seen over the previous two years, one other optimistic ingredient to StubHub’s enterprise is that free money circulation tends to be greater than working earnings, due to StubHub’s unfavorable working capital enterprise mannequin. Mainly, StubHub will get paid up entrance for tickets, then remits fee to the vendor at a later date. The result’s that its money stability tends to be greater than different firms that want to purchase stock up entrance, and this money might be considered a costless short-term mortgage that aids StubHub’s development.

Alternatively, one other optimistic ingredient is that the corporate intends to make use of the IPO proceeds to pay down at the very least a part of its $2.39 billion in debt throughout two time period loans, which carry 9.11% and seven.86% floating rates of interest on the time of the submitting. The debt pay-down would assist de-risk the corporate, get rid of the massive curiosity expense, and make StubHub considerably worthwhile virtually immediately.

Lastly, StubHub has simply begun cultivating a direct issuance enterprise, via which it truly companions with content material rights holders to distribute tickets instantly on its platform alongside its core secondary ticket market. This carries some dangers but additionally opens up a a lot larger development alternative.

StubHub simply started promoting direct-issuance tickets within the second half of 2024, accounting for $100 million of its $1.77 billion in gross sales final yr. Nevertheless, the potential new initiative may open up way more of the $132 billion direct-issuance market along with the prevailing $40 billion secondary ticketing promote it now serves. Of observe, StubHub had $8.7 billion in 2024 gross merchandise gross sales, or about 21% of the worldwide secondary ticket market.

Dangers and negatives to pay attention to

Whereas StubHub has some attention-grabbing issues going for it, it is also received some dangers. With regards to the direct issuance initiative, whereas it could possibly be a brand new development vector for StubHub, it additionally carries some potential risks. These come within the type of different firms in direct ticketing, comparable to Ticketmaster, which is owned by Stay Nation, coming after the secondary market in a much bigger approach. As well as, there may be additionally a threat that the proposition of direct issuance gross sales dilutes StubHub’s model within the secondary market whereas growing regulatory dangers.

One other threat is that the general reside occasion market might decelerate. Bear in mind, after the pandemic subsided and reside occasions started once more in late 2021, individuals have been hungry to exit and have reside experiences once more. Furthermore, 2023 and 2024 have been blockbuster years by way of ticket gross sales, with Taylor Swift’s The Eras Tour particularly bolstering outcomes. The Eras Tour was a large moneymaker and ran from March 2023 to December 2024.

While you mix the ending of The Eras Tour with an unsure economic system and up to date plunging client confidence numbers, StubHub might discover it tough to copy the expansion of the previous two years.

In a associated threat, rumors are that StubHub is looking for to promote inventory at a $16.5 billion valuation. That is about 9.3 occasions StubHub’s 2024 gross sales and 120 occasions its 2024 working revenue. That valuation can be massively costlier than public firm friends. As an example, Vivid Seats, a lower-scale competitor in secondary ticketing, trades at simply 0.8 occasions gross sales, and Ticketmaster’s mother or father, Stay Nation, trades at simply 1.3 occasions gross sales.

Now, StubHub is rising a lot quicker than these two firms, as Vivid solely noticed flat gross sales development final quarter, and Stay Nation truly noticed a slight gross sales decline of two.4%. Clearly, StubHub’s 30% development final yr blows that out of the water, suggesting StubHub could also be taking market share.

Nonetheless, that is an awfully premium valuation, even for that sort of development. The asking value might hold this investor on the sidelines at IPO time. Nevertheless, I will definitely be watching this share-taking, founder-led firm with curiosity going ahead.