StubHub IPO: Ought to You Purchase In?

After an extended pause, it seems 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 non-public firms are actually on observe to go public.

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

The debut of the world’s preeminent secondary ticket providing website gives traders an attention-grabbing candidate for his or her portfolios. The story features a founder returning to steer 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 just starting to domesticate. However is the worth proper?

Picture supply: Getty Photographs.

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, live shows, 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 together with his co-founder over enterprise technique. Together with his co-founder proudly owning just a little extra inventory than he did and the board siding together 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 world model of StubHub, as StubHub hadn’t actually managed to penetrate Europe but. Ultimately, StubHub bought itself to eBay in January 2007 for $310 million. Whereas Baker was nonetheless a shareholder and did pocket numerous cash from the buyout, he additionally thought StubHub had bought out too quickly.

Baker was quickly confirmed proper — or no less than, he proved himself proper. In 2019, Baker’s viagogo agreed to purchase StubHub again from eBay for a whopping $4.05 billion. At the moment, StubHub hopes to hit the general public markets at a considerably greater valuation than that, as I am going to 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. In fact, this coincided with the COVID-19 pandemic, when each companies have been below excessive strain. Throughout that point, StubHub needed to lay off a majority of its workers and abruptly modified its cancellation coverage, providing prospects 120% credit as an alternative of money refunds to hold onto no matter money it had collected.

Whereas that will not have been essentially the most noble transfer, it did permit the corporate to outlive the pandemic. StubHub was subsequently sued by greater than 10 states and the Federal Commerce Fee however ultimately settled, together with some penalties, in Could 2021. Nonetheless, 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 authorised 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 12 months later, in September 2022.

Financials present robust development because the merger

That emphasis on the date of integration is basically administration’s manner of claiming traders should not choose the corporate by its 2021 and even 2022 outcomes however slightly 2023 onwards. That is when development accelerated in a giant manner, 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 as a consequence of curiosity on its debt, as working income and free money stream are each constructive.

Figures in hundreds of thousands. Information supply: StubHub S-1.

As you possibly can see, StubHub has achieved some spectacular income development over the previous couple of years. Whereas income trended down in 2024, this was as a consequence of a giant enhance in gross sales and advertising bills. The outsized development of promoting bills was attributed to “investments in new initiatives, equivalent 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 constructive aspect to StubHub’s enterprise is that free money stream tends to be greater than working income, due to StubHub’s adverse 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 regarded as a costless short-term mortgage that aids StubHub’s development.

Alternatively, one other constructive aspect is that the corporate intends to make use of the IPO proceeds to pay down no less than 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, eradicate the massive curiosity expense, and make StubHub considerably worthwhile virtually immediately.

Lastly, StubHub has simply begun cultivating a direct issuance enterprise, by means of which it truly companions with content material rights holders to distribute tickets straight 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 12 months. Nonetheless, the potential new initiative may open up way more of the $132 billion direct-issuance market along with the present $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 might 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, equivalent to Ticketmaster, which is owned by Dwell Nation, coming after the secondary market in a much bigger manner. As well as, there’s additionally a danger that the proposition of direct issuance gross sales dilutes StubHub’s model within the secondary market whereas rising regulatory dangers.

One other danger is that the general reside occasion market might decelerate. Keep 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 an enormous 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 shopper confidence numbers, StubHub might discover it tough to duplicate the expansion of the previous two years.

In a associated danger, rumors are that StubHub is searching 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 could be massively costlier than public firm friends. As an illustration, Vivid Seats, a lower-scale competitor in secondary ticketing, trades at simply 0.8 occasions gross sales, and Ticketmaster’s father or mother, Dwell Nation, trades at simply 1.3 occasions gross sales.

Now, StubHub is rising a lot sooner than these two firms, as Vivid solely noticed flat gross sales development final quarter, and Dwell Nation truly noticed a slight gross sales decline of two.4%. Clearly, StubHub’s 30% development final 12 months 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 maintain this investor on the sidelines at IPO time. Nonetheless, I am going to actually be watching this share-taking, founder-led firm with curiosity going ahead.