European Launch And Vegascom Integration Will Strengthen Market Position

Key Takeaways

• Expansion into Europe, including the U.K., aims to increase market size with modest revenue contributions projected in upcoming years.
  
• Emphasis on loyalty programs and strategic acquisitions, such as Vegas.com, seeks improved margins and growth through customer retention and synergy.
  
• Vivid Seats faces challenges from declining orders and competitive pressures, risking increased marketing costs and uncertain international expansion impacting revenue and profit margins.

Catalysts

Operates an online ticket marketplace in the United States, Canada, and Japan.

• Vivid Seats plans to expand internationally, starting with a European launch that includes the U.K., aiming to increase TAM through organic international expansion, which is expected to modestly contribute to 2025 revenues.
  
• The company is emphasizing growth in its loyalty program, Vivid Seats Rewards, to capitalize on repeat customer behavior as repeat orders necessitate lower marketing expenses, potentially improving net margins.
  
• The Game Center user engagement is expected to continue driving increased GOV and app downloads, boosting revenue with minimal marketing expenditure due to the integrated contests and announcements.
  
• The acquisition of Vegas.com and synergies arising from cross-listing and cross-selling are anticipated to expand GOV and revenue by converting Vegas.com customers into Vivid Seats users at minimal marketing cost.
  
• Vivid Seats is leveraging partnerships, such as with United Airlines, which is projected to enhance volumes and revenue through new customer acquisition and engagement with United's extensive loyalty program.

Vivid Seats Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vivid Seats's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.2% today to 5.5% in 3 years time.
• Analysts expect earnings to reach $47.9 million (and earnings per share of $0.21) by about May 2028, up from $9.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $42.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.8x on those 2028 earnings, down from 41.0x today. This future PE is greater than the current PE for the US Entertainment industry at 23.5x.
• Analysts expect the number of shares outstanding to grow by 0.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.39%, as per the Simply Wall St company report.

Vivid Seats Future Earnings Per Share Growth

Risks

• Vivid Seats experienced a decline in gross order value (GOV) by 11% year-over-year in Q4 2024, along with a 12% reduction in total marketplace orders, which could impact future revenue growth and overall earnings.
  
• The company anticipates maintaining competitive intensity in 2025, which could pressure marketing expenses and potentially affect net margins if competitors prioritize volume over profitability.
  
• The expansion into international markets, particularly Europe, is expected to contribute modestly to revenues and may initially be a focus on building volume over generating significant EBITDA, indicating potential risk to earnings if these markets don't scale quickly.
  
• There is acknowledgment of increasing competitive intensity in performance marketing channels, which could necessitate higher investment in marketing, risking an increase in costs that might affect profitability and net margins.
  
• Wider guidance ranges for 2025 reflect uncertainty around both competitive intensity and consumer demand, which could affect expected revenues and adjusted EBITDA, potentially impacting both revenue growth and net margin stability.

Valuation

• The analysts have a consensus price target of $4.977 for Vivid Seats based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.42, and the most bearish reporting a price target of just $2.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $863.3 million, earnings will come to $47.9 million, and it would be trading on a PE ratio of 29.8x, assuming you use a discount rate of 10.4%.
• Given the current share price of $2.95, the analyst price target of $4.98 is 40.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.