SkyBox Drive And Tactical Expansions Set To Boost Profitability And Market Share

Key Takeaways

• Expansion into international markets and strategic acquisitions aim to drive revenue growth and enhance inventory synergization without proportionally raising sales expenses.
  
• Investment in technology and loyalty programs seeks to increase profitability and repeat customer behavior, positively impacting net margins.
  
• Reliance on live events and aggressive growth projections carry risks, alongside execution challenges in new ventures and competitive pressures, potentially impacting revenue and margins.

Catalysts

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

• The introduction of SkyBox Drive, moving out of its beta phase, signifies a potential increase in revenue through technology-driven pricing, enhancing profitability by catering to key seller needs.
  
• Encouraging repeat customer behavior through an industry-leading loyalty program and other engagement initiatives may lead to higher revenue from repeat orders, directly impacting net margins positively.
  
• Expansion into international markets and the strategic acquisition of Vegas.com have the potential to drive revenue growth through new markets and synergized inventory, supported by successful cross-sell campaigns.
  
• Investment in diverse marketing channels and engagement vehicles like Game Center, aiming to drive app downloads and engagements with minimal marketing expenditure, could increase the customer base and orders, enhancing revenue growth without proportionally increasing sales and marketing expenses.
  
• Refinancing activities that have provided additional strategic financial flexibility indicate a potential for increased shareholder value through targeted investments in high-return areas or share repurchases, impacting earnings per share positively.

Assumptions

• Analysts are assuming Vivid Seats's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.7% today to 6.5% in 3 years time.
• Analysts expect earnings to reach $64.0 million (and earnings per share of $0.31) by about September 2027, up from $36.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $81.0 million in earnings, and the most bearish expecting $46.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.4x on those 2027 earnings, up from 12.9x today. This future PE is greater than the current PE for the US Entertainment industry at 23.8x.
• Analysts expect the number of shares outstanding to grow by 6.07% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 8.29%, as per the Simply Wall St company report.

Risks

• The reliance on live events as a primary revenue source could result in vulnerability to economic downturns, impacting consumer discretionary spending and hence affecting overall revenue.
  
• Accelerated growth expectations into the fourth quarter hinge on the assumption of a more favorable event lineup due to lapping 2023's concert slate and new stadium shows, which poses a risk if these expectations for increased event supply do not materialize, potentially impacting future revenue growth.
  
• The introduction of new products and expansion efforts, such as the final phase and launch of SkyBox Drive and international expansion, carry execution risk which could affect the ability to capture market share and maintain growth in net margins.
  
• Competition in performance marketing channels remains intense, and strategic moves by competitors or changes in platform algorithms could increase customer acquisition costs or decrease the efficacy of these channels, impacting net margins.
  
• The company's strategy to increase shareholder value through share repurchases and strategic M&A requires disciplined capital allocation. Missteps in these areas could potentially impact earnings and shareholder returns.

Valuation

• The analysts have a consensus price target of $7.4 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 $11.0, and the most bearish reporting a price target of just $4.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $977.7 million, earnings will come to $64.0 million, and it would be trading on a PE ratio of 36.4x, assuming you use a discount rate of 8.3%.
• Given the current share price of $3.59, the analyst's price target of $7.4 is 51.5% 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.