Stubhub IPO: Do you have to buy?

After a long break, it seems that the market for first public offers (IPOs) may warm up again. Even in the midst of tariff uncertainty that the image clouded in the short term, various private companies are now on schedule to become public.

An interesting potential IPO is Stubhub, which recently submitted an S-1 registration form and is planning to sell shares on the New York Stock Exchange under the Stock Ticker Symbol Stub.

The debut of the world’s leading secondary ticket offering site offers investors an interesting candidate for their portfolios. The story includes a founder who returns to lead a company from which he had previously been fired (Steve Jobs, someone?), 30% growth in each of the past two years, and a new growth option that management starts to cultivate. But is the price good?

Stubhub was co-founded by Stanford MBA student Eric Baker in 2000 with a vision to become the most important online secondary marketplace for tickets for live events, including sporting events, concerts and theater productions. Prior to online market places such as Stubhub, secondary market ticket seekers had to go through Ticket Scalpers in the vicinity of the location or look up a professional ticket broker. These options were of course plagued by fraud, usury and a general lack of transparency that bring online market places.

Stubhub found some success and built himself in a well-recognized brand, but Baker soon clashed with his co-founder about the business strategy. With his co-founder who had a little more stock than he did and the board chose his co-founder, around 2004, Baker was actually dismissed from the company he founded.

After he was fired, Baker went to Europe and founded a competitor, called Viagogo, in 2006, which is essentially an international version of Stubhub, because Stubhub was not really able to penetrate in Europe. In the end, Stubhub sold itself ebay in January 2007 for $ 310 million. While Baker was still a shareholder and did a lot of money from the buy -out, he also thought that Stubhub was sold out too early.

Baker was soon proven – or at least, he proved himself right. In 2019, Baker’s Viagogo agreed to buy back Stubhub from Ebay for no less than $ 4.05 billion. Nowadays Stubhub hopes to reach the public markets with a considerably higher appreciation than that, as I will discuss soon.

While the acquisition was technically closed in February 2020, the deal then had to go through the British Regulatory Review, which lasted 18 months. Of course this coincided with the COVID-19 Pandemie, when both companies were under extreme pressure. During that time, Stubhub had to dismiss a majority of his staff and abruptly change his cancellation policy, so that customers offer 120% credits instead of cash repayments to stick to which money it had collected.

Although that was perhaps not the noble move, the company was able to survive the pandemic. Stubhub was subsequently sued by more than 10 states and the Federal Trade Commission, but eventually, together with a few penalties, settled in May 2021. By that time, however, the COVID-19 vaccine was developed and there was a line of sight to happen again.

The British authorities finally approved the Stubhub deal in September 2021, for which Stubhub was needed to sell his own young international activities. At the closing of the merger completed VIDOGOGO, integration of Stubhub was a year later, in September 2022.

That emphasis on the integration date is essentially the way of management to say that investors should not assess the company on the results of 2021 or even 2022, but earlier 2023. That is the moment when the growth accelerated in a large way, with the income of the “new” Stubhub in 2023 with 31.9% and then the company is mainly due to Wijten. On his fault, because operational profit and free cash flow are both positive.

Figures in millions. Data source: Stubhub S-1.

As you can see, Stubhub has achieved impressive sales growth in recent years. While the profit was in 2024, this was due to a large increase in sales and marketing costs. The large growth of marketing costs was attributed to “investments in new initiatives, such as the diversification of online marketing channels, to grow income.”

In addition to the impressive top growth that has been seen in the past two years, another positive element for the Stubhub company is that the free cash flow is usually higher than the business profits, thanks to the negative business model of Stubhub. In short, Stubhub is paid in advance for tickets and then has the payment to the seller at a later time. The result is that her cash balance is usually higher than other companies that have to buy in advance, and this money can be considered as a free loan in the short term that helps Stubhub’s growth.

As an alternative, another positive element that the company intends is to use the IPO to pay at least part of its $ 2.39 billion in debts over two term loans, which are 9.11% and 7.86% floating interest rates at the time of the submission. The payment of the debt would help to risk the company, eliminate the major interest costs and make Stubhub considerably profitable almost immediately.

Finally, Stubhub has just started cultivating a direct issue company, which actually works with holders of content rights to distribute tickets directly on his platform in addition to his core market for secondary ticket. This brings some risks, but also offers a much greater growth option.

Stubhub just started selling tickets for direct tests in the second half of 2024, good for $ 100 million of his turnover of $ 1.77 billion last year. However, the potential new initiative could open much more of the $ 132 billion Direct-AF-Bowelmarkt, in addition to the existing secondary ticket market of $ 40 billion it now serves. Note that Stubhub had $ 8.7 billion in the turnover of 2024 gross merchandise, or about 21% of the global secondary ticket market.

Although Stubhub has some interesting things for it, it also has some risks. It also has some potential dangers about the initiative for direct issue, although it could be a new growth sector for Stubhub. These are in the form of other companies in direct ticketing, such as Ticketmaster, who is owned by Live Nationcome in a larger way after the secondary market. Moreover, there is also a risk that the proposition of the sale of direct issue Stubhub’s brand diluted in the secondary market, while the legal risks increase.

Another risk is that the total market for live events can delay. Remember that after the pandemic had disappeared and live events started again at the end of 2021, people were hungry to go out and have living experiences again. In addition, 2023 and 2024 were blockbuster years in terms of ticket sales, with Taylor Swift’s The Eras Tour, especially the aging results. The tour was a huge money maker and ran from March 2023 to December 2024.

When you combine the end of the era tour with an uncertain economy and recent diving figures from consumer confidence, Stubhub can find it difficult to replicate the growth of the past two years.

In a related risk there are rumors that Stubhub is trying to sell shares with a rating of $ 16.5 billion. That is about 9.3 times the sale of Stubhub 2024 and 120 times the operating result 2024. That appreciation would be massively more expensive than colleagues from the public company. For example, Lively chairsA lower competitor in secondary ticketing, acts with only 0.8 times turnover and the parent of Ticketmaster, Live Nation, acts only 1.3 times turnover.

Now Stubhub is growing much faster than these two companies, because Vivid last quarter only saw flat revenue growth, and Live Nation actually saw a slight turnover reject of 2.4%. It is clear that the growth of 30% of Stubhub last year that blows out of the water, which suggests that Stubhub can take the market share.

Yet that is a terrible premium appreciation, even for that kind of growth. This investor can keep the asking price on the sidelines during IPO. However, I will definitely look at this share, company -led company with interest in the future.

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Billy Duberstein and/or his customers have no position in one of the aforementioned shares. The Motley Fool has positions and recommends Ebay. The Motley Fool recommends Live Nation Entertainment and recommends the following options: Short April 2025 $ 130 sets Live Nation Entertainment. The Motley Fool has a disclosure policy.

Stubhub IPO: Do you have to buy? was originally published by the Motley Fool