Vivid Seats (NASDAQ:SEAT) operates as a market for occasion tickets. The corporate has lately had two acquisitions, with the lately introduced Vegas.com acquisition being the considerably bigger one. Vivid Seats didn’t disclose Vegas.com’s monetary profile very properly, however the corporate did information for 2024 revenues giving traders some details about the monetary future with the addition. The inventory appears to be priced for an inexpensive quantity of development and working leverage.
The Firm & Inventory
Vivid Seats operates an occasion ticket market. The corporate’s market works as a intermediary for sports activities occasions, concert events, theater performs, and comedy reveals in the USA. Vivid Seats’ web site and app present advertising and marketing and an excellent UI with purchaser safety, bringing worth to prospects when in comparison with one-on-one transactions.
Vivid Seats selected an intriguing time to turn into a publicly traded firm – the corporate merged with a SPAC in late 2021 throughout a difficult Covid-related ticket market. Because the merger, Vivid Seat’s inventory has misplaced round a fifth of its worth regardless of a robust monetary efficiency:
Acquisitions of Vegas.com and Wavedash
On the seventh of November, Vivid Seats introduced the corporate’s plans to accumulate Vegas.com for a consideration of roughly $240 million with a mixture of money and fairness financing. Vegas.com operates the self-named web site that markets occasions and operates a ticker market within the profitable Las Vegas market. The acquired firm’s financials weren’t disclosed within the announcement or Vivid Seats’ Q3 presentation, although – traders are left questioning in regards to the monetary elements of the acquisition. From what I might collect, the corporate appears to have generated revenues of $24.1 million and a skinny EBITDA of $0.05 million in 2015. I imagine that the corporate’s earnings has grown considerably from the yr, although, as Vivid Seats communicated within the firm’s Q3 presentation that Vegas.com has wholesome EBITDA margins and an accretive a number of within the acquisition.
Beforehand, Vivid Seats additionally acquired Wavedash in August, an internet ticket market in Japan. The acquisition was performed for considerably lower than the Vegas.com acquisition with a money expense of $56 million in Q3 associated to the acquisition that finalized in September. In FY2023, Wavedash achieved revenues of $35 million, with EBITDA margins that Vivid Seats’ administration commented as accretive. Vivid Seats’ technique appears to contain rising the corporate’s geographical footprint via acquisitions, leveraging the corporate’s fairly robust stability sheet.
Vivid Seats’ financials have been turbulent because the Covid pandemic disrupted the corporate’s operations considerably. Nearly impressively, the corporate’s revenues have been damaging within the first quarters after the pandemic started:
After the pandemic began to subside, Vivid Seats has achieved an excellent quantity of development. Presently, trailing revenues stand at $680 million, up 44.9% from the achieved 2019 revenues. The corporate is guiding for revenues of $810 million to $840 million for 2024 because of the latest acquisitions and an excellent natural efficiency – the income steering’s center level represents a development of 18.7% from the center level steering for 2023.
After the pandemic’s damaging impact on Vivid Seats began to subside, the corporate has been capable of obtain low double-digit EBIT margins. From Q1/2021 to Q3/2023, Vivid Seats’ common EBIT margin has been 12.0%:
Vivid Seats has an excellent gross margin at a trailing determine of 75.1% – I imagine that as Vivid Seats manages to develop revenues, the corporate ought to be capable of obtain a excessive quantity of working leverage. The corporate is guiding for an adjusted EBITDA margin of 24.1% for 2024 with steering center factors, in comparison with a 2023 determine of 20.0%. Though the acquisitions partly cloud the natural margin efficiency, I imagine that this trajectory might proceed properly into the long run with Vivid Seats’ enterprise mannequin.
To estimate a tough honest worth for the inventory and to contextualize the present valuation, I constructed a reduced money circulate mannequin in my common method. The mannequin solely accounts for already-announced acquisitions of Vegas.com and Wavedash, and doesn’t consider additional acquisitions.
For Vivid Seats’ revenues in 2023 and 2024, I imagine the administration’s steering represents an excellent baseline – I estimate the center level of the years’ guidances, representing development charges of 15.8% and 18.7% within the years respectively. Because the 2024 development is partly achieved as a consequence of inorganic efforts, the speed shouldn’t be extrapolated too extremely into the long-term future – for 2025, I estimate a development of 8%. In sequential years, the expansion comes down in steps into an eventual perpetual development price of two.5%. The estimated revenues characterize a CAGR of 8.6% from 2022 to 2032.
As defined earlier than, I imagine that Vivid Seats can obtain an excellent quantity of working leverage via the estimated development. For 2023, I estimate an EBIT margin of 14.0%, barely above the achieved 2022 degree. After the yr, I estimate an excellent quantity of working leverage to occur – within the years from 2024 to 2030, the estimated EBIT margin will increase into an finally achieved degree of 20.0%. The achieved degree may very well be even larger than I estimate, however in the meanwhile, I see the estimate as cheap. Vivid Seats has a largely good money circulate conversion as the corporate’s capex wants appear to be fairly restricted.
The talked about estimates together with a price of capital of 10.14% craft the next DCF mannequin with a good worth estimate of $8.68, round 13% above the inventory worth on the time of writing:
The used weighed common price of capital is derived from a capital asset pricing mannequin:
Vivid Seats leverages debt fairly properly to its benefit in financing. In Q3, the corporate had $2.5 million in curiosity bills, making the corporate’s annualized rate of interest a low determine of three.77% with Vivid Seats’ present quantity of interest-bearing debt. Vivid Seats makes use of an excellent quantity of debt – I estimate a long-term debt-to-equity ratio of 15% for the corporate.
On the price of fairness aspect, I exploit the USA’ 10-year bond yield of 4.43% because the risk-free price. The fairness threat premium of 5.91% is Professor Aswath Damodaran’s newest estimate for the USA, made in July. Yahoo Finance estimates Vivid Seats’ beta at a determine of 1.10. Lastly, I add a liquidity premium of 0.5% into the price of fairness, crafting the determine at 11.43% and the WACC at 10.14%.
On the present worth, Vivid Seats appears to be barely undervalued if my monetary assumptions show to be close to right. The corporate’s revenues ought to develop at an excellent tempo organically along with the latest acquisitions, making working leverage extremely more likely to occur in my view. If Vivid Seats manages to develop above my estimates, the inventory worth might rise very considerably, however in the meanwhile, I see my estimates as an excellent baseline state of affairs. As my DCF mannequin’s upside is sort of insignificant, I’ve a maintain ranking for SEAT inventory in the meanwhile.