Hi!
Below is the longest thing I’ve written in a while.
I went through 3 or 4 drafts of it.
I will probably come back to this story from different angles because it lets me teach so many ideas from my consulting and teaching that I want you to know.
Before I give you my thoughts on StubHub’s S-1, I want to encourage you to vote in Scott Friedman’s Ticket March Madness.
I’ve been thinking about StubHub’s S-1 filing for days, struggling to figure out what I think.
I feel like the S-1 told me nothing about StubHub’s business.
Why?
I look for competitive advantages, power dynamics, and actions that deliver on the opportunity.
I didn’t see that.
I saw a sales document built on a mountain of modern business buzzwords and BS like Artificial Intelligence, Machine Learning, gambling, and data.
I saw a Hail Mary.
What’s the goal of StubHub’s S-1 and IPO?
Reports say the company hopes to raise $1B to retire debt.
Previous reports had the company looking to go to market at a valuation of $16.5B.
Does this valuation make sense?
It does if you buy the number Gross Merchandise Sales (GMS).
The GMS is reported as $8.7B in 2024.
What is GMS?
GMS is the combined total of the customer’s price, including fees, the fees sellers are charged, and something stated as “the net proceeds we remit to sellers.”
Yes. That last bit is confusing.
What if you don’t buy GMS?
My mind starts to wander to the competition.
In 2023, The Information reported that SeatGeek filed for an IPO.
This is after the company raised $235M in a Series E and failed to go public via a SPAC.
Reports are that the valuation was around $1.35B.
How is StubHub worth 12x more than SeatGeek?
Vivid Seats?
They went public at $10 per share on October 19, 2021.
Vivid’s market share is approximately half StubHub’s North American market share.
The stock price at the time I am writing is under $3, giving it a market capitalization of $605 million.
StubHub values itself at more than 26 times what Vivid Seats trades for on the open market.
For less than $2 billion, someone could purchase both Vivid Seats and SeatGeek.
Their combined market share would be comparable to StubHub’s in North America.
SeatGeek already has some team deals, and some primary market ticketing contracts.
Vivid would remain publicly traded.
StubHub lays its strength on four pillars:
· Technology
· Distribution
· Brand
· Data
Future opportunities cover areas such as:
· Expansion into primary sales
· International opportunities
· Advertising
· Improving technology
Does this make sense?
Current strengths:
From a technology standpoint, I’m not great at the ins and outs of specific tech tools.
I look at these tools from the standpoint of the customer.
Does it work for the customer?
As an end user, the user experiences across the secondary market are similar.
From talking with brokers, I didn’t get the impression that any one platform stood out against anyone else.
It is hard to build a competitive advantage without some distinct advantage.
Distribution caught my eye.
Why?
Distribution is a solved problem.
I don’t believe “open distribution” is right for everyone.
The automation companies have solved the distribution problem.
Distribution isn’t a competitive advantage.
What about the brand?
StubHub talks about its 2024 Brand Report.
They highlight that their brand has 84% aided awareness.
That’s solid.
But it misses two key things.
One, unaided awareness is the gold standard of brand awareness.
Two, what brand associations do people have with your brand?
Having a big brand is great.
But the context matters.
If the world knows your brand but hates you, not great.
How about data?
Data is the magic bullet that every company rolls out right now.
I can tell you one true thing about everyone’s data: it all looks backward, it all happened in the past.
The problem with building up data as a competitive advantage is that you are saying that you are betting that the future will look like the past.
What’s that thing in investments about past performance not being indicative of future returns?
Not a great bet if you ask me.
Those future opportunities for growth?
Expanding primary market sales.
One, primary ticketing can be a low-margin business, especially if you don’t have major buildings.
Two, Live Nation has more access to capital and capacity than StubHub to build, buy, or lease venues globally.
SeatGeek has attempted to compete at this level, attracting global opportunities but only winning a small market share.
It is a tough business.
International expansion.
Sounds great.
Seems like a winning idea.
A quick internet search will show you viagogo’s success in bringing American-style resale to international markets.
You’ll also discover that viagogo is a leading reason that countries such as Ireland, England, Italy, Australia, and others have banned resale or tightened restrictions around the practice.
It isn’t a home run.
Advertising.
Sounds great.
Disney added an ad-supported tier for Disney+.
Netflix has an ad-supported tier.
Sponsorships and display ads are in every stadium and arena in the world.
But the idea of building out advertising as a stream of revenue to support StubHub’s future business growth sounds a lot like Cory Doctorow’s term, “enshittification”.
Enshittification is “platform decay”.
This means that the experience the customer receives gets worse as time goes by because the business needs to find new ways to monetize its customer base no matter what.
Is the tech enough to build the future on?
I don’t know.
From talking with tech leaders globally, ticketing technology is advanced.
For me, it is hard to divorce tech from data and the flywheel.
Data shows up 259 times in the prospectus, including as “data intelligence,” “data-centric,” and “data powered.”
What do any of these terms mean that we haven’t heard before?
What about the “Flywheel”?
That term showed up 49 times.
At some point, I began to feel like flywheel was a synonym for “magic.”
Flywheels are real.
They are common in modern business.
But they don’t happen by accident.
Flywheels work due to network effects.
Bringing buyers, sellers, and suppliers together.
On the secondary market, the flywheel works when driven by paid advertising.
Turn off paid ads, sales dry up.
The flywheel grinds to a halt.
Paid search only shows up 7 times.
Yes, you need buyers.
Yes, you need sellers.
Most importantly, you need paid advertising.
In 2024 StubHub spent $828 million on sales and marketing, leaving only $138 million in operating profit.
Those numbers are not sustainable. Slow the marketing spend and watch the market share rapidly recede.
Attraction from your brand with organic search doesn’t happen much these days.
That leads me to the brand.
Mentioned 122 times.
I’m stuck on the 84% aided awareness number.
It is great, but it doesn’t matter unless it lowers your customer acquisition costs.
It is great, but it isn’t important if you don’t maintain customer loyalty.
84%, a super number. But if it doesn’t decrease your price sensitivity, your brand investments may not be paying off.
Pulling all of this together.
Value to buyers is table stakes now.
You need inventory.
So, you need sellers.
That’s value.
Value to sellers comes in a few ways.
You need customers.
That’s table stakes.
Brokers prioritize listing their inventory in places that give them better payment terms, lower fees, and other tools that make selling their tickets easier and more profitable.
Plus, if you believe the reports on Shows on Sale, the Facebook groups, and other channels, sellers are frustrated by changing terms, bad service, and other inconveniences that make it difficult to justify selling on StubHub.
If you listen to brokers, sellers are leaving StubHub for Vivid Seats because StubHub is inventing ways to delay or avoid paying sellers for inventory supplied.
Strategy for growth in totality?
The high percentage of aided brand awareness is great, but what are the brand associations?
Focusing on a global market!
Cool!
But is it meaningful as a business case?
Performance marketing isn’t a meaningful competitive advantage because it relies on your willingness to pay for certain search terms.
The ad platforms have squeezed out most of the profits.
You are running a race that you can only hope to keep up with.
Artificial Intelligence and Machine Learning are magic dust. They are the “like” and “um” of business communication.
You feel like you must have them, but everyone knows they are there as filler, even if they don’t admit it.
There doesn’t seem to be any huge tech advantage now.
There is the likelihood of investment in increasing the tech capabilities.
But I don’t know if we can bet on that.
New verticals and areas such as primary ticketing and sports gambling.
Gambling is a saturated market.
Look at ESPN’s entry into the gambling space with a better brand, more data, and a deeper connection to their fans.
ESPN still struggles to gain a foothold in the sports gambling space.
As for primary ticket sales, SeatGeek has a similar model and they’ve shown how challenging it is.
Is the direction to compete with Ticketmaster?
Are you going to be something like Eventbrite?
Two final points to highlight.
The first is the founder-led management team.
I teach students that your founder is always a beacon for your brand. They set the direction for your brand forever.
In the case of StubHub, we must look at the number of fines, government investigations, penalties, and bad press that viagogo and StubHub have dealt with over the years.
Then, ask: Is this what we must accept going forward?
Second, the lack of price advantage in concerts and other events that is becoming the norm as primary platforms become better and better at market clearing pricing as shows and events approach.
The “Pays to Wait” phenomenon is real.
At some point, this feels like a case where the bills start coming in faster than the cash flow can keep you afloat.
To me, that isn’t a winning strategy.
What do you think?
Hit “reply” and let me know.
Dave