StubHub (STUB) has officially filed its S-1 to go public, led by JP Morgan and Goldman Sachs. They now join Coreweave (CRWV) and Klarna (KLAR) hoping to provide a much-needed spark to the IPO market. Stubhub has envious net take rates consistently in the 20% range, growing 27% y/y last year and strong free cash flow.
Company Background & History
Founded in 2000, StubHub revolutionized the ticketing industry and quickly caught eBay’s attention, acquiring it for $310 million in 2007. Eric Baker, the founder of StubHub, recognized a larger potential in the secondary ticket market and left eBay to create Viagogo, addressing the challenges StubHub faced in international markets.
Fast-forward to 2020, and viagogo made a bold move by acquiring StubHub for a staggering $4.05 billion, demonstrating the immense value and growth of the StubHub brand. With the integration of these two forces completed in late 2022, viagogo and StubHub are now focused on increasing their profitable secondary market advantage and taking aim at the direct issuance market, long dominated by Ticketmaster.
Strong GMS Growth
Gross Merchandise Sales (GMS), representing total price paid by buyers including fees charged to both buyers and sellers, have grown an impressive 35% over the last 3 years through 2024. The growth has been fueled by its leadership position in the secondary ticket market, TAM of $18 billion in NA and $23 billion internationally, but they have a clear line of sight on the Direct Issuance market.
In 2024, they processed over $100 million in annual direct issuance GMS on their marketplace. The global direct issuance market’s TAM is estimated at around $132 billion and they cite that $22 billion of unsold/unused tickets annually is a major opportunity for them to solve. Based on commentary in the S-1 the direct market is a big potential growth driver in the years ahead:
We currently have multi-year deals in place that provide access to thousands of tickets per game to be sold directly over our marketplace and expect to continue growing our relationships with content rights holders beyond those in place today.
High Net Take Rate and Impressive Margins
With a net take rate in the 20% range over its history it represents one of the highest among all marketplaces, besting the likes of Airbnb, Etsy and eBay. While growing revenue 27% in 2024 they were able to post 17% adjusted EBITDA margins, qualifying them in the ‘Rule of 40’ club (i.e. Growth rate plus EBITDA margins >= 40). Their cost structure is scalable as they have continued to grow revenue faster than operating expenses and cost of revenue.
Possible Concerns
The company implemented a dual stock class structure, whereby Class B shares have superior voting rights, 100x that of Class A. As a result, Eric Baker, the CEO, controls 90% plus of the voting power through his Class B shares. The dual-class structure is designed for the CEO to maintain control, possibly a contention if things get dour among investors.
The company cited material weaknesses in their internal controls over financial reporting. The material weakness resulted in restatements for 2021 and 2022 and indirectly for future years. They have a remediation plan in place but the additional costs need to be taken into account.
Takeaway
As the leader in the secondary ticket market and early success in the direct market makes growth look sustainable. Combine that with high net take rates and a scalable cost structure makes StubHub look like a key holding, provided the valuation is right.
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