CTS Eventim is an online ticketing marketplace. They promote live sports and music events, selling tickets via its websites and licencing their software. CTS operates in 23 countries and is the market leader in Germany with 85% share. The company has delivered 11% revenue CAGR and 16% profit CAGR over the last 10 years. The business model is very cash generative, with a conversion rate of 140-150%. The shares are listed in Germany with a market cap of £3.8bn.
CTS core business is selling tickets to live events from its Eventim websites. An artist or promotor will appoint CTS to be an exclusive primary vendor of tickets.CTS charges the booker a fee of 12-15%. This is high margin business as CTS is the exclusive vendor so the cost of acquiring web traffic is minimal. They have price elasticity of demand as buying tickets to an event is an emotional purchase and there is a limited supply available.
The company also licences its software for brands to use on their own websites. For example, Bayern Munich and Real Madrid use CTS software to sell tickets to their games. They run a single Saas platform which generates high margins (90% EBITDA), recurring revenue, on 3-5 year contracts.
CTS also owns the promoters of various live events. This division makes strategic investments in promotion companies, which guarantees the ticketing division exclusive content. This is a low margin business (7% EBITDA) where revenue growth can vary from year to year depending on the events schedule. CTS has a competitive advantage due to its scale. They have 35m client profiles which are starting to be monetised. For example, they could facilitate the marketing of travel and accommodation for people that have bought event tickets.
CTS operates in 23 countries, primarily in EU. Their core markets are;
- Germany – 85% market share – with small regional operators have 15% share.
- Austria – 65% market share
- Italy – 60% market share – Ticketmaster is the no. 2.
- Switzerland – 60% market share
This is a digital marketplace which has strong network effects, like Rightmove or Just Eat. Event promoters want to use the largest platform where they are most likely to sell their tickets. Buyers want to attend a particular event and will use the website which sells tickets to that event.Live Nation is the largest international competitor. They own Ticketmaster, operate in 40 countries and are the market leader in the US and UK. Live Nation sold 206m tickets in 2017 compared 49m sold by CTS. They are listed in the US with $11bn market cap and $10bn revenue.
Event tickets are also available on secondary sites such as Viagogo, Ticketline and StubHub. These companies will use software to buy tickets from primary sites (such as Eventim) and then resell them at a marked-up price. When a primary site has sold out or crashes then secondary sites can be the only place to buy tickets.Secondary sites have been scrutinised by the press, politicians and artists for extorting fans. On Ed Sheeran’s tour fans have been denied entry with tickets from secondary sites. Viagogo was fined €1m by the Italian Competition Authority for not displaying the face value of tickets and declaring its fees. Ticketmaster recently announced that it is closing its resale sites, Seatwave and Get Me In. Clamping down on secondary sites will further push supply/demand dynamics in favour of primary sites.
The business is very cash generative as customers buy tickets online and pay upfront. Event promoters are paid at a later date. Cash flow to EBITDA conversion has averaged 146%. The balance sheet shows €736m net cash. The key driver of the ticketing division has been the number of tickets sold growing by 20% pa reaching 49m in 2017. The EBITDA margin in this division is 42%.Revenue growth in the live events division is more volatile, swinging from -10% to +40% pa, depending on the schedule. This is a lower margin business, although it has been consistently profitable with an average EBITDA margin of 7%.
CTS is acquisitive. They have spent €108m in the last 6 years on acquisitions and investments (average €18m pa). The ticketing division will enter a new territory through joint ventures and acquire more of these businesses if they are successful. The live events division will acquire small event promoters. There were 18 such transactions in 2017.
CTS is a good quality business which has demonstrated strong growth and is very cash generative. They are the market leader in multiple territories which constitutes a competitive moat. I think that it is likely that the company will continue to deliver 12-13% growth in the medium term.
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