Description

Company Description                                                                                                                                                                    

CTS is a cleaner, European way to play the boom in the live entertainment industry than Live Nation.

CTS Eventim is Europe's largest ticket seller for live entertainment, selling more than 100 million tickets per year for its rock and pop music, sports, musicals, and orchestral performances held mostly Germany, Italy, Austria through its network of call centers and more than 20,000 ticket offices across Europe. The Company operates two complementary segments: Ticketing, which generated 37% of total revenue in 2022 and handles the ticket sales and distribution; and Live Entertainment (63% of revenue), which plans, prepares, and executes tours and events especially concerts and music events.                                                                                                                                                                   

Investment Thesis                                                                                                                                                          

1. CTS Eventim is the largest player in the live entertainment ticketing and promotions space in Europe, with >80% share in Germany, Italy, Austria and Switzerland. In the past, Amazon, among other large tech players has attempted to enter the industry without success. There are significant barriers to entry for a new player to steal share: CTS a) controls 15% of the promoters in Europe; b) has a ticketing infrastructure that works and is reliable; and c) acts as an interface / punching bag for artists to shift any potential ticketing issues felt by fans.

2.  The pandemic resulted in a significantly lower volume of live events for obvious reasons - 2022 was the first year where we witnessed a comeback in live events. CTS (particularly from 2Q22 onwards) participated in this comeback, with tickets sold going to an all-time peak of 66.4mm, after two years (2020-2021) of combined ticket sales of ~49mm. The pre-pandemic 2019 ticket sales number was 57.3mm, which was growing at a MSD-DD rate annually for several years prior. There is a significant amount of pent-up demand for concerts both from the demand side and the supply side - but in this industry it is really the supply-side that drives revenue, as the top 1% of artists generate 80% of ticketing revenue from live events.                                                                                                                                                                      

Of the Top 50 artists in the world, the data indicates 84% of these top 50 artists are due to tour again in 2023 (Fig 6). If we apply 30% inflation (reflecting significantly higher ticket prices and a higher mix of superstar artists performing post-pandemic) and we swap in top-tier artists who did not perform in 2019, but who will in 2023 (e.g. Taylor Swift, Coldplay, Bruce Springsteen, Beyoncé), the total 2023 gross could increase by as much as 73% versus 2019 levels (see chart below). Billboard suggests her Eras tour will gross ~$600mm in the US alone and she recently announced 2024 tour dates for Europe.

From a timing perspective, Europe is lagging the US as most top artists reside in the US and thus that is where their initial tours are held, followed by a year where their tours usually come to Europe, thus 2023/2024 is likely to be a big year for ticket sales/events in Europe.

3. Pricing is likely to benefit from both sticker price inflation and mix. In Germany, music festivals are pricing in 40% inflation in ticket prices, as are top acts. That being said we have modelled in 10% price inflation for overall ticket volumes. Germany was also a much smaller % of the mix in 2022, (usually a 60% share but 0% share in 1Q22 and 20-30% share for the rest of the year); Germany ticket prices are ~25% higher than Italy, Austria and Switzerland. Thus, we feel blended average ticket prices will be up by ~20% in 2022. Indeed, average ticket prices for Swift’s European tour are 3-4x the average price of tickets that Eventim sells, while we have observed similar trends spot-checking ticket prices for Coldplay and Depeche Mode.

4.  Net Cash - CTS (excluding prepaid tickets for live events or advances owed to promoters) had a net cash balance of ~€400mm as of June 30, 2023. We expect cash generation to grow this number to ~700mm by year-end 2023, representing ~€7/share in cash.                                                                                                                                                                

Risks/Mitigants                                                                                                                                                                

1. Regulatory Issues: In June 2023, TV satirist Jan Bohmermann criticized Eventim's ticket sales fees as too high, and also profiting from a resale ticket website. Similarly, LiveNation in the US has been targeted for having monopolistic power as they own live event spaces and provide kickbacks to venues who, in the US, decide which ticketing company wins the contract for an event.                   

Mitigants:

1. In Europe, unlike the US, the venue does not decide which ticketing company wins the contract. Artists’ agents select a promoter, who independently selects a venue and a ticketing company. While CTS does own 10% of promoters in Germany, which represent about 15% of ticket sales, CTS has to win majority of its business from promoters. Additionally, the artist and the promoter have no control over ticket prices, which are determined directly by venues.
2. Resale website Fan Sale represents a negligible % of revenue for CTS Eventim.            
3. There have been 4 investigations into the industry in Germany over the past several years, and nothing has come out of it. The German cartel authority chief has been publicly quoted as saying that CTS Eventim's dominance does not mean it is illegal.
4. Given the stock has declined >25% from its highs, we believe this risk is already present in the stock price and this as an attractive entry point.

Indeed, the most powerful point which we think is being missed by the market, is that the DoJ is looking at Europe as a guide to regulate LiveNation in the US. And that itself provides a massive market share opportunity for Eventim. The EU Competition Commission’s directive is that if a monopolist is harvesting consumer wealth, they could takeaway 10% of domestic revenue by decree. 10% of Livenation’s $2.7 billion ticketing business (or indeed of its $20 billion total business that also includes concert promotions and sponsorship/advertising), would provide a €250 million revenue opportunity for Eventim, or an opportunity to grow its ticketing business 35%.

Eventim is already setup business wise in the US through a JV. Eventim also has a competitive advantage over SeatGeek or Vivid Seats since those players only have a software offering, whereas Eventim has content as well – their promotion companies are already contracted with US artists on shows and hence they can easily fill up dates at venues.                       

2. Live Events Cliff in 2024/25: Elevated post-pandemic demand must surely normalise at some point or, if it does not, superstar supply will wane as touring cycles complete.                                                                                                                                                                  

Mitigant: There will be an unwind over the next few years as the market normalises. The US, which unlocked first, will likely decelerate in 2024 as its superstar supply heads for the international circuit.

Based on touring schedules, of the top 50 artists returning to the circuit in 2023, 76% will be performing in the US this year but only 30% in Europe (Fig 16). In other words, the second leg of the typical two to three-year touring cycle (Europe and international) has yet to take place for many artists. Indeed, Maroon 5, Adele, and Lady Gaga have all announced tours to Europe in 2024. Pre-COVID, there were 30 large artist tours per year in the U.S., this has skyrocketed to 60 in 2023, the spillover effect of which will come to Europe in 2024/25.                                                                                                        

Valuation:                                                                                                                                                                          

The stock is currently trading at 18.5x NTM P/E, vs. its pre-pandemic average of 24x. On an EV/EBITDA basis, the stock is trading at 11.0x (vs. its pre-pandemic average of 13x vs. LYV that is trading at and traded at a pre-pandemic average of 11x as well.

We value the stock at 25x P/E given continued outperformance and 13x EV/EBITDA, resulting in a target price of €79/share when earnings are posted in March 2024.                                                                                                                                                                       

Catalyst

Catalysts:                                                                                                                                                                            

1. Continued outperformance in 2Q/3Q/4Q ticket volumes and pricing, and EBITDA.

Large artist ticket sales such as Taylor Swift, Coldplay and Depeche Mode went on sale in July, with tickets sold out within days, if not minutes – this should drive meaningful upside to 3Q23 and FY23 revenue in the ticketing segment.

The rule of thumb in the business is that 1/3^rd of ticketing EBITDA is generated in 1H, with 2/3rds in 2H, of which 50% is generated in the fourth quarter (when large volumes of tickets are sold for the following summer’s events), in which case Eventim is set up for a big beat on EBITDA in FY23.

In Live Entertainment, the Street was worried about artist cost inflation hampering margins (artists charging more for festival appearances), but promoters have more than covered this inflation by monetizing live streams (Rock Am Ring in Germany for example had 6 total cameras for live streaming across 3 stages vs. only 1 across 1 stage last year).

I expect Eventim to generate €2.42 billion of revenue and €483 million of EBITDA in FY23 vs. the Street’s numbers of €2.07 billion and €413 million, respectively.

2. Regulatory overhang removed per above.