Advertisement
Australia markets open in 5 hours 17 minutes
  • ALL ORDS

    8,479.00
    +62.40 (+0.74%)
     
  • AUD/USD

    0.6766
    -0.0033 (-0.48%)
     
  • ASX 200

    8,205.40
    +55.40 (+0.68%)
     
  • OIL

    76.99
    +2.61 (+3.51%)
     
  • GOLD

    2,666.20
    -1.60 (-0.06%)
     
  • Bitcoin AUD

    94,108.67
    +1,485.09 (+1.60%)
     
  • XRP AUD

    0.80
    +0.01 (+1.64%)
     

Are Investors Undervaluing Eventbrite, Inc. (NYSE:EB) By 49%?

Key Insights

  • The projected fair value for Eventbrite is US$5.76 based on 2 Stage Free Cash Flow to Equity

  • Eventbrite's US$2.94 share price signals that it might be 49% undervalued

  • Our fair value estimate is 8.6% higher than Eventbrite's analyst price target of US$5.30

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Eventbrite, Inc. (NYSE:EB) as an investment opportunity by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

See our latest analysis for Eventbrite

What's The Estimated Valuation?

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) estimate

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$56.0m

US$74.0m

US$43.0m

US$50.0m

US$47.3m

US$45.9m

US$45.2m

US$45.1m

US$45.4m

US$45.9m

Growth Rate Estimate Source

Analyst x2

Analyst x2

Analyst x1

Analyst x1

Est @ -5.40%

Est @ -3.03%

Est @ -1.37%

Est @ -0.21%

Est @ 0.60%

Est @ 1.17%

Present Value ($, Millions) Discounted @ 10%

US$50.9

US$61.1

US$32.3

US$34.1

US$29.3

US$25.8

US$23.1

US$21.0

US$19.2

US$17.6

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$314m

After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.5%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 10%.

Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$46m× (1 + 2.5%) ÷ (10%– 2.5%) = US$623m

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$623m÷ ( 1 + 10%)10= US$239m

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$553m. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of US$2.9, the company appears quite undervalued at a 49% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.

dcf
dcf

The Assumptions

We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Eventbrite as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 10%, which is based on a levered beta of 1.835. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

SWOT Analysis for Eventbrite

Strength

  • Cash in surplus of total debt.

Weakness

  • No major weaknesses identified for EB.

Opportunity

  • Has sufficient cash runway for more than 3 years based on current free cash flows.

  • Good value based on P/S ratio and estimated fair value.

Threat

  • Debt is not well covered by operating cash flow.

Looking Ahead:

Whilst important, the DCF calculation is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. What is the reason for the share price sitting below the intrinsic value? For Eventbrite, we've put together three relevant factors you should explore:

  1. Risks: Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Eventbrite , and understanding these should be part of your investment process.

  2. Future Earnings: How does EB's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

  3. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!

PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.