Insights: Festicket – No quick path to profits for investors

Our Insights team is back from the summer sunlounger and has selected one of this summer’s headliners – Festicket – for this report:

In late August 2019 Festicket – a consumer-facing marketplace enabling discovery and the booking of music festival tickets, accommodation, transfers and add-ons – acquired the UK-based ticketing and cashless point-of-sale (POS) platform Event Genius and its associated consumer-facing brand Ticket Arena for an undisclosed amount. We reported the news here.

Festicket self-describes as ‘the world’s largest platform for discovering and booking festival experiences’, claiming to have aggregated approximately 1,200+ music festival partnerships and a network of 5,000+ suppliers of accommodation and travel packages across 40 countries.

Source: Festicket.com 

Founded in 2012 by Zack Sabban (CEO), Jonathan Younes (CPO) and Jerome Elfassy, it is headquartered in London but with satellite offices in Amsterdam, Berlin, Porto and San Francisco, and – before the Event Genius / Ticket Arena acquisition – employed approximately 159 staff.

Festicket aims to exploit the Millennial shift towards an experience economy and the rise of event tourism by aggregating the world of festivals to a single marketplace and combining tickets, accommodation, festival site transfers, ‘glamping’, merchandising and transport via a seamless booking experience.

According to news coverage, with the Event Genius / Ticket Arena acquisition Festicket is now seeking to become ‘The World’s Largest B2B2C Platform For Live Events’.

However, there are several issues relating to the Festicket model, the value of the Event Genius / Ticket Arena acquisition and whether the combination will truly enable the enlarged company to survive and then deliver on its stated aspirations.

Festicket Fundraising

Festicket since founding in 2012 has raised some $30.6M (£27.4M) in ten rounds including:

• 6th July 2012 Seed (Undisclosed)
• 11th March 2013 Seed $680K
• 11th Sept 2014 Series A $3M led by PROfounders
• 15th Jan 2016 Series A
• 30th June 2016 Series B $6.3M led by Lepe Partners
• 22nd Feb 2017 Venture Round
• 1st June 2017 Series C including Angel Capital
• 12th Nov 2018 Series D $10.5M led by (Eyal Malinger) Beringea, Commercial Growth Fund, InMotion Ventures, Lepe Partners, U-Start
• 5th Feb 2019 Series E €4M led by Edge Investments
• 28th Feb 2019 £4.1M Crowdcube Equity Crowdfunding Fundraise

As revealed in the Companies House Annual Returns, the attempt to aggressively capture market-share, from pre-existing festival ticket outlets, has meant the company made an EBITDA loss in 2018 of €7.3M following losses of €3.3M in 2017 and €2.4M in 2016.

Again, as noted in the Annual Returns: ‘Festicket is still a loss-making company and therefore dependent upon investors to fuel its growth’.

Revenues

Festicket reports that in 2017 the value of bookings (Gross Booking Value – GMV) doubled from €22.2M in 2016 to €45.3M which represented 240,380 transactions covering 397,479 consumers with an average order value of €188 achieving a gross margin of 10.3%.

In 2018 this had grown to €56.0M GMV from 350K transactions with a gross margin of 10.2%.

Within the recent Crowdcube Investor Presentation (Spring 2019) Festicket forecasts a target GMV of €105M in 2019 rising to €188M in 2020 and €305M in 2021.

To achieve this growth and increase its global festival market share from 0.5% in 2019 to 2% by 2021, Festicket has concentrated on delivering a unified consumer destination for festival discovery, recommendation and onsite experiences, for example via its own Festicket Magazine (festival-lifestyle) news channel.

This editorial-led content approach means that Festicket is able to claim that it is the biggest festival-focussed publication in the world with 22.5 million website users and some 65 million page views in 2018.

Does the Festicket business model scale?

Externally Festicket appears to be a very manual-intensive business. Based on prior year financials the payroll costs currently exceed the gross profit, and this will obviously need to be addressed in the future.

Further, the technology investment required to automate and connect all the moving parts – tickets, accommodations, transfers, camping/glamping, merchandise and transport – is a major ongoing R&D project.

Similarly, the creation or incorporation of 3rd Party produced editorial content into the Festicket festival discovery channels will continue to demand incremental resource as the scale and diversity of global inventory grows.

Additionally, the continued internationalisation of Festicket i.e. the opening of new regional offices will inevitably continue to put pressure on costs e.g. expansion into Australia & New Zealand.

Festicket financial analysis

There’s a useful summary of Festicket financials here – courtesy of Crowdcube. Technically speaking the Festicket claim within the recent Crowdfunding exercise that they “consistently deliver exponential top-line growth” appears to be incorrect.  For example, their performance from 2017 to 2018 (€45.2M to €56.0M) revealed growth was increasing but actually at a declining rate.

Further, from 2017 to 2018, net Gross Booking Value increased by 26.4%, while COGS increased by 20.4%, Sales & Marketing increased by 45.8% and General Admin including R&D expenses for the same period increased by 67.7%, driving the EBITA loss to increase by 184.8%.

This leads to a similar conclusion as earlier stated – Festicket, thus far, is a very labour-intensive business that may be tough to grow profitably.

Additionally, within the same document the Festicket market share projection (below) for 2021 doesn’t make sense.

A 0.5% global market share with €105M Festicket GMV implies a €21Bn TAM (Total Addressable Market).

Whereas a 2.0% global market share with €305M Festicket GMV implies a €15Bn TAM.

Is Festicket really expecting the TAM to substantially decline over three years? Or is this simply a mistake in the presentation?

So why Event Genius / Ticket Arena?

Founded in 2008 by CEO Reshad Hossenally, Ticket Arena is a regional retail ticketing agency which utilises the Event Genius platform.  Event Genius established in 2012 is an event management solution encompassing ticketing, access control, cashless payments and fan engagement.

Together the two companies claim to have served over 1.8M customers, generating over £350M of sales-to-date, whilst processing in excess of 4 million cashless transactions at events and festivals across the UK and Europe.

During 2017 the companies processed approximately £30M online & £20M cashless payments with combined revenues in excess of £3.5M.

However, after examining the Company House Annual Returns the following fiscal information is revealed.

Event Genius (with 10 employees) in 2018 had net liabilities of £3,925,992 derived from the multi-year development of the ticketing and cashless solutions, and the still developing license fee revenues, but has an undertaking from its immediate parent (Ticket Arena) that ‘it will not demand repayment of loans advanced to the company, in part or in full, until the company has sufficient cash resources to do so’ and therefore the company should be considered a ‘going concern’.

At the end of 2018 Event Genius owed £5,429,439 to Ticket Arena, up from £4,832,439 the previous year.

Within the Ticket Arena (20 employees) Annual Returns it is notable that Reshad Hossenally had provided a Personal Guarantee against a Bank Loan of up to £300K, with a fixed and floating charge over the assets of the Company in place securing all Bank borrowings of £897,353 – including a Bank loan of £400K and any company overdraft etc.  Ticket Arena Bank Loans due over the next five years totalled £640K.

At the time of issuing the 2018 Annual Report (25th July 2019), ‘the directors have reasonable expectations that the company has adequate resources to continue trading for the foreseeable future’.

Perhaps the August transaction with Festicket really was timely?

Outlook

Moving on from the reported underperformance or fiscal fragility of these parties, both Festicket and Event Genius / Ticket Arena are youthful organisations each seeking to grow and develop their operations and the transaction implies they are working within complimentary sectors that will add incremental value to each.

The stated aim of the transaction is to produce the most complete B-2-B-2-C platform for festivals and other live events.

However, it is operationally difficult to develop any ‘End-to-End’ solution, especially with a product-set that has so many client and consumer expectations of features and evolving technology services. And perhaps even more difficult when the organisation is also reliant upon external investors to continue to support and execute upon that vision.

Additionally, the successful combination of Festicket services, may potentially detrimentally impact upon the continued supply of festival inventory from some suppliers – some of whom may be serviced by competitors to Event Genius / Ticket Arena – to say nothing of the previously announced partnership with an alternative RFID cashless provider in September 2018.

Suffice to say TheTicketingBusiness looks forward to reviewing developments of this transaction in the weeks and months ahead. The path to profitability for Festicket lies ahead but can it get down there without more investment? And will the current investors have the patience required for the ride ahead?

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Other articles in our Finance Insights series:

• (7 June 2019): Riding a rollercoaster with Accesso
• (31 May 2019): Millennial Ticket Discovery – TodayTix vs GetYourGuide
• (15 May 2019): LiveNation Entertainment Q1/19 Analysis
• (26 April 2019): StubHub’s performance in the wider eBay picture
• (19 April 2019): DEAG – Growing & diversifying the portfolio
• (4 April 2019): Eventbrite’s stock performance since IPO
• (22 March 2019): CTS Eventim’s dividends and performance

*ABOUT THIS ANALYSIS: This series of financial insights is provided by the The FP&A Team at TheTicketingBusiness. The FP&A Team comprises a group of industry finance experts who volunteer their expertise to provide ad hoc analysis of key industry financial, M&A, funding and investment news. All in an effort to better-inform the market and support the industry’s long term development. Any questions or feedback welcome to analysis@theticketingbusiness.com

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