Diogo Gonçalves

I decided to sell Eventim after a 20% gain in a couple of months. Nothing really changed in my thesis; I just don’t think I have enough conviction into the company.

The business has a lot of characteristics I like. Founder has 39% and is actively buying shares. They have a very defensible moat in ticketing with high margins.

The problem, however, is that they have been investing aggressively investing in venues and in the live entertainment sector. I believe it’s the right thing to do for the company. It protects their main moat.

However, even though they need to do it to defend the moat, i’m not convinced they generate attrative returns. the incremental profits have very low ROIC compared with their current cost of capital.

Ticketing volume has been mostly flat, with growth coming from higher prices, and the new investments are not that attractive. The incremental capital being deployed appears to earn significantly lower returns and may even be below the company’s cost of capital.

The last results show they are growing at the expense of margins.

Competition is also a concern. Live nation has been investing aggressively in Europe, and benefits from a much larger global scale. Eventim may be able to keep defending its European business but will have a harder time doing the same in the US.

I do believe the moat is still there. However with a valuation of 25x earnings and the necessity to reinvest at lower returns, I do not feel comfortable paying this for a business with lower rates of return going forward.

I also want to have a bit of cash available now to deploy when the time comes, but that is more secondary to the equation. Cash is currently yielding 3%, and it’s because more attractive to way for better investments.

In the end, this was not a decision driven by valuation alone. It was mostly a question of conviction. When I own a company, I want to feel comfortable holding it for years. Despite many admirable qualities, Eventim never reached that level for me.