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Live Nation: A Good Investment?

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The largest live entertainment company in the world, Live Nation (NYSE: LYV  ) , has been doing well recently. The company's stock price is near a 52-week high and the company has delivered strong revenue and concert attendance numbers in 2013. Owing to these strengths, Live Nation can do well in the future.

More events
Live Nation's revenue grew 11% in 2013 to $6.5 billion, driven by higher concert attendance of 19% in the holiday quarter. As the warmer months are right around the corner, the company's revenue will see a seasonal boost, as Live Nation generates most of its revenue during the second and third quarters. 

Live Nation organized and promoted 22,900 events in 2013, which brought together more than 60 million music fans. Scale and relationships with high-profile musicians give the company a big edge in organizing concerts and growing sales. The company operates in four segments, but revenue from concerts makes up almost 70% of its total sales.  Because of the high operating costs of concert organizing, the segment has been operating at a loss for the last three years, but it has narrowed its losses substantially and it should be profitable in the coming years.

The company connected more than 400 million fans through all of its business segments to more than 240,000 events in 33 countries in 2013. The company also holds equity interests and/or exclusive booking rights in 148 venues that include some very prominent and prestigious locations in the U.S. and Europe. As GDP growth improves across the globe, the increased discretionary income of individuals will lead to higher revenues for leisure entertainment providers like Live Nation.

Ticket business growing
Live Nation's ticketing business operates under the well-known brand of Ticketmaster, the leading ticketing sales platform in the world. The company has a large footprint in this high-margin agency business in which it charges fees to sell tickets on behalf of its clients. In 2013, the ticketing business sold 149 million tickets. The ticketing business is a very profitable one for Live Nation, and it helps the company reach out to promote future events to its target customers. 

The company sold almost two-thirds of its tickets through the Web last year. It developed a customer database of 130 million, a healthy increase from 110 million in 2011. The ticketing segment generated roughly 22% of the company's total revenue, and it should do well as more sports franchises, sports teams, museums, and theaters, sell their event tickets through Ticketmaster.

In addition to concerts and ticketing, Live Nation has two other smaller, related segments that make up less than 10% of its total revenue -- artist management services and advertising and sponsorship. The artist management services segment earns commissions on the earnings of roughly 240 artists. It has seen its operating losses decline in 2013 and is close to recording an operating profit in the years ahead. 

Live Nation's advertising and sponsorship business is a highly profitable one, with a 15% increase in revenue and a 10% increase in operating earnings in the last year. The segment has been growing its contributions to Live Nation for three consecutive years and it has a high EBIT margin of 67%. However, advertising and sponsorship make up less than 5% of the company's total revenue. 

Improving fundamentals
In spite of market-leading positions in numerous niche categories the company has delivered negative earnings for the past three years, but it has seen good revenue growth and has grown its customer base as well. However, the company has seen substantial improvement in its operating income for 2013, relative to the prior two years. Live Nation's operating income for 2013 stood at $140 million.  

The company is backed by John Malone's Liberty Media, which holds a sizable stake of 26% in Live Nation. Since the highly regarded investor took a stake in Live Nation, the shares of the company have more than doubled. While many investors would be turned off by the company's negative EPS, more astute readers of financial statements would see that the company has increased its operating cash flow in each of the last three years. In 2013, Live Nation's operating cash flow increased 14% year over year to $417 million. So the company improved its financials where it counts the most -- cash flow.

The bottom line
The company has demonstrated substantial progress in most of its business lines -- but some of the segments, like the concert segment, are still having a hard time controlling costs in spite of stellar revenue growth. Live Nation's large music network and its relationships with venues and artists provide the company with good competitive advantages, but it hasn't been fully able to capitalize on these strengths. If the company can control costs and/or implement small price increases for its tickets, its earnings could see upside. However, the stock has had a good run-up in the past year and investors should probably wait for a pullback.

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8/31/2015 3:45 PM
LYV $24.66 Down -0.14 -0.56%
Live Nation CAPS Rating: ***