Some businesses have been hit harder than others during this coronavirus shutdown, and it's clear that Groupon (GRPN -0.35%) and Live Nation (LYV 0.32%) are pretty bruised these days. There aren't a lot of people hitting up Groupon for discounted vouchers to local dining and shopping experiences, and you know it's going to be a long time before you're in a crowded arena to take in a Live Nation-promoted concert.
Groupon and Live Nation are dominant in their fields, but which one is the better investment right now? It's a battle of the brands, so let's get on with the show.
Image source: Getty Images.
Mic check, one, two
There's no denying that Live Nation was in better shape than Groupon before COVID-19 came around and unplugged all of the amps. Live Nation closed out 2019 in fine fashion, with revenue rising 7% to $11.5 billion and adjusted operating income growing twice as fast.
In the other corner, Groupon is on a losing streak, with 16 consecutive quarters of declining revenue. Some of the negative growth is by design as the daily deals specialist abandons unprofitable markets, including its low-margin merchandise segment. Groupon has been consistently profitable on an adjusted basis, but it has fallen well below analyst projections over the past three quarters.
Live Nation and Groupon are going through a lot right now, and it's not a surprise to see the stocks falling out of favor. Live Nation's close on Tuesday was a little less than half of where it was when the shares hit all-time highs two months ago. Groupon investors have fared even worse. The stock has shed nearly three-quarters of its February high, and if you want to go all the way back to the all-time high that Groupon hit shortly after its 2011 IPO, you would be looking at a portfolio-crushing 97% decline.
Live Nation had strong momentum heading into the pandemic shutdown. It had 98 million people show up to its shows last year, a 5% increase. Marketers hungry to reach young audiences have flocked to event branding opportunities, sending sponsorship and ad revenue up 17% for Live Nation in 2019.
This should've been a strong year for Live Nation. It had sold 38 million concert tickets for 2020 shows as of mid-February, 10% ahead of where it was at that point a year earlier. It had lined up 70% of its budgeted sponsorship net revenue commitments. Groupon, on the other hand, was backpedalling.
It's hard to deny that Live Nation is the better business on most fronts, but I'm going to break into a surprising key change and pick Groupon as the better investment at this point. Even when venues begin welcoming concertgoers again, it's not going to be with the same gusto that we saw in an expanding economy. We're going to be in a financial funk, and that's before considering how hesitant folks will be after all this to be within coughing range of countless strangers.
Groupon has a clearer path to consumers' pocketbooks. Businesses will be hungry to offer deals to attract new customers, and recession-weary folks will be looking for discounts. Groupon's recovery will not happen overnight, especially since a lot of its business comes from travelers looking to explore discounted experiences in new areas. The travel industry is going to take longer to recover than locals turning up for a once-in-a-lifetime concert tour rolling into town. However, given Groupon's much lower valuation, harder-hit stock, and clearer path to a return to adjusted profitability, I'm going to buck conventional wisdom and side with the online discounter. Even with a reverse stock split looming as an event that has been historically destructive for investors, Groupon is the right stock for right now. The current climate and eventual recovery will test consumer discretionary stocks, and while I think Live Nation is the stronger business for the long run, I feel that Groupon stock will be the one delivering the bigger gains in the year ahead.
