Ticketmaster parent company Live Nation Entertainment (LYV 0.36%) is having a rough time in 2020. The COVID-19 pandemic and efforts to mitigate it have shut down live events such as rock concerts and live sporting events around the world, essentially halting Live Nation's business operations. The company's second-quarter revenues came in 98% below the year-ago report. A net loss of $2.67 per share was the weakest bottom-line showing since the financial crisis of 2008.
Will Live Nation overcome this difficult period and post a full recovery over the next five years, or has the health crisis permanently damaged the company's business model?
Image source: Getty Images.
What's the damage?
First things first. Live Nation's stock has delivered a solid recovery from the market bottom in March, gaining 141% in five months. Investors are still saddled with a 32% drop from January's all-time highs, though. On top of that damage, more than 9% of Live Nation's shares are sold short right now. Market makers have serious concerns about Live Nation's future business prospects, and many are voting with their wallets.
Ticketmaster tried to avoid refunding tickets for canceled or rescheduled shows, but that effort raised an outcry among the company's customers. So far, Live Nation has issued $695 million in ticket refunds, but 86% of the presold tickets for rescheduled events are still in the hands of their buyers.
Live Nation's management has argued that the large number of rescheduled but still valid tickets proves that consumers are itching to get back to their live events as soon as possible.
"The tickets on sale will comfort you and you're going be able to go to the shows next summer," Live Nation President Joe Berchtold said in last week's second-quarter earnings call. "We have a high degree of comfort that the demand's going to be there. Eighty-six percent of the people are keeping their tickets to the shows, [and] two-thirds of the people are keeping their tickets for festivals that were canceled this year ... still saying they want to go to the show next year instead of getting their refund."
Image source: Getty Images.
Managing through the health crisis
Live Nation expects to get back to relatively normal operations in the summer of 2021. The management team won't commit to a specific percentage, but ticket sales and revenues should land somewhere between 70% and 90% of a normal year's operations. This assumes that the COVID-19 pandemic runs its course through the development of a safe and effective vaccine, better treatments for active cases, and/or herd immunity. Live Nation's normal operations are roughly half domestic and half international, so the company will certainly see a patchwork of reopening event markets around the world.
Meanwhile, the company has a lot of fixed costs to handle while the top line is recovering. Live Nation is burning roughly $125 million per month right now, and management sees that rate holding steady through the end of 2020. The lights will stay on thanks to a $1.2 billion round of debt papers added in May.
The company is also trying to whip up some business in this market lull, arranging unusual events such as live-streaming video shows and drive-in concerts. You shouldn't expect these ideas to make up for the loss of full-fledged live events, but it's a start.
What's next?
Looking back at the COVID-19 recession of 2020 from the year 2025 should bring back memories of the subprime mortgage crisis in 2008. The pandemic haircut actually looks mild by comparison, at least so far. In the spring of 2009, Live Nation's shares traded a terrifying 86% below their annual highs.
The company appears to have enough cash on hand to make it through this crisis as well, even if it turns out to be a long and painful struggle. Here's how the stock fared over the last five years:
I can't promise that the recovery will be just as exciting this time, but this is clearly not the end of the road for Live Nation. Rock 'n' roll will never die, right? Sales of event tickets, band t-shirts, parking passes, and stadium-style snacks won't go away, either. They're just taking a break for a year or two.
