Ticketmaster parent company Live Nation Entertainment (LYV 0.17%) is playing a sad song in 2020. The COVID-19 pandemic forced the company to cancel or postpone nearly all of its scheduled events this year. Revenues have been virtually nonexistent since the middle of March, and the company is burning cash to the tune of $120 million per month. But this too shall pass, right? Coronavirus vaccines are already reaching people in high-risk categories, promising a return to normalcy in the near future.
Where is Live Nation going from here? Let's have a look at the company's business prospects over the next five years.
Survival of the fittest
Live Nation has enough financial muscle to make it through this extended break. The company had $2.6 billion of cash equivalents on hand at the end of September. That should be enough to carry Live Nation through another year and a half of revenue-free operations at the current rate of cash burn. It would take a complete shutdown until the spring of 2022 to run the cash reserves and untapped debt sources dry. That's highly unlikely now that we have several COVID-19 vaccines either approved or close to emergency approval.
Even if some people simply refuse to get vaccinated, Live Nation should be able to stage plenty of live events next summer. The company doesn't have the power to require vaccines or negative coronavirus tests before selling you a ticket, but Ticketmaster will strongly recommend that the local event organizer do exactly that.
"One idea to keep the event entry process as simple and convenient as possible is to find a way for fans to link their digital ticket to their negative test results, vaccine status, health declaration, or any other info that is determined to greenlight access," reads an answer on Ticketmaster's frequently asked questions page. This way, the paperwork will be out of the way long before the show, and fans can get in with a single scan of their ticket. Together with strict social distancing policies, this idea should let Live Nation get back to business before the start of the all-important summer season.
The return to normal operations will take time. Yet consumers are hungry for live entertainment after a long spell of nothing but videos and online livestreams. Live Nation can look forward to a complete recovery within the next five years, and that's not all.
The pandemic is pushing many smaller ticket vendors closer to the brink of financial disaster. Ticketmaster may very well buy some of its former rivals at a generous bankruptcy discount over the next couple of years. This industry giant is poised to command an even larger share of the total markets for ticket sales and management of live events.
Is Live Nation a buy today?
Sure, Live Nation will make it through this crisis and most likely thrive in the long run. At the same time, the company is guaranteed to suffer financial damage in 2020 and 2021 that will weigh on its balance sheets and income statements for years. It won't be business as usual for quite some time.
Meanwhile, Live Nation's investors have largely jumped to the conclusion that everything will be just fine in a matter of months. The stock is trading just 8% below February's all-time highs, completing a 224% rebound from the multiyear lows of March. Share prices have increased by 2% in 52 weeks, as if Live Nation just turned the corner and will report solid financial results within a quarter or two.
That's overly optimistic. I expect this stock to run through a gauntlet of disappointing results and disappointed shareholders for the next year or so -- and maybe more.
Live Nation may be a solid performer in the long run, but it's not a good buy at today's inflated prices. Wait for the near-inevitable correction before you make your move. Five years from now, the stock should have worked through all of that pain and be on the rise again. All we need is just a little patience, as hard rock legend Axl Rose would say.