If you've ever bought a ticket to a concert or a sporting event, you know the pain of paying those pesky ticket fees. Live Nation (LYV -0.49%) owns Ticketmaster and dominates roughly 70% of the ticketing and live venue market, and it's the company you're paying those fees to.
While these fees have always been annoying, calls to reduce or cap them have increased lately, even prompting U.S. President Joe Biden to mention the practice in his State of the Union speech. However, while these fees are undoubtedly high, the company's results paint a different picture. So let's look at Live Nation's business and see if the fees are absurd.
Live Nation isn't massively profitable yet
Many people don't understand that Live Nation owns many of the concert venues and festivals you may frequent, in addition to the digital ticketing service. This widespread reach is where much of the controversy of Live Nation occurs.
| Venue Type | Number |
|---|---|
| Owned | 30 |
| Leased | 188 |
| Operated | 53 |
| Exclusive booking rights | 61 |
| Equity interest | 6 |
| Total | 338 |
Source: Live Nation.
Because it owns nearly every segment of the concert experience, artists are forced to use Live Nation because they can't tour without it. When you can't get away from using it, it opens up monopoly accusations (which aren't illegal). This practice only becomes illegal when anticompetitive behavior exists, and with other competitors in the mix, it's hard to make this claim.
But do all these fees add up to a ridiculously profitable business?
In 2022, ancillary per fan revenue (ticket fees) was $37, up 25% from 2019's levels. This helped Live Nation generate nearly $16.7 billion in sales throughout 2022. However, not all of that turns into profits.
$12.3 billion is lost in direct operating expenses, which pay the artists, market the shows, pay credit card fees, and cover other things necessary to run the concert and event operations. The remaining expenses go toward paying its employees, and by the time that's done, it leaves $732 million in operating income for the company.
After interest on debt, other expenses, and taxes are paid, Live Nation produced about $296 million in net income throughout 2022.
Compared to many other companies, that's not a lot. Plus, it doesn't make a considerable amount of net income per employee, especially when you compare it to some of the tech giants. This metric can help investors determine how profitable a company is compared to its relative size.
LYV Net Income Per Employee (Annual) data by YCharts
As you can see, despite ticket fees seeming high and annoying, Live Nation isn't making much off you. It also makes considerably less than tech giants like Apple and Microsoft.
So if you don't like the fees, what can you do about it?
Investing in Live Nation could be lucrative
When the first thing that comes to your mind is "This company is making a lot of money off me," the first thing you should do instead of getting frustrated with your hard-earned cash being spent is think about investing in the company.
This was one of the tenets of legendary investor Peter Lynch's philosophy: Invest in what you know. Live Nation has a robust business model, and it's unlikely people will stop going to events and concerts. Therefore, it might be a strong candidate as an investment so that you can profit from its success.
While it doesn't produce a ton of profits yet, Live Nation is rapidly heading in that direction. In 2022, Live Nation grew its revenue at a 44% pace, but its operating income grew at a 125% rate. When a company is growing its profits much faster than revenue, it's a sign that a company is quickly rounding the corner and optimizing itself for profits. If you can catch a company beginning to do this, it can be an opportune time to invest.
2023 is also expected to be another strong year. Concert ticket sales were up 20% over last year's numbers to begin 2023, and gross transaction volume (ticket prices including fees) were up 33%. As evidenced by the Taylor Swift concert rollout last year, concert demand is still incredibly high. The NFL also had another strong year, with nearly every team seeing its attendance increase over 2021 levels. It's unlikely this demand will disappear, and Live Nation will be there to profit from this rise.
If it can capitalize on this growth and continue to grow its operating profits faster than revenue, 2023 could be a strong year for the stock.
With the stock trading for an incredibly low price-to-free cash flow (FCF) valuation -- 11 times FCF -- it's an intriguing buy at these levels. After all, this is a cheap valuation for any stock, let alone a rapidly growing company.
Live Nation ticket prices aren't fun to pay, but they could make you a lot of money as an investor. Consider picking up a few shares of the music stock to track its progress. If all works out, the stock could fund your next event purchase (including the fees).
