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Live Nation Entertainment Inc: Dominant Market Position Is Music to My Ears

By Abi Malin – Jul 20, 2015 at 11:30AM

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How strategic planning alterations could change this Live Nation's outlook to be the best in the industry.

"Tell me, baby, what's your story? -- Red Hot Chili Peppers

Live Nation Entertainment(LYV 1.76%) is the largest live entertainment company in the world when measured by total fans, boasting nearly 519 million of them internationally. The company operates in four segments: live music events, ticketing services, sponsorship and advertising sales, and artist management and services. Since its beginnings in 2005, when the company separated from Clear Channel Outdoor Holdings, Live Nation has worked on building a brand within the music industry. A lot has changed since then. 

Take a look at some of the key defining numbers for the company below:

  FY 2012 FY 2013 FY 2014
Number of Fans 49,994,000 59,536,000 58,578,000
Number of Countries LYV Operates In 47 28 33
Number of Events 21,938 22,852 22,801
Number of Artists Managed 230 240 280
Number of Tickets Sold 147,732,000 148,852,000 153,744,000
Number of Festivals Produced 50 60 68
Ticket Sales Outlets 9,200 6,800 8,400

Integration Level Drives Value

The magic is in the music and the music is in ..." -- The Lovin' Spoonful

Live Nation! While preferences have changed, the fact that music is an essential part of society has not. One particularly interesting facet of the company is the level of integration within the music industry. Live Nation hosts events at controlled venues with performances by internally managed artists. After seeing advertisements produced by Live Nation, people use company-owned platforms (most notably: Ticketmaster) to buy tickets. And when fans have clapped along because they were happy with Pharrell Williams, they then purchase artist merchandise made by Live Nation.

The level of integration is not something to be undervalued. In a world where attracting one new customer is much more expensive than retaining existing customers, the company has brilliantly constructed a business where one customer utilizes all segments. Basically, each fan adds to the company's bottom line multiple times per experience.

Currently, Live Nation functions with 28.4% profit margin. Yet the average gross margin for the peer group is about 42.8%, but it is important to note that the peer group is roughly defined as many large competitors only compete with Live Nation in one segment. All these factors make Live Nation a potential growth stock.

International Markets Pose a Challenge

"Every rose has its thorn" -- Poison

The main challenge the company is currently struggling with is how to fix the situation in international markets. In 2014, the company defined the strategic growth plan as focusing on increasing presence in the United States. Live Nation now holds 68 festivals, including four of the five largest in North America (including the recent acquisition of Bonnaroo). While this move drove total revenue up by 6% in the past year, overall concert operating results fell, resulting in a loss of $190.5 million for the year.

This loss also includes a one-time impairment charge to goodwill of $117 million for the decrease in international touring concerts. Live Nation estimates that the number of fans attending events dropped by 2% internationally. Consequently, this goodwill impairment represents nearly 2% of revenue overall for 2014. As explained earlier, each fan adds to the bottom line multiple times, so the loss of each fan also subtracts multiple times. The international loss of fans is particularly bad timing for a company where the goals outlined by management include expanding the concert platform, selling more tickets, and gaining more sponsorships and advertising.

Looking forward, in the first quarter earnings call from April, Live Nation explained that ticket sales (measured by concerts-related deferred revenue) are 4% ahead of last year. Additionally, they are forecasting fiscal 2015 to see growth in both attendance numbers and on-site revenue as a result of attracting more high-end fans. Management did acknowledge the first quarter saw a decline in attendance numbers compared to last year. The company also highlighted that there was a high level of arena concerts in the year ago quarter that did not occur in 2015, while stressing that this fact does not pose a threat to meeting fiscal 2015 projections. 

Key takeaway

"It feels too good to be true. I can't take my eyes off of you ... I want to hold you so much" -- Frankie Valli

Foreign affairs considered, adequate price volatility will most likely persist in the foreseeable future. However, with the stock up 11% in the past year, the continued high level of integration and large presence the company has in the music scene is undeniably intriguing, making Live Nation a stock to watch.

TMFamalin has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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