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California-based concert and entertainment company, Live Nation Entertainment, Inc. (LYV - Snapshot Report) reported mixed second-quarter results wherein earnings missed the Zacks Consensus Estimate, but revenues surpassed the same.

Earnings of 11 cents per share missed the Zacks Consensus Estimate of 16 cents by 31.3%. Further, earnings declined from the prior-year figure of 30 cents by 63.3%. The downside reflects lower revenues on a year-over-year basis and higher selling general and administrative expenses.

 


Revenues in Details

Quarterly revenues of $1.67 billion beat the Zacks Consensus Estimate of $1.58 billion million by 5.7%. However, revenues declined 1% year over year, mainly due to lower revenues in the concert, Artist Nation as well as Other & Eliminations segment. Declining concert attendance led to lower revenues, which negatively impacted results.

The company operates under Concerts, Ticketing, Artist Nation and Sponsorship & Advertising segments

Concerts: The concerts segment reported revenues of $1.17 billion, down 2% year over year. During the quarter, the segment conducted approximately 5,666 events in the quarter, of which 4,027 were domestic and the remaining 1,639 were international events.

Ticketing: The ticketing segment reported revenues of $371 million, up 10% year over year. Ticketing was the only bright spot with the company selling an approximate 36.9 million tickets in the quarter, up from the prior quarter figure 36.2 million. The total number of tickets sold excludes approximately 61 million tickets sold through Ticketmaster, and season seat packages and venue clients' box offices, for which the company does not receive a fee.

Artist Nation: This is the company's artist management business that acts as a pipeline for concerts. The segment reported revenues of $79.2 million, down 21% year over year.

Sponsorship & Advertising:  The Sponsorship & Advertising segment reported revenues of $70.9 million, down 0.4% year over year.

Other & Eliminations: The segment reported negative revenues of $27.5 million, versus negative revenues of $22.2 million in the prior-year quarter.

Behind the Headline Numbers

Selling, general and administrative expenses climbed 10.2% year over year to $325.9 million. Direct operating expenses were $1.7 billion, down 0.8%.

Operating income declined 43.1% year over year to $55.7 million due to increase in selling general and administrative expenses and decline in revenues.

2014 Growth Expectations

Live Nation expects 2014 to be the fourth consecutive year of revenue, adjusted operating income and free cash flow growth. Further, the company expects to grow the profitability of each of its businesses. The company believes that the underlying demand for live events continues to be strong globally and on a long-term basis the company’s concerts as well as sponsorship and ticketing businesses will continue to grow.

Our Viewpoint

We are encouraged by Live Nation's ticketing business, which operates under the well-known brand of Ticketmaster, the leading ticketing sales platform. The company has a significant presence in this high-margin agency business where it charges a fee to sell tickets on behalf of its clients. We believe the ticketing segment will continue its revenue growth momentum in the coming quarters.

However, we remain aware of the escalating costs, especially in the Concerts segment. Despite achieving stellar revenue growth, high operating costs associated with concert organizing led the segment to post losses for the last three years. Such high operating costs amid a sluggishly recovering economy is a concern.

Live Nation currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry include HomeAway, Inc. (AWAY - Snapshot Report), Speedway Motorsports Inc. (TRK - Snapshot Report) and Vail Resorts Inc. (MTN - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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