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Bear of the Day: Live nation Entertainment (LYV)

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Just like today’s Bull of the Day, the Bear of the Day is a company that has experienced a significant reversal of fortune as a result of the outbreak of Covid-19. Unfortunately, this series of events hasn’t been kind to the field of live entertainment and the shares of Live Nation (LYV - Free Report) have seen a significant decline.

On a personal note, I like live music almost as much as I dislike being pressured by family and friends to buy the latest Multi-level marketing goods. Sometimes bristle at the fees I have to pay to see shows that go to the promoter – Live Nation – and/or their wholly owned subsidiary Ticketmaster, but by the time the artists are playing the encore, I’ve forgotten all about those fees and I’m usually mentally planning my next outing.

Originally founded in 1996 as a consolidator of live entertainment promotors and spun off from owner Clear Channel Communications in 2005, Live Nation has been in a unique position to capitalize on recent trends in the music industry. As recorded music increasingly became available in online downloads – both legal and illegal – artists found that the only way to preserve their income stream was to perform live shows for audiences who were willing to pay handsomely for the experience.

As the promotor of events, the owner of venues and the distributor of ticketing services, Live Nation positioned itself in a near-monopoly position as the middleman between artists who wanted to perform and fans who wanted to go see them live.

It was a brilliantly designed ecosystem of divisions that complimented one another, acting as gatekeeper to live entertainment and collecting a toll at multiple steps along the way. Live Nation’s revenues grew to $11.5 billion in 2019 as 98 million fans attended Live Nation’s productions. For the first two months of 2020, the company was on pace to exceed those record numbers.

Then the music stopped. Literally.

When the Covid-19 outbreak necessitated widespread social distancing and shelter-in-place directives, the market for live entertainment dropped off to almost zero. Thousands of planned events were cancelled and refunds had to be offered to fans who had previously purchased tickets. Though a large percentage of those customers have elected to take a “rain-check” instead of a cash refund in the hopes that the shows will be rescheduled in the near future, the recent resurgence of Covid-19 cases in the US puts that possibility in jeopardy.

Live Nation has tried to adapt as well as possible with alternate events like drive-in  and online shows, but it’s simply not possible to fill the revenue gap left behind from large-venue events.
A year ago, Live Nation was operating at basically a break even while growing rapidly and acquiring competitors and venue real estate, netting a loss of ($0.02)/share in 2019.

As the pandemic drags on, the Zacks Consensus Estimate for 2020 has declined to a loss of ($5.59/share). Those downward revisions earn Live Nation a Zacks Rank #5 (Strong Sell).

The current outbreak has created countless economic dislocations. While we all hope for a return to normalcy soon – including live entertainment – it’s simply not an industry that looks like a good investment anytime soon.

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