If you’ve purchased tickets to live entertainment recently, you probably have mixed feelings about Live Nation Entertainment (LYV - Free Report) . The company’s business model of combining a patchwork of regional concert promoters into a single national entity has certainly increased the number and variety of acts that are available to the average fan.
On the other hand, Live nation’s position as gatekeeper of the biggest events, as well as owning Ticketmaster and many of the venues where concerts are held means that concertgoers are paying significantly more for tickets than they were a decade ago.
Live nation does a remarkable amount of business. Through the third quarter of 2019, they had sold 92 million tickets and had taken in $8.7 billion in revenue. Those are hugely impressive numbers, but unfortunately for Live Nation, not a lot of that revenue makes it to the bottom line.
The total cost of putting on the shows eats up about 75% of revenue, and that’s before Selling, general and Administrative expense, interest and other costs.
Though the company regularly adds acts and venues and sees increases in Ticketmaster fee revenue and in-person sales of food, beverages and merchandise to concertgoers, operating income so far in 2019 has been just $408 million – less than 5% of gross sales.
With a share price that has outpaced sales and earnings growth over the past decade as it rallied from less than $3/share in 2019 to around $65/share today, Live nation is a truly dismal value opportunity with a 12M forward P/E Ratio of 430X.
Yes, that’s not a misprint. The share price multiple is 430 times how much Live Nation is forecast to earn over the next year.
In full year 2019, the company is expected to earn just $0.15/share and 2020 doesn’t get much better with estimates of $0.42/share for the entire year. Those estimates have been reduced from $0.28/share and $0.62/share, respectively, over the past 30 days.
Four negative revisions in the past month help earn Live Nation a Zacks Rank #5 (Strong Sell). The style scores are equally ugly, with an F in Value, a D in Growth, an F in momentum and an overall VGM score of F. That’s just about the worst report card we give out!
Live nation is also currently a component of the Zacks Short List, an algorithmic trading service that uses a proprietary system to analyze thousands of stocks and find the ten with the least promising financial prospects. It’s not a place you want to find your stocks.
If a company with a near-monopoly control over a large portion of live entertainment events and almost $12 billion in annual revenue can’t figure out how to earn more than $0.15/share, they don’t deserve your hard earned investment dollars. Shares of Live Nation could fall by 50% and they’d still be significantly overvalued by any reasonable measure.
You might be stuck paying Live Nation an exorbitant service charge when you buy tickets and $14 for a draft beer at the show, but you’re certainly not stuck investing in the shares – and you shouldn’t.
In the Consumer Discretionary Entertainment business, investors would be better served taking a look at Walt Disney Company (DIS - Free Report) . It’s currently a Zacks Rank #3 (Hold), but a better-than-expected rollout of its Disney Plus streaming service - with 10 million subscribers - has the shares near all time highs and could have estimates rising soon.
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