Heralding a rare dip in the share price, we took a closer look at Live Nation Entertainment’s third quarter 2019 financial results…
Live Nation Entertainment last week announced its 3rd quarter financials, with most commentators simply quoting the revenue upticks from Ticketing, and Sponsorship / Advertising, whilst reiterating the usual corporate statement about its content ‘flywheel’ model and optimism about the long-term potential of the company.
Live Nation stated it continued to scale its business globally and build on favourable supply/demand dynamics for live music in today’s experience-based economy. But the share price response to the Q3 update suggested that the numbers disappointed some on Wall Street.
Since the start of 2019, the price of the company’s shares has risen 44.6% – especially impressive considering that, at the same time, the S&P 500 has only risen 21.5%.
So, is this share price correction anything more than the usual speculator arbitrage?
LNE = Concerts + Ticketing + Sponsorship / Advertising
Live Nation Entertainment identifies its overall business as operating in three segments: Concerts, Ticketing and Sponsorship / Advertising.
Concerts includes the Concert & Festival Promoting businesses, as well as Venue Operations and Artist Management divisions, and delivered $3.17Bn revenues during Q3 down 4% Y-O-Y (in part due to the record setting Q3 2018 performance and some 2019 events maturing in Q2) and $7.13Bn YTD up 6% Y-O-Y.
The overall number of events – 26,713 YTD – is an increase of 11% Y-O-Y but with only a 3% Y-O-Y increase in attendance for the same period, driven by a focus on the theatre and club business sector with over 31M of the total 73M Live Nation event attendees globally.
Analysts have negatively noted these declining average-attendances-per-event as the company targets smaller scale venues following its recent multi-year splurge on major international festivals – Blockfest, Bottlerock, Isle of Wight, Levitate, OpenAir Frauenfeld, Rhythm & Vines, Rewind, Rock In Rio, Sweden Rock, Tons of Rock, WE Fest, amongst numerous others.
To sustain growth Live Nation, which has added 36 venues to its portfolio in 2019, states it is now actively seeking opportunities to build new venues or to take over operation of existing ones.
Following the recent ‘Groot Hospitality’ acquisition announcement IQ Magazine calculated that Live Nation this year has already taken a majority shareholding in eighteen promoters. But LN states in its Form-10Q that these acquisitions were not significant either on an individual basis or in the aggregate.
However, the announcement in July 2019 of the intention to acquire OCESA Entretenimiento, a leading promoter in Latin America and owner of Ticketmaster Mexico, subject to regulatory approval, by the end of 2019 is a substantive acquisition which will transform the scale of Live Nation’s global network.
Live Nation additionally states it is intent on improving its event hospitality from F&B offerings and premium parking at amphitheatres or other VIP options and has already increased its average revenue-per-fan by $2.50 in the amphitheatres to over $29 per head.
However, the Concerts division from the $7.13Bn revenues (approx. 83% of overall LNE result) arguably underperforms as it only contributes $332.7M towards the Adjusted Operating Income. This is due to the need to (overly) incentivise talent and so the fiscal aspiration of the Concerts division is to break-even+ and to continue to act as the fulcrum of the LNE operations.
Ticketing which includes the B-2-B & B-2-C operations of Microflex, Ticketmaster, TicketWeb, TM Archtics, Universe and other solutions saw its Q3 revenues increase by $20M or 5% Y-O-Y apparently driven by international primary ticketing fees (up 19%) but was overall flat YTD with revenues of $1.09Bn.
During the Earnings Call, Joe Berchtold (President, LNE) confirmed that ‘globally, primary GTV was up 6% for the quarter while secondary GTV was flat’. But Ticketmaster believes that there is still approx. $1Bn of price arbitrage available within the secondary market, with resale growth available in sports, particularly the NFL.
However, it was noted that the open-distribution strategy adopted by the major sports leagues means that clients have sold 15m tickets off-platform, up over 30% YTD. In total the company has sold 158M fee-bearing tickets YTD (whilst processing another 182M non-fee-bearing tickets), up approx. 3% from 2018.
Given that LNE measures its ticketing performance by GTV (Gross Transaction Value) and Fee-Bearing Volume these two metrics reveal a momentary (?) period of low single-digit drift albeit with Adjusted Operating Income for Ticketing for the nine months equating to $351.6M up 6% Y-O-Y. Michael Rapino (CEO, LNE) states in the PR that growth at Ticketmaster will remain in the mid-single digits for the full year.
Within the quarterly statements there is some further discussion regarding its focus on Platinum (‘…we have had over 3,000 arena and amphitheatre shows use platinum tickets with a 54% increase in the number of platinum tickets sold per show’ – Michael Rapino) and other premium ticketing opportunities (‘we still think that the front of the house is widely under-priced. And year-over-year we’ll make progress with the artists to keep pricing it better and taking some of that high-end opportunity into his pocket as well as lowering the price in the back end to get better – full capacity.’ – Michael Rapino), the growth in digital ticketing (especially within the NFL to enable greater access to customer data), the adoption of mobile (‘now accounting for 46% of ticket purchases globally, up 15% over last year’) and a focus on reducing costly fraudulent activity, whilst more efficiently managing its marketing budgets.
‘Ticketmaster Presence’, the next-gen venue access control and fan engagement platform rollout is expected to be installed at over 700 venues (‘It’s no longer just selling a ticket, but it is providing an important data service – Joe Berchtold’), representing 120M admissions by the end of this year, with over 60% of admissions at digital-enabled events now entering via their mobile devices.
Within the Earnings Call Michael Rapino states: “Digital ticketing is a strong demonstration of what Ticketmaster can be, providing the best ticketing platform for venues by delivering value well beyond the sale of the ticket, but at the same time giving fans an ever-improving mobile-led purchasing and management experience.”
With Ticketmaster’s continued push into digital ticketing, the Ticketmaster app is now regularly in the top 10 rankings for entertainment in the Apple App Store, driving a 30% increase in app downloads over the past year.
To that end the development of ‘SafeTix’ Ticketmaster’s encrypted mobile ticketing is expected to deliver new client signings whilst enhancing technical initiatives linked to improved ticket search, purchase and transfer.
Sponsorship / Advertising is Live Nation’s high-margin business and drove the overall result for the company with revenues for the quarter up $44M or 26% Y-O-Y.
YTD revenues are $441.9M up 15% Y-O-Y contributing $283.6M in Adjusted Operating Income.
Live Nation states that it is the global leader in music sponsorship and continues to innovate new ways for brands to interact with its consumers on-site at its venues (up 11% YTD) and festivals (up 31% YTD) with growth from expansion into new categories such as consumer packaged goods, fashion and insurance.
Live Nation claims that 70% of its total sponsorship revenue is driven by strategic partners with multi-year agreements, and that 95% of its annual sponsorship target is now contracted and thus is confident of delivering further growth from this segment.
Within the quarterly reports there were a number of ‘Forward-Looking Statements’ intended to reinforce the impression of momentum of the company albeit with the usual disclaimer about ‘known and unknown factors that could cause actual results to differ materially’.
The company spent some time confirming that it had experienced no downturn (thus-far) in consumer demand for its events or seen any lessening of consumer ability to purchase premium-priced tickets, and that the pipeline for artists in 2020 was strong.
During the Earnings Call Live Nation also described itself as a much more sophisticated, expanded and globalised company than it was ten years ago when it last experienced a macro-economic downturn and now felt more able to outride any negative tailwinds.
As an example, the company reported 92M tickets were sold for events (through to mid-October) up 6% or 5M in comparison to 2018 and claims to be on track to nearly 100M attendees by end-of-year.
Live Nation did however remind listeners to the Earnings Call that the fiscal impact of the Rock in Rio Festival which spans Q3 and Q4 this year, is a biannual festival and will therefore not take place next year.
Live Nation was also reticent to comment about the impact of the OCESA Entretenimiento transaction before closing but suggested a double-digit growth in 2020 events as a result of this acquisition was possible.
Analysts & Commentators
Wall Street analysts focussed on a limited number of points: adjusted earnings of $0.71 per share (up 1.4%) as opposed to the expected $0.77 with an implied $4Bn+ in revenues, and this possibly explains the immediate nosedive in stock price.
Similarly, the declining average-attendees-per event metric was circulated by a number of commentators: 4,300 per event Q3 2018 to 3,600 per event in Q3 2019 – a 16% decline. Further when reviewed across 2019 YTD the average-attendees-per-event becomes 2,900.
Whilst this is merely a trend of averages, what does it confirm about current concert audiences, and what does it imply about the future for Live Nation? As stated earlier in 2019 11% more events only drew 3% more attendees.
So, is the company targeting more theatres and club acquisitions going forward because Live Nation believes the supply of Stadium Rock / Heritage Acts is more limited? More simply are Live Nation events selling on average fewer tickets per event? Or is it a manifestation of a ‘long-tail’ strategy of working with talent at an earlier stage in their careers and delivering via a global network of local promoters and venues?
Lastly, in an era of cheap debt Live Nation has embarked upon an unprecedented roll-up of festivals, promoters, venues, and ticketing operators to become the world’s largest live entertainment conglomerate with an approximate Market Cap of $14Bn.
Outlook: If the company continues to make acquisitions, with Concerts managing to achieve break-even+, whilst Ticketing increases its international network and GTV, and Sponsorship / Advertising continues to dramatically increase its Operating Income, then Live Nation could potentially double its valuation in the next few years before inevitably becoming the focus of regulatory oversight or hostile takeover.
OTHER ARTICLES IN OUR FINANCE INSIGHTS SERIES:
- (28 October 2019): eBay flat, StubHub selloff inevitable
- (7 June 2019): Riding the rollercoaster with Accesso
- (31 May 2019): Millennial Ticket Discovery – TodayTix vs GetYourGuide
- (15 May 2019): LiveNation Entertainment Q1/19 Analysis
- (26 April 2019): StubHub’s performance in the wider eBay picture
- (19 April 2019): DEAG – Growing & diversifying the portfolio
- (4 April 2019): Eventbrite’s stock performance since IPO
- (22 March 2019): CTS Eventim’s dividends and performance
*ABOUT THIS ANALYSIS: This series of financial insights is provided by the The FP&A Team at TheTicketingBusiness. The FP&A Team comprises a group of industry finance experts who volunteer their expertise to provide ad hoc analysis of key industry financial, M&A, funding and investment news. All in an effort to better-inform the market and support the industry’s long term development. Any questions or feedback welcome to [email protected]
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