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Live Nation (NYSE:LYV) Beats Expectations in Strong Q4


Full Report / February 22, 2024

Live events and entertainment company Live Nation (NYSE:LYV) beat analysts' expectations in Q4 FY2023, with revenue up 36.1% year on year to $5.84 billion. It made a GAAP loss of $0.79 per share, improving from its loss of $1.02 per share in the same quarter last year.

Live Nation (LYV) Q4 FY2023 Highlights:

  • Revenue: $5.84 billion vs analyst estimates of $4.78 billion (22.1% beat)
  • EPS: -$0.79 vs analyst estimates of -$1.04 (23.9% beat)
  • Free Cash Flow of $40.4 million, down 94.3% from the previous quarter
  • Gross Margin (GAAP): 19.8%, down from 23.3% in the same quarter last year
  • Market Capitalization: $20.82 billion

Owner of Ticketmaster and operator of music festival EDC, Live Nation (NYSE:LYV) is a company specializing in live event promotion, venue management, and ticketing services for concerts and shows.

The company was formed from the 2010 merger of Live Nation, a concert promotion firm, and Ticketmaster, a leading online ticketing platform. This strategic combination aimed to simplify event management and ticketing processes by providing comprehensive services, including organizing live concerts, managing venues, and ticketing solutions, under one umbrella.

The core Live Nation business is unique in that it addresses the challenge of coordinating different aspects of event management, offering integrated solutions for artists to connect with their audiences in a live setting. On the other hand, Ticketmaster is a digital-first marketplace where fans can buy and sell tickets for events ranging from baseball games to music festivals.

Live Nation generates revenue from concert promotions, ticket sales, sponsorships, and advertising. Its integrated approach to live events benefits artists seeking full-service event management and fans looking for hassle-free access to live entertainment.

Leisure Facilities

Leisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from "things" to "experiences". Leisure facilities seek to benefit but must innovate to do so because of the industry's high competition and capital intensity.

Competitors in the live event promotion and management sector include Endeavor (NYSE:EDR), Disney (NYSE:DIS), and MSG Entertainment (NYSE:MSGE).

Sales Growth

A company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. Live Nation's annualized revenue growth rate of 16.1% over the last five years was solid for a consumer discretionary business. Live Nation Total RevenueWithin consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Live Nation's healthy annualized revenue growth of 90.5% over the last two years is above its five-year trend, suggesting its brand resonates with consumers.

This quarter, Live Nation reported wonderful year-on-year revenue growth of 36.1%, and its $5.84 billion of revenue exceeded Wall Street's estimates by 22.1%. Looking ahead, Wall Street expects sales to grow 3.2% over the next 12 months, a deceleration from this quarter.

Operating Margin

Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Live Nation was profitable over the last two years but held back by its large expense base. Its average operating margin of 4.6% has been paltry for a consumer discretionary business. Live Nation Operating Margin (GAAP)

This quarter, Live Nation generated an operating profit margin of negative 1.4%, up 1.4 percentage points year on year.

Over the next 12 months, Wall Street expects Live Nation to maintain its LTM operating margin of 4.7%.

EPS

We track long-term historical earnings per share (EPS) growth for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable. Live Nation EPS (GAAP)

Over the last five years, Live Nation cut its earnings losses and improved its EPS by 58.8% on average each year. This performance is materially higher than its 16.1% annualized revenue growth over the same period. There are a few reasons for this, and understanding why can shed light on its fundamentals.

Live Nation's operating margin has expanded 2.1 percentage points over the last five years, leading to higher profitability and earnings. Taxes and interest expenses can also affect EPS growth, but they don't tell us as much about a company's fundamentals.

In Q4, Live Nation reported EPS at negative $0.79, up from negative $1.02 in the same quarter a year ago. This print beat analysts' estimates by 23.9%. Over the next 12 months, Wall Street expects Live Nation to grow its earnings. Analysts are projecting its LTM EPS of $1.75 to climb by 25.6% to $2.19.

Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Live Nation has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 6.9%, subpar for a consumer discretionary business.

Live Nation Free Cash Flow Margin

Live Nation broke even from a free cash flow perspective in Q4. This quarter's result was in line with its margin in same period last year. Over the next year, analysts' consensus estimates show they're expecting Live Nation's LTM free cash flow margin of 6.7% to remain the same.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit a company makes compared to how much money the business raised (debt and equity).

Live Nation's five-year average return on invested capital was 1.3%, somewhat low compared to the best consumer discretionary companies that pump out 25%+. Its returns suggest it historically did a subpar job investing in profitable business initiatives.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, Live Nation's ROIC averaged 69.5 percentage point increases each year. This is a good sign, and if the company's returns keep rising, there's a chance it could evolve into an investable business.

Key Takeaways from Live Nation's Q4 Results

We were impressed by how significantly Live Nation blew past analysts' revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. Qualitative commentary about the start of 2024 was also bullish, although the company did not provide specific revenue, adjusted EBITDA, or EPS guidance for the current year. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is up 4.3% after reporting and currently trades at $97.53 per share.

Is Now The Time?

Live Nation may have had a good quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We have other favorites, but we understand the arguments that Live Nation isn't a bad business. First off, its revenue growth has been good over the last five years. And while its relatively low ROIC suggests it has historically struggled to find compelling business opportunities, its projected EPS for the next year implies the company's fundamentals will improve.

Live Nation's price-to-earnings ratio based on the next 12 months is 43.1x. In the end, beauty is in the eye of the beholder. While Live Nation wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price right now.

Wall Street analysts covering the company had a one-year price target of $113.21 per share right before these results (compared to the current share price of $97.53).

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