This Live-Entertainment Powerhouse Is Bouncing Back Stronger Than Ever
Life is as close to "normal" as it has been in years...
COVID-19 restrictions have eased, with vaccine and indoor mask mandates dropping across the country. And folks are trying to get back to their pre-pandemic lifestyles – returning to the gym, restaurants, movies, and everything they've been missing out on.
And that serves as an intense tailwind for today's company...
Live Nation Entertainment (NYSE: LYV) is the largest live-entertainment company in the world. If you've ever gone to a concert, chances are you've padded Live Nation's revenues... And you've realized that the face value of the ticket is only a portion of what you spend.
The company operates Ticketmaster, the popular ticketing platform. Ticketmaster sells tickets on behalf of clients and charges a service fee on many of these sales. In 2019 (the last "normal" year for Live Nation), it sold nearly 220 million fee-bearing tickets.
Live Nation also promotes live music events in its venues. The company owns, operates, has exclusive booking rights to, or has an equity interest in more than 200 venues in 40 countries. As a venue operator, it collects revenues from beer and food sales, parking, and premium seating.
This is a fantastic, "flywheel" business. That means it gets better as it gets bigger. As Ticketmaster sells tickets for more events, it brings more people onto its platform. And artists and event operators want to sell tickets on the platforms with the most users. That brings more people to buy tickets, and so on.
On top of selling tickets and running venues, Live Nation is also an artist-management company, with around 110 managers representing more than 500 artists.
Of course, Live Nation's success hinges upon big, crowded live events. In normal times, this is a fantastic business... From 2009 to 2019, the company grew its revenues from $4.2 billion to $11.6 billion – a 10.7% compound annual growth rate.
2020 was disastrous for Live Nation due to the pandemic. Revenues were down around 84% that year as concerts and sporting events were put on hold and people avoided large gatherings.
But the business has begun to bounce back strongly. Revenue more than tripled to $6.3 billion in 2021 – though that was still about half of 2019's revenue.
In addition, it is producing loads of free cash flow ("FCF"). FCF is our favorite financial metric. Put simply, it's the cash left over after operating expenses and capital expenditures. Last year, Live Nation reported $1.6 billion in FCF from its $6.3 billion in sales. So for every dollar in sales, $0.25 trickled down to FCF.
This means Live Nation has an FCF margin (FCF divided by sales) of 25%. That's well above the 15% FCF margin from the average S&P 500 Index company. And it shows what a capital-efficient business it has.
We love these kinds of businesses because they don't require a lot of capital to keep running. Instead, they can plow their cash flow back into growth, or use it to reward shareholders through dividends and share buybacks.
Last month, the concert and event operator reported earnings and sales above Wall Street's estimate. And while the company's fourth quarter was strong, the future is even brighter...
In a press release, Live Nation said that show bookings and ticket sales were up double digits from the prior year so far in 2022. And it said that pricing on the top 10 tours is up 45% year over year. That puts Live Nation on track for a record year.
It looks like Live Nation is seeing a flood of demand as people finally return to their "normal" lives. With the rollback of COVID-19 restrictions, people are returning to full-capacity sporting events and concerts. And that has been a boon for Live Nation's business.
Back in July, CEO Michael Rapino said that the company's concerts business was "fully open" in the U.S. And it looks like that momentum has continued so far into 2022. This should keep fueling Live Nation's growth.
Investors are already looking to this bright future... After LYV shares plummeted more than 60% from their previous highs during the coronavirus sell-off, the stock has come roaring back. It has more than tripled from its March 2020 low and now sits near an all-time high.
During normal times, Live Nation has a great business. And it's now on track to fully recover from the pandemic and have a record year. That should fuel even further gains in the months and years to come.
Sometimes investing is simple.