Live Nation Entertainment (NYSE: LYV) is a live events and ticketing company based in Beverly Hills, California. The company was formed in 2005 after a merger between Live Nation and Ticketmaster. Live Nation operates as the parent company of Ticketmaster and promotes, operates, and manages ticket sales for live entertainment in venues like arenas, stadiums, clubs, concert halls, theaters, and festivals. Some quick facts about Live Nation:
– Market Cap: $28.5 billion (as of October 2023)
– Revenue (FY 2022): $16.7 billion
– Net Income (FY 2022): $115 million
– P/E Ratio: 73x
– Dividend Yield: None
Live Nation stock has done well in recent years as demand for live events and concerts rebounded strongly coming out of the COVID-19 pandemic. However, high inflation and fears of a recession have led to increased market volatility in 2022. So is Live Nation stock a good buy at current levels? Here is a more in-depth look at the bull and bear case for Live Nation.
Bull Case for Live Nation
Here are some reasons why Live Nation could still be a good stock to buy:
Strong Tailwinds from Re-opening of Live Events
Live Nation is benefiting tremendously from pent-up demand for live events and concerts as the economy fully re-opens. People have money to spend on experiences and travel that they missed out on during 2020 and much of 2021. In Q2 2022, Live Nation reported a record $4.4 billion in revenue, up over 200% from Q2 2019 pre-pandemic levels. Concert attendance at Live Nation venues also set a new all-time record in Q2 2022. This momentum is expected to continue in the back half of 2022 and 2023 as people continue to flock back to live events.
Leading Market Position in Live Entertainment
Live Nation Entertainment is the largest live events promoter globally. The company promotes over 40,000 live events each year and has a dominant position in major markets like North America. Live Nation also owns major venues and festivals like the Gorge Amphitheatre and Lollapalooza. This leading market position gives Live Nation strong competitive advantages like economies of scale, bargaining power over talent, and the ability to lock in the best venues.
Growing Ticketing Segment
In addition to live events promotion, Live Nation also operates the Ticketmaster ticketing platform. Ticketmaster is the global market leader in primary ticketing services with a share of around 70% in North America. The ticketing segment is benefiting from growing online ticket sales and service fees as more events use digital ticketing. Ticketing also gives Live Nation recurring SaaS-like revenue streams that balance out the lumpy promotions business.
International Expansion Opportunities
Live Nation generated 87% of its 2021 revenue from the United States and Canada. However, it is making a big push to expand internationally in markets like Europe, Australia, and Asia. International markets represent a long growth runway as rising incomes and growing interest in live events boosts demand. Live Nation recently acquired OCESA, the third largest promoter globally, to accelerate its expansion in Latin America.
Bear Case for Live Nation
However, there are also some risks and reasons for caution for Live Nation stock:
Recession Could Impact Demand
With high inflation and rising interest rates, many economists predict a recession in 2023. In a recession, consumers often cut back on discretionary purchases like events tickets first. That could negatively impact ticket sales and attendance at Live Nation events. During the 2008 recession, Live Nation saw attendance decline 23% from 2007 to 2009. A similar decline due to a recession would significantly impact Live Nation’s revenues.
Negative Impact from High Inflation
Even if a full-blown recession is avoided, high inflation is still hurting consumer discretionary spending power. Over the last year, prices for concert tickets are up over 20% – more than double the overall inflation rate. At the same time, artists are also demanding higher pay due to inflation. Rising costs on both sides could make concerts too expensive for some fans and hurt profit margins for Live Nation.
Heavy Debt Load
Live Nation carries a significant debt load, with over $5 billion in long-term debt. This debt was manageable when revenue was growing rapidly. But higher interest rates on variable rate debt could become an issue. The high debt load leaves Live Nation vulnerable in a downturn, as they will still need to make interest payments even if revenue declines.
Stock Valuation Not Cheap
Live Nation stock trades at a forward P/E of around 73x. This is well above the S&P 500 average of around 17x. The high valuation leaves little room for error and makes the stock vulnerable to selloffs if growth does not live up to expectations. And Live Nation’s valuation is not cheap even when accounting for the rebound growth – the P/E based on 2023 EPS estimates is still around 30x.
Live Nation Stock Forecast
What’s the outlook for Live Nation stock for the next 12-24 months? Here are some predictions from Wall Street analysts:
Revenue Growth Expected to Slow
Analysts forecast revenue growth to slow from the rebound rates seen in 2022 but remain positive. Consensus estimates call for 15% revenue growth in 2023 and 11% growth in 2024. Omicron variants or a recession are the biggest risks to this forecast.
Earnings also Forecast to Moderate
After rising sharply in 2022, earnings growth is also expected to slow. EPS is forecast to grow 11% in 2023 and 17% in 2024. Live Nation faces tough comparisons to the initial rebound years. Rising costs are also pressuring margins.
Stock Price Targets Around $105
Most analysts have price targets between $95-$115 per share. The average price target is around $105, which implies limited upside from current levels around $95. However, targets could be revised higher if the live events recovery is stronger than expected.
Based on these forecasts, Wall Street sees Live Nation stock as fairly valued currently. While revenue and earnings growth should continue, the easy growth from initial reopening appears to be priced in already.
Is Live Nation Stock a Buy, Sell, or Hold?
Taking into account the bull case and risks, here is my recommendation for Live Nation stock:
Recommendation: Hold Live Nation for now
The live events recovery still likely has room to run in 2023, supporting revenue and earnings growth for Live Nation. However, I would wait for a better entry point given the potential recession risk and high inflation outlook. The current valuation is also rich at over 70x forward earnings. I would look to buy on a pullback below $80 per share.
In the meantime, Live Nation’s high debt load and slowing growth make it somewhat riskier than other reopening plays like airlines. While the concerts and events business should return to pre-pandemic levels by 2024, Live Nation stock may tread water given the offsetting macro risks.
So in summary, my rating for Live Nation stock is a hold for now. I would not chase the stock at current levels due to the valuation. Wait for a correction or improved economic outlook before buying. But long-term investors may still be rewarded from Live Nation’s leading industry position if they can stomach some near-term volatility.
Should You Buy Live Nation Stock?
Here are some final pros and cons to weigh when deciding if Live Nation is a good stock to buy for your portfolio:
Reasons to Buy Live Nation Stock
– Dominant position in live events industry with strong brands and competitive advantages
– Beneficiary of huge pent-up demand for experiences and live events
– Diverse business model with concerts, venue management, and ticketing platforms
– International expansion opportunities as global live events market grows
– Profitability improving sharply from reopening momentum
Reasons to Avoid Live Nation Stock
– Stock valuation elevated at 70x forward P/E ratio
– High debt load could be risky in recession or higher interest rate environment
– Possibility of attendance and ticket sales slowing in economic downturn
– Rising costs weighing on profit margins
– Competes against large players like AEG, Disney, Comcast, and Madison Square Garden
Given the offsetting positives and risks, Live Nation seems fairly valued around $95 currently. Look to buy on dips below $80 for a better risk/reward profile. But remain cautious given slowing growth prospects and challenging macro environment.
Conclusion
Live Nation operates a strong business with leadership positions in live entertainment promotion, venues, and ticketing. The reopening of live events has driven tremendous growth for Live Nation in 2022. However, the stock appears to have priced in much of this rebound already with a premium valuation of over 70x earnings. Macroeconomic risks like high inflation, rising rates, and recession fears also bring uncertainty to the outlook. With growth set to slow from 2022’s record pace, Live Nation stock could trade mostly sideways in the near-term. Look for a better entry point on pullbacks before buying for the long-term. But remain selective as the concerts business faces some challenges relative to airlines or lodging for the reopening trade.