Part 2: Deep dive on Live Nation ($LYV)
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Company: Live Nation Entertainment
Ticker: (LYV)
Website: LiveNation.com
IPO date: December 2005
IPO price: $10.85
Current stock price: $79.95
Outstanding shares: 228.1 million
52 week high: $101.74 on July 28, 2023
52 week low: $64.25 on March 24, 2023
ATH: $126.79 on February 25, 2022
Market cap: $18.2 billion
Net cash/debt: $1.3 billion (net debt)
Enterprise value: $19.5 billion
Headquarters: Beverly Hills, California, United States
Number of employees: 12,800+
Average price target from analysts: $108.76 or 36% above current price
Investor Relations:
https://investors.livenationentertainment.com
Q2 2023 Earnings Report: https://d1io3yog0oux5.cloudfront.net/_19a4ef8dcbafbc8831d0b9748379b404/livenationentertainment/db/670/6275/earnings_release_pdf/LYV+2Q23+ER+Final+V2+.pdf
Q2 2023 Trended Results: https://d1io3yog0oux5.cloudfront.net/_19a4ef8dcbafbc8831d0b9748379b404/livenationentertainment/db/670/6275/trended_results_grid_pdf/2Q23+LNE+Trended+Results+Grid.pdf
Q2 2023 Earnings Transcript: https://d1io3yog0oux5.cloudfront.net/_19a4ef8dcbafbc8831d0b9748379b404/livenationentertainment/db/670/6275/transcript/2Q23+LNE+Live+Call+Transcript.pdf
Outline
Introduction [part 1]
Company Background [part 1]
Opportunity [part 1]
Business Model [part 1]
Competitive Advantages [part 1]
Risks [part 1]
Valuation [part 2]
Investment Model [part 2]
Analysts [part 2]
Technicals [part 2]
Conclusion [part 2]
Additional Sources [part 1, 2]
Here is Part 1 of the Live Nation deep dive…
Below the paywall is the Live Nation ($LYV) deep dive along with links to my investment portfolio (up +93% YTD), investment models and daily webcasts.
As a paid subscriber you have access to the following:
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Valuation
Today LYV closed at $77.00 which means the current enterprise value (EV) is approximately $18.85 billion. Using this current EV here are the valuation multiples for 2023 and 2024…
10.9x 2023 EV/EBITDA and 9.9x 2024 EV/EBITDA
90.6x 2023 EV/NET INCOME and 34.4x 2024 EV/NET INCOME
18.0x 2023 EV/FCF and 16.5x 2024 EV/FCF
LYV is trading at reasonable multiples, I can’t say the stock is cheap or expensive.
If LYV is expected to grow EBITDA by low double digits the next few years then trading at 9.9x 2024 EV/EBITDA is fair.
Same goes for EV/FCF multiple, if LYV is going to grow FCF by low double digits per year then trading at 16.5x 2024 EV/FCF is reasonable.
If the market moves higher over the next 12 months and yields come down then it’s certainly possible we see the LYV multiple expand but I can’t say that these estimates would justify any big multiple expansion unless they beat these estimates in which case multiple expansion is definitely on the table.
Investment Model
I tried to be reasonable with my estimates and stay close to the consensus numbers, I wish LYV was expected to have higher growth over the next 3-5 years because I do like the company and their business model but I have to be realistic that the upside isn’t as big with this stock as it is with others in my portfolio and on my primary watchlist.
I do think there’s a chance LYV could have 100% upside over the next few years although it means net income margins need to come in slightly higher than the current estimates.
Here’s the homerun scenario for LYV… revenues climb to $30 billion in 2028, net income margins expand to 8%, that gets us to $2.4 billion of net income, throw a 25 P/E on that and you have a $60 billion market cap plus $5+ billion of cash gets us to $65 billion, divided by 235 million shares = $276 per share in 2028 which is a 29% CAGR over the next ~5 years.
Analysts
According to StockTargetAdvisor.com the average price target is $106.7 which is 38.5% upside from the current price. LYV had a very strong Q2 earnings report which is why the stock was up 16% the next day but even if they have a strong Q3 report, I wonder how much the potential DOJ investigation/lawsuit will hold the stock back.
Here’s what the analysts are saying:
October 26th: Guggenheim raised the firm's price target on Live Nation to $125 from $124 and keeps a Buy rating on the shares after updating the firm's model ahead of Q3 earnings due on November 2 to reflect continued strength from growing supply and robust consumer demand. The firm's checks indicate that Live Nation is seeing "no sign of a softening consumer across any business segment or geographic region," the analyst tells investors in a preview note.
October 26th: Evercore ISI analyst Ashton Welles upgraded Live Nation Entertainment to Outperform from In Line with a $100 price target. The analyst says the regulatory overhang, uncertainty about 2024 growth, and upside to near-term estimates creates an attractive entry point for the shares. Antitrust investigations are nothing new for Ticketmaster, and the current Justice Department investigation does not pose meaningful risk to for Live Nation shares, the analyst tells investors in a research note. The firm says the company has a long runway for sustained low double-digit growth driven by increasing consumer demand for concerts and live entertainment.
July 28th: Oppenheimer raised the firm's price target on Live Nation to $115 from $110 and keeps an Outperform rating on the shares. The firm has greater conviction on strong concert demand continuing into 2024, the analyst tells investors in a research note.
July 28th: JPMorgan analyst David Karnovsky raised the firm's price target on Live Nation to $115 from $110 and keeps an Overweight rating on the shares following the "strong Q2 beat." The company remains on track to grow operating income at its historical rate, on top of a 2023 that is coming in much stronger than expected.
July 25th: TD Cowen analyst Stephen Glagola raised the firm's price target on Live Nation to $110 from $105 and keeps an Outperform rating on the shares. The firm said the easing regulatory overhang and company checks have driven positive sentiment into the print. The firm raised their 2023 revenue and AOI estimates on upwardly revised concert segment growth across Q2-Q3 and remain above consensus.
July 24th: Roth MKM analyst Eric Handler raised the firm's price target on Live Nation to $95 from $80 but keeps a Neutral rating on the shares. The company is positioned to meet or beat the firm's above-consensus Q2 outlook, with fully reopened international markets, still strong domestic demand, and higher prices remaining key drivers, the analyst tells investors in a research note. Roth MKM adds however that it remains concerned about the declining U.S. consumer savings cushion and valuation, which is at the upper end of the historical trading range.
July 24th: Evercore ISI analyst Ashton Welles raised the firm's price target on Live Nation to $100 from $90 and keeps an In Line rating on the shares. The firm, which is cutting estimates for second half of 2023 and 2024 linear advertising revenue by about 200-300 basis points given modestly weaker than expected trends in Q2 and reports that indicate the 2023 upfront is "shaping up to be weaker than expected," tends to favor the small-to-mid cap "idiosyncratic" media names given they have a clearer path to long-term earnings per share growth than the large cap media names that are investing aggressively to pivot their businesses to streaming.
July 21st: Morgan Stanley analyst Cameron Mansson-Perrone raised the firm's price target on Live Nation (LYV) to $95 from $90 and keeps an Equal Weight rating on the shares ahead of the company's quarterly report due July 27 after the close. Consumer spending growth has so far held up, which is a backdrop that positions live event businesses like Live Nation and Eventbrite (EB) for success heading into Q2 earnings and the summer festival and stadium season, the analyst tells investors in an earnings preview note.
July 20th: Oppenheimer analyst Jed Kelly initiated coverage of Live Nation with an Outperform rating and $110 price target. The firm sees Live Nation's leading concert scale "disproportionally benefiting" from music streaming advancements that are enhancing global distribution and artist discovery, the analyst tells investors. This dynamic, along with increasing network effects strengthening the company's ticketing and sponsorship segments, are creating a more durable financial profile, adds the analyst, who "confidently underwrites" EBITDA growing 12% annually into 2025.
June 30th: Citi analyst Jason Bazinet lowered the firm's price target on Live Nation Entertainment to $89 from $110 and keeps a Buy rating on the shares. Investors have three concerns: the sustainability of results given post-COVID strength, macro weakness crimping consumer demand, and the Department of Justice investigation, the analyst tells investors in a research note. The firm believes the recent demand strength can continue through 2025, saying Live Nation is still trending relatively in line with pre-COVID trends. It suspects "some modest recessionary risk is possible," but says this may be priced into the equity at current levels. Citi also believes the DOJ investigating risks are "de minimis" following Live Nation's decision to embrace all-in ticket pricing. The firm says it is "less worried than the bears."
Technicals
The first chart shows LYV with the weekly candles going back to the pre-pandemic prices — as you can see the VWAP from the March 2020 lows is just below the current price, it’s very possible that LYV bounces there. This week LYV sliced through the 200w SMA after bouncing off that moving average a couple times in the past month. If the VWAP from the pandemic lows doesn’t provide support then I don’t see much until the ~$65 range where there’s alot of support from the low of last year through the lows earlier this week.
If you’re bullish on LYV and want to be a long term share holder I think you can start buying in the $70s with the intention of averaging down if the stock drops into the $60s and tests those lows from last October.
This is the short term chart with daily candles, there’s not much to like here as LYV is below the 200d sma as of two weeks ago. As you can see there’s an unfilled gap from 73.76 down to 67.44 which might need to fill, especially if earnings next week are disappointing.
Conclusion
I’m glad I forced myself to learn more about LYV because I like the company and their growth strategy. I’m glad they are finally becoming profitable but we need to see net income margins expanding faster over the next few years if LYV is going to be a big winner for shareholders. I think LYV could exceed revenue expectations over the next 3-5 years but it means we can’t have a bad recession in the US or anywhere else where LYV has a big presence. If we start to see big job losses in the US it’s possible that LYV could see a decline in demand for expensive, live events. Of course the bullish scenario I laid out in the investment model section looks compelling but I have no idea what the odds are that LYV can get to $30 billion in revenues by 2028 with 8% net income margins. I’d be worried that they’d need to sacrifice margins in order to achieve higher growth coming from more aggressive investments into building their portfolio of venue spaces via acquisition or building them from scratch like they’ve done in Boston.
I must admit that I’m intrigued by LYV and might be tempted to start a position if the stock bounces off that VWAP from the March 2020 lows however if it happens before Q3 earnings I might have to wait because I’m already up 93% YTD and not looking to take big risks into Q3 earnings with new positions.
Most of the companies in my investment portfolio are growing at 30% or more per year and the ones that aren’t growing that fast are trying at much cheaper multiples than LYV but I will say LYV might have a better shot at expanding their net income margins faster which leads to higher EPS growth and higher P/E multiples.
For now I’m on the sideline with LYV but that could change especially with a strong Q3 earnings report.
Additional Sources
Management – https://www.livenationentertainment.com/leadership/
Board of Directors – https://investors.livenationentertainment.com/corporate-governance/board-of-directors
Ownership – https://www.sec.gov/Archives/edgar/data/1335258/000133525823000046/lyv-20230426.htm#if93576b595fd48de92ca94f57609c685_73 (page 21)
Have a great weekend!!
~Jonah
Disclaimer: The stocks mentioned in this newsletter are not intended to be construed as buy recommendations and should not be interpreted as investment advice. Many of the stocks mentioned in my newsletter have smaller market capitalizations and therefore can be more volatile and should be considered more risky. I encourage everyone to do their own research and due diligence before buying any stocks mentioned in my newsletters. Please manage your portfolio and position sizes in accordance with your own risk tolerance and investment objectives.