Taking Stock In Live Nation

When the Dow Jones Industrials passed the 11,000 plateau January 9th, it marked the first time the index had hit that benchmark since before September 11, 2001.

While many in the concert industry have traced its ills in recent years to the 9/11 terrorist attacks, it’s been difficult to measure against the economy as a whole.

With its spinoff from Clear Channel Communications, Live Nation becomes the only publicly traded, pure-play live entertainment company in the business.

The post-New Year spike in the stock markets, on top of Live Nation’s announcement of a $150 million share buyback plan last month, has helped share values rise about 25 percent since hitting the market. It entered the New York Stock Exchange trading at $11, and was up to $14.40 at the end of trading January 12th.

Former parent Clear Channel Communications hived off its entertainment division, now renamed Live Nation, last year because it was considered a drag on its core profit centers of radio and billboards.

At the time, observers seemed to take a wait-and-see, if not downright skeptical, approach to the new LN stock as it prepared to trade on the NYSE.

Phil Remek, a media analyst with Guzman & Co., told CNNMoney.com that Live Nation’s opening stock price of $11 per share may have seemed like a minimal risk for investors, despite the negative outlook on the concert industry.

“Potentially, investors were looking for a bargain since expectations were low,” he told the Web site.

But value investors may have been intrigued by Live Nation’s announcement of a $150 million stock buyback after the first day of trading. Buybacks are viewed favorably by investors since they lower share count and, therefore, boost earnings per share.

“It appears that Clear Channel has created value with the spinoff,” Laura Martin, an analyst with Soleil-Media Metrics, said.

But analysts also warn that professional investors could begin dumping the stock since the price has risen “to a level that would even make a ticket scalper blush,” CNN said. The sharp rise in share value certainly can’t be explained by year-end figures for the industry as a whole – while revenues rose, total tickets sold dipped for the second straight year.

In fact, the concert giant’s net profit margins, as reported by CNNMoney were just 2.1 percent in 2003 and below 1 percent in 2004, remaining there through the first nine months of 2005.

“I don’t think there’s been a change in sentiment about the live entertainment business. It hasn’t been a great business and I don’t expect the fundamentals to shift,” David Bank, an analyst with RBC Capital Markets, told CNN.

Yet, Remek points out that the concert industry continues to enjoy strong pricing power, a point in Live Nation’s favor. Ticket sales remain robust for top acts that can command ticket prices well north of $100, helping to blunt the overall decline in attendance.

“When will there be a consumer backlash to high ticket prices? People predict that consumers will walk away but that hasn’t happened,” Remek said.

– Deborah Speer