Live Nation Wants To Be Everywhere: Q1 Earnings Analysis

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You could be forgiven if Fleetwood Mac’s “Everywhere” popped into your head during Live Nation’s first-quarter earnings call on Thursday afternoon: “I want to be with you everywhere,” Christine McVie sang in the 1987 hit. The global music promoter and ticketing company anticipates a record year “with growth in concerts and attendees, both domestically and internationally, in arenas, theaters, clubs and festivals leading the way,” president Joe Berchtold said during Thursday’s earnings call for the first quarter of 2019.  

The company is seeing a resurgence in stadium shows, too, particularly from tours by K-pop band BTS, pop-rock star Ed Sheran, and heavy metal legend Metallica. BTS, now a chart-topper in the United States, plays the Rose Bowl in Los Angeles May 4th before heading to Solider Field in Chicago, MetLife Stadium in New Jersey, and additional stadiums in Sao Paulo, London, Paris, Asoaka and Shizaoka, Japan. Amphitheaters should have a strong year, too. “We have 50 amphitheaters,” said CEO Michael Rapino. “We love that model. It continues to be a high-margin business” that drives sponsorships, ticketing and global food and beverage. Once a fan is inside, Live Nation expects average per-head spending to increase $2 this year.

Smaller venues got a nod, too. Rapino pointed to the importance of 500- to 6,000-seat venues to both attendance and sponsorships. “We see those as a real, great sweet spot of upcoming talent.” The relatively young fans that attend concerts at smaller venues’ see concerts “five to six times” a year, he said, rather than the two-times-a-year frequency of the older audiences at the higher-end arena shows. In just the last few weeks, Live Nation has announced plans to bolster its clubs and theaters in Orange County, California; San Diego; and Greensboro, North Carolina. In February it acquired a majority stake in Embrace Presents, the booker and manager for the 1,425-capacity Danforth Music Hall and the 400-capacity Velvet Underground.

Fortunately for Live Nation, small venues are beloved by today’s real estate developers and urban planners. “A lot of developers, real estate neighborhoods, city centers—they all want that venue to be part of their attraction in urban centers,” Rapino explained. As construction cranes hover over the downtowns of cities eager to bolster their entertainment offerings, Live Nation has what Rapino called “a long list” of opportunities.

Expect double-digit growth in adjusted gross income in 2019.  AOI is Live Nation’s preferred metric; it focuses on operational effectiveness and removes non-operational, but common, factors as certain stock-based compensation as well as non-recurring events like a gain or loss on a sale of an asset, depreciation and amortization. Through mid-April the concerts segment sold more than 49 million tickets, a 5-percent improvement.

This year’s festival business will be bolstered by a slew of acquisitions this year: Blockfest in Finland; Tons of Rock in Norway, Levitate in the Untied States, and a majority stake in DF Entertainment, the promoter of Lollapalooza Argentina.  
 
Live Nation posted a net loss to shareholders of $64.8 million, up from $50.3 million a year earlier, on revenue of $1.7 billion, up 17 percent. Operating activities provided net cash of $469.1 million, down from $775.5 million. Free cash flow was $2.9 million compared to $46.4 million in the prior-year period.

The concerts segment’s revenue grew 22 percent and turned out the first positive AOI in a first quarter: $5.4 million of the company’s total AOI of $115.4 million. It staged 8,000 concerts, up 12 percent, with attendance of more than 15 million, a 22-percent improvement.

Ticketmaster had its fourth-best quarter for transacted fee-bearing gross transaction value. Amphitheater pricing is up “double-digits” in 2019. Prices at both amphitheaters and arenas have grown over 30 percent in the last two years. Pricing for “front of house” tickets—the closest seats—has increased without “any pull-back in demand for concerts, and sell-through rates continue to be strong globally” Rapino said.

Per usual, Ticketmaster, the cash cow of the entertainment business, delivered AOI of $100.4 million, two-and-a-half times as much as the sponsorships and advertising unit. In a seasonally slow quarter, sponsorships and advertising revenue grew one percent and contributed $39.9 million of AOI to Live Nation’s bottom line. The division should end the year with a double-digit gain in net revenue, the company said. New sponsors include Verizon in the United States, Rogers Communications in Canada, and Diego in Europe.

The first quarter net loss was 31 cents per share. Seven analysts surveyed by Zacks Investment Research expected of 32 cents per share. The quarter’s $1.73 billion of revenue exceeded analysts’ estimate of $1.59 billion. Shares of Live Nation were unchanged in after-hours trading following the earnings release at the end of trading. Year to date, Live Nation shares are up 29.5 percent compared to a 13.7-percent gain on the New York Stock Market composite index. The company’s market capitalization stood at $13.46 billion at the end of Thursday.