|Shares Out. (in M):||189||P/E||NA||NA|
|Market Cap (in $M):||1,612||P/FCF||8.2x||6.3x|
|Net Debt (in $M):||1,461||EBIT||472||535|
- Live Nation (LYV) is the world’s largest live events and ticketing company.
- At the current quote ($8.55), you are buying an unregulated monopoly at 5.7x 2012 EBITDA/6.3x 2012 FCF with massive growth opportunities and a potential acquirer in the form of Liberty Media (currently the largest shareholder at 21%).
- Given the high barriers to entry and opportunity to double EBITDA over the next several years, we believe a reasonable valuation would be 8x 2012 EBITDA, implying a $16 stock price, or a 90% premium to the current price.
*Note: In their filings, LYV refers to EBITDA as Adjusted Operating Income (or AOI).
LYV has a vertically integrated business model and through its 5 divisions covers all aspects of the live music production process from booking an artist to selling tickets and maintaining fan websites. LYV has the #1 market share (by multiples compared to the next largest competitor) in almost every business line:
|% of Total||% of Total|
|Concerts||66%||10%||- #1 global concert promoter|
|- Involved in promotion & management of concerts including operating concessions stands|
|- Own & operated venues total 128|
|Ticketing||21%||60%||- #1 event ticketing distributor w/80% market share in NA|
|- Primarily Ticketmaster, but also includes TicketsNow secondary business|
|- Agency model that sells tickets on behalf of clients|
|- Also sells sporting and theatrical event tickets|
|Artist Nation||7%||10%||- #1 artist management business globally with 250 artists under management|
|- Clients includes Jimmy Buffett, The Eagles, Christina Aguilera|
|E-Commerce||2%||11%||- Involved in management of online & e-commerce activities|
|Sponsorship||3%||25%||- Involved in securing corporate sponsors for venues/tours|
|*% of Total EBITDA excludes corporate expense|
Artist Touring is Secularly Growing
Historically artists generated the majority of their income from selling records. Given the proliferation of digital music sharing, artists now make 80% of income through touring. As recording revenues continue to decline, LYV’s bargaining power with artists improves. This is a secular trend that benefits LYV and is in stark contrast to the rest of the media space, where technology disruption is dis-intermediating entire industries. The live entertainment experience is not something that can be easily replicated at home or on the internet.
High Barriers to Entry: Why the Artist Chooses Live Nation and Why Venues Choose Ticketmaster
What differentiates LYV from competitors is its ability to leverage all parts of its supply chain for the benefit of the artist and the venue.
For the artist, LYV is a one-stop shop. Through LYV, the artist has access to its 200mm concertgoer database, 128 owned/operated venues, merchandising services and fan websites management.
Similarly, for the venue, LYV can bring to the table their extensive database of concertgoers, the best content, and the security and reliability of Ticketmaster. Before Live Nation merged with Ticketmaster, Live Nation tried to build their own ticketing platform with CTS Eventim; this turned into a complete failure as the CTS platform could not handle the volume of ticket transactions in some of Live Nation’s events. Indeed, there is a lot of technological competence that goes into ensuring the smooth sale of millions of tickets the minute a Phish concert goes on sale.
Attractive Growth Opportunities
At Liberty Media’s Investor Day on November 17th, CEO Michael Rapino presented a framework for doubling EBITDA over the next several years primarily through 1) international expansion 2) growing high-margin sponsorship and advertising sales, and 3) selling more tickets and capturing some of the secondary market through dynamic pricing.
Liberty has up to $5bn of capital to deploy…
One can logically speculate that a good chunk of that will be used to buy LYV stock. Under the current stockholder agreement, Liberty can take their ownership stake up to 35% (from their current 21%). Note that in January 2010, Liberty unsuccessfully tendered for 34.5mm shares of LYV at $12/share.
ESTIMATES & PRICE TARGET
Note that in my 2012 estimates, I do not give LYV much credit for any of the growth opportunities highlighted above.
|2012 EBITDA Bridge|
|2011E EBITDA||$472||*Excludes $14.6mm litigation expense|
|NBA||--||*Assumes no '11-'12 season but returns for '12-'13 season|
|Ticketing||$23||*Assumes 4% inc. in tickets sold|
|Concert||$15||*Assumes 3% inc. in attendance and modest benefit from dynamic pricing|
|Artist Nation||$4||*10% inc. due to more AN artists touring in 2012|
|Sponsorship||$10||*10% inc. (vs. 38% inc. in 1st 9 Months 2011)|
|E-Commerce||$8||*20% inc. (vs. 57% inc. in 1st 9 Months 2011)|
|Cash Interest Expense||(104)||(100)|
|Minority Interest Payments||(11)||(12)|
|Implied FCF Multiple||11.7x||11.9x|