Live Nation Entertainment Stock: Running On All Cylinders (NYSE:LYV)

The guitarist plays on guitar in a dark room. Hands of a Guitar player playing the guitar. Low key

Pro2sound/iStock via Getty Images

Live Nation Entertainment (NYSE:LYV) just reported a record-breaking monster quarter, as demand for live events continues to explode, even in the midst of very difficult economic times.

Pent-up demand to get out and experience things continues to motivate people, as it wasn’t just the large concerts that were driving revenue, but there was double-digit attendance growth from small clubs, festivals, arenas and stadiums, among other venues.

The company overdelivered in almost every metric for the quarter, and appears poised to finish the year strong, with strong momentum heading into 2023.

In this article we’ll look at the strong earnings report it recently released, and why the company is unlikely to slow down in the near future.

Latest numbers

LYV had a mind-boggling quarter, with everything aligning right for their business model. I think its success goes back to the lockdowns associated with COVID-19, and it still hasn’t slowed down, and probably won’t in the near future.

As for its performance, revenue jumped to $6.15 billion in the quarter, up 128.02 percent year-over-year, beating estimates by an extraordinary $1.06 billion.

GAAP EPS for the third quarter was $1.39, surpassing estimates by $0.33.

Operating income jumped to $506 million, up 95 percent from the third quarter of 2021.

Cash flow for the first three quarters is $928 million, and free cash flow in the first three quarters is $996 million, a gain of 88 percent. AOI for the period soared to $621 million, up 45 percent, and on a constant currency basis was $645 million, an increase of 51 percent. The numbers speak for themselves, and confirm the fact the demand for live events continues to be strong.

Breaking down some of the numbers

LYV enjoyed the largest attendance ever in a quarter, with over 44 million fans attending over 11,000 events. So far in calendar 2022, approximately 89 million fans have attended 31,000 events.

When compared to 2019, the 115 million ticket sold are up 38 percent from the same time period of that year. To me, that underscores my thesis that this is driven by pent-up demand to get out and experience things in person.

As far as 2023, the company reported it has had a double-digit increase in tickets already sold for its concert tickets in comparison to 2021 and 2022, with the exception of shows that had to be rescheduled.

Sponsorship for 2023 is already up by 30 percent as measured against the latter part of 2021 when looking forward to 2022. As for third quarter sponsorships, revenue jumped 59 percent with Ticketmaster platform integration and Festivals being the two major catalysts there.

Concert segment

As usual, the solid performance of LYV was led by its concert business, which attracted 44 million fans across 11,000 concerts. That represented just under 50 countries, underscoring the fact demand for live events was a global phenomenon, and not restricted to countries or regions. Concerts revenue was $5 billion in the quarter, up 67 percent from the third quarter of 2019. AOI in the quarter was $281 million, up 44 percent from the third quarter of 2019.

As for venues, stadiums led the way, representing almost nine million fans. No matter what the venue though, the company said all of them experienced double-digit attendance growth when measured against 2019.

Its Venue Nation division increased attendance in the quarter to 19 million, up 14 percent from Q3 of 2019. So far this year it has had 38 million fans, with projections of 50 million for the whole year, including festivals. Concerning ancillary spending, the company reported spending there increased in a range of 20 to 30 percent so far this year, in comparison to 2019. That suggests when fans attend the live events, they not only want to be there, but also enhance their experience with other products or services offered on site. The company sees this as an opportunity to generate a lot more revenue by offering more quality experiences to its fan base.

With such high demand, it has resulted in strong pricing power for LYV, which motivates the artists from the added revenue paid out by LYV, which I think will probably increase the probability of more concert performances, which will drive even more revenue for the company in 2023.

As for sponsorships, that growth was driven by the global presence of LYV and the strength of its festivals and associated online partnerships LYV is engaged in. That brought about $226 million in AOI, a gain of 56 percent over the third quarter of 2019. Sponsorship in the U.S. is up 48 percent, while international sponsorship soared 93 percent through the third quarter. For on-site growth, festival sponsorship has been the biggest driver.

Share price movement

Over the last LYV traded as high as $127.75 per share, and a low of just over $67.53; not much above where it’s trading as I write. Going back a couple of years, it’s trading between $1.00 and $2.00 per share higher.

As with many stocks, the company went through a period of decline in its share price in 2022, but I think that may change, even though initial market response was to drive the share price of the company down by almost $8.00, when including afterhours trading. As a matter of fact, the 52-week low came on November 4, 2022, after the news of the terrific quarter.

I tend to think that many investors are thinking in terms of: “okay, what next?” After all, when you break your quarterly record across many metrics, it’s difficult to believe the best is yet to come. I’m not saying it is, but I do think investors may be underestimating demand for 2023.

My guess is, investors may be looking at the slower period that usually come in the early part of the year, thinking the performance of the company isn’t sustainable going forward. While that may be true in the near term, from the commentary of management, it appears it’ll retain momentum throughout 2023, with the usual slow periods. I’m not saying it’ll break more records (even though it’s possible), I’m saying there is still a lot of demand for live events and experiences, and I don’t think that is going to suddenly decline in 2023.

With its record performance, investors may be thinking the company has peaked because of the pent-up demand that may now be assuaged. I don’t think demand will slow down significantly over 2023, but there is the uncertainty of the weak economy that may force fans to pull back on spending next year. Again, I don’t think that’s how it’ll play out, but it’s definitely something on the minds of many investors in general.

The point here is we’re dealing with consumer psychology, and with the difficult times we are now living in, attending live events is a way to connect, blow off some steam, and take our minds of things for a short period of time. Those types of needs just don’t suddenly disappear. I don’t think they’re ready to over the next year.

Economic effect

As for the impact of a weakening economy, high inflation, and uncertainty surrounding what the Federal Reserve will do from month to month with interest rates, there is the counterbalance to live event demand, by which I mean being able to afford it.

If inflation continues to jump higher, especially with food and other everyday items we need, eventually consumers may be forced to make a decision about where they will spend their money. We aren’t there yet, but it’s possible the positive outlook of LYV could be frustrated if things get a lot worse.

Because the summer months are where the bulk of demand comes from, by the time next spring and summer come along, I have no doubt in my mind we will know the answers to most questions on the economy, inflation and interest rates.

We’ll also know heading into the summer what the probable prospects for LYV will be.

The major thing to consider is weighing spending on needs vs. spending on wants, such as the experiences offered by live events. The condition of the global economy will determine which one wins out in 2023.

My expectations are the Fed will raise to somewhere near 5 percent and start to hold off from there. The reason why is it’ll make it extremely difficult for the U.S. government to pay down its debt if the Fed throws off restraint and single-mindedly focuses on inflation and interest rates alone, at the expense of everything else. I don’t think that will happen, but you never know if inflation continues to remain high, or possibly even increase.

The other economic issue is if the recession will go deeper for longer, or be a more mild one that is short lived. There are arguments on both sides of the issue, but the reality is, no one really knows, but we must think in terms of what we should invest whatever scenario plays out

Conclusion

LYV had an extraordinary quarter. And based upon management guidance, is heading for another great year in 2023, taking into account sales are going to pull back in the winter months.

While consumers are shrugging off the weak economy and rising inflation at this time, it doesn’t necessarily mean it’ll last. Then there

One positive I took out of the report was the pricing power of LYV and how that flows over into artists being paid more. That, to me, is a potentially strong, motivating catalyst heading into 2023. Management stated they are thinking in terms of ramping up concerts and other events because of the high demand.

The other thing is, pricing power means the demand is real, and since it’s already ahead of 2019 ticket sales, it appears the demand isn’t going away.

Another thing to consider is if the economy does improve and there’s more disposable income to spend on other things, will the competition from outside live events cut meaningfully into LYV’s revenue and profits?

In conclusion, I think LYV is going to have another great year in 2023, but it could pull back in the near term as many of the live event fan base cocoon up during the colder winter months.

If LYV can convince investors that it can generate solid returns sustainably by increasing its fan base, this stock will take off to new highs. But that’s not here or now, and it seems like investors are still hesitant to commit to the stock.

Assuming a prolonged period of growth, some investors may wish they had taken a position in the company near these price levels. Then again, once the slow season comes, the share price will probably pull back, providing an even better entry point.

The best way to play a seasonal stock like LYV is to position size in conjunction with your risk profile, and then engage in dollar-cost averaging to get an acceptable cost basis.

Be the first to comment

Leave a Reply

Your email address will not be published.


*