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Morningstar | Live Nation Opens 2019 With a Convincing Beat; Concerts Continue to Drive Growth

Live Nation started 2019 on a rousing note as first-quarter revenue and EBITDA handily outperformed consensus expectations. The firm’s concerts division drove the beat with fans up 22% over last year to 15 million. While the outperformance was impressive, the first quarter is historically the smallest for the live entertainment firm. As a result, we are maintaining our narrow moat and $62 fair value estimate. With shares trading in 3-star territory, we would suggest investors wait for a pullback before investing.

Total revenue grew by 17% versus the same period a year ago to $1.7 billion, driven by the concerts and sponsorship segments. Concerts revenue improved by 22% year over year to $1.3 billion as the number of fans served expanded by 22% and concerts by 12% to 8,000. Tickets year to date through mid-April are up 5%, setting up the segment nicely for the very important second and third quarters. Sponsorship and advertising revenue was up 1% with 4% growth excluding foreign exchange impacts. The firm recognizes over 85% of the revenue from sponsors and advertising over the last three quarter of the year. Committed net revenue is up double digits versus the same time last year. Gross transaction value at Ticketmaster fell 10% to $7.6 billion with both primary and secondary down similar amounts. Despite the downturn in the quarter, management continues to project growth in fee-bearing GTV for the full year. While adjusted operating income improved by 1% to $115 million, AOI margin decreased to 6.7% from 7.6% due to the mix shift away from the higher-margin ticketing segment to the lower-margin concert segment.

Management disclosed on the call that the growth in capital expenditures in 2019 will be largely allocated to acquiring more venues, primarily amphitheaters with a capacity of 500 to 6,000. CEO Michael Rapino described these venues as “the new movie theaters,” an apt comparison. The relatively smaller size is highly conducive to booking newer and upcoming talent that should attract younger concertgoers, a highly attractive demographic to sponsors and advertisers. While gentrification has caused a number of older, smaller music venues to close in the U.S. and the U.K., we believe that many of the amphitheaters coveted by Live Nation have been developed to fit within urban areas and have been approved by local authorities. Thus, we expect that these venues will continue to help spin the concerts flywheel for Live Nation.