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Morningstar | The Concert Flywheel Keeps Spinning for Live Nation; Launching Coverage With $62 Fair Value Estimate

We are launching coverage of Live Nation with a narrow moat rating, stable trend, and $62 fair value estimate. Our $62 fair value estimate for Live Nation implies an enterprise value of 18 times 2019 adjusted EBITDA and a 3% free cash flow yield.

Live Nation is highly focused on live entertainment at venues ranging from intimate clubs to large stadiums. The firm controls over 235 concert venues that hosted almost 35,000 events and nearly 93 million fans in 2018. Ticketmaster, the firm’s ticketing platform, sold over 480 million tickets for over 12,000 clients in 2018. Live Nation also has a large artist management business and is the one of the largest advertising and sponsorship platforms targeted at music fans.

We expect that the firm will continue to use concerts as the “flywheel” that drives the higher margin ticketing and sponsorship and advertising segments, along with onsite spending by fans. Live Nation should benefit from the ongoing trend of younger consumers preferring experiences over material goods patricianly with respect to spending on concerts and music festivals over purchasing music. We also project that artists will remain dependent on tours and associated revenue streams to replace the lost revenue from the decline in digital downloads and the shift toward streaming music. While the concerts segment has lost money in the past, we expect the segment to move into profitability in the near future.

For Ticketmaster, the ticketing platform will look to maintain its position via continued investment in its technology and leveraging its unique relationship with the concerts segment. We expect that the service will remain focused on monetizing the secondary market and recapturing some of those profits for artists. We also believe that dynamic pricing will likely become more widespread, particularly for higher profile artists and tours. Ticketmaster and its clients may have to weather some criticism and attacks from both fans and critics when implementing dynamic pricing.

With younger consumers watching less ad-supported video and using ad-blockers online, Live Nation should be able to leverage its large captive audience to grow its advertising and sponsorship revenue. We expect that the concert space should be able to buck the secular trend of new advertising dollars flowing onto digital platforms at the expense of analog ones.