Will This Concert Promoter Finally Become Profitable?

Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Live Nation Entertainment (NYSE: LYV) is the world’s largest promoter of live concerts in the world, and is the result of the 2010 merger of Live Nation and Ticketmaster.  Although revenues have been consistently increasing, Live Nation has not had a profitable year since 2004, and as a result, the stock hasn’t done too much.  Quite frankly, with eight consecutive years in the red, shareholders should be happy that the stock is performing as well as it is!

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Shares seem to have gravitated to a range between $8 and $12, and it is close to the middle of that now.  With 2012 earnings due Feb. 22, investors will be listening closely for the company’s plans to become profitable and create maximum value for its investors.

Live Nation owns, operates, or has rights for 133 live music venues, including some that are very well known, including The Fillmore in San Francisco, the Hollywood Palladium, and the House of Blues locations.  In 2011, the company promoted and produced more than 22,000 concerts with attendance of over 47 million people.

So, when the company reports earnings next Friday, the consensus calls for a loss of 37 cents per share in 2012, which is projected to improve to (only) a 10 cent loss in 2013 and finally a 2 cent per share profit in 2014, at which point analysts expect the company to become profitable in perpetuity. 

Part of this is due to the projected increase in consumer spending as the economy improves.  The boost could also be due to two companies that I have immense respect for throwing their muscle behind Live Nation’s success: Groupon (NASDAQ: GRPN) and Liberty Media (NASDAQ: LMCA)

In May of 2011, Groupon and Live Nation announced a partnership called GrouponLive, which would be a way to offer last-minute discounts to help boost sales on undersold shows by providing Live Nation access to Groupon’s millions of deal-seekers.  For the first quarter the partnership was in effect, Live Nation reported selling over 422,000 offers through Groupon, exceeding either company’s expectations.  Groupon is just beginning to be a profitable company itself, and has grown revenues exponentially, with $15 million in 2009, $313 million in 2010, and $1.6 billion in 2011, and are projected to report around $2.4 billion for 2012.  While I don’t think they will sustain such a rapid growth rate, the fact that they are a very high-growth company tells me that Live Nation could benefit greatly if Groupon continues to do well.

The GrouponLive partnership is huge, but Liberty Media’s faith in Live Nation is the real reason that I have faith.  Liberty Media already owns a controlling stake in Sirius XM, and has significant ownership interest in Barnes & Noble, Time Warner, Viacom, and Sprint Nextel, and for some reason they can’t seem to get enough of Live Nation.  Liberty has increased its share in Live Nation several times since they initially bought 1.8 million shares in early 2011. 

In fact, just recently on New Year’s Eve, when Irving Azoff, Live Nation’s executive chairman announced he was leaving, Liberty Media bought 1.7 million of his shares.  After this latest purchase, Liberty holds a 26.4% stake in Live Nation, prompting rumors that a takeover might be next, similar to Liberty’s efforts in Sirius XM. 

Between the Groupon partnership and Liberty’s faith in (or desire to possess) the company, Live Nation should be able to meet, and most likely exceed, the projections of its earnings growth and finally become profitable.  If this happens quicker than analysts predict, it would be a major upside catalyst for the share price. 


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