Live Nation- Everybody Wants to Rule the World

Date: May 2, 2013 Price: $12.50 Mkt. Cap.: $2.4 billion

An investment in Live Nation (LYV) provides investors with an opportunity to buy into a unique set of assets that provides an ecosystem to maximize that amount of revenue and profits available in the live entertainment industry. Unlike most of our typical investment reports which focus on free cash flow utilization, net asset value investing, mean reversion of margins or special situations, this report will look at the investment merits of a company that generates little free cash flow at the moment and is somewhat of a growth investment if company management is successful in achieving its objectives. Their dominant size is a competitive advantage and the presence of a significant, value creating long-term investor (Liberty Media)  provides additional margin of safety from a liquidity standpoint. The strategy is not without risks and we will discuss those as well.. What follows is our analysis of the merits of Live Nation’s three year plan to grow its Adjusted Operating Income (AOI) by 30-35%.

[Read more…]

One-Hour Analysis of Live Nation

We like to use Value Line as a weekly source of potential ideas. Since we are value investors, some might find it strange that we would use a publication whose ranking system is based mostly on price and earnings momentum as a primary source of idea generation. Perhaps in the future we will take a look at track record of their ranking system and similar ones like Zack’s and review the literature on adding a momentum component to value investing. But back to how we use Value Line as an idea sourcing tool.   Every week Value Line publishes an issue that contains roughly 130 stocks in it grouped by industry. This gives us a chance to quickly review the latest results and financial metrics on 6 or so industries a week. It also puts in front of us hundreds of companies we might never even think about or come across using other methods.

One such company that popped out of a recent Value Line issue we decided to revisit was Live Nation. While at Behind the Numbers we originally wrote up the company as a short. We were concerned with the high leverage, the aggressive rollup strategy, governance issues and long-term growth rate assumptions amongst other things.  Since then, LYV has merged with Ticketmaster, signed a mega deal with Madonna and now have John Malone and Liberty Media as large shareholders.  We decided to take another look at LYV to see if it has any investment merits either long or short. Here is how I started my “One hour analysis” of LYV. [Read more…]