Global Live entertainment company Live Nation Entertainment, Inc. (LYV) promotes live music events and produces, markets, and manages live concerts for artists via global concerts. The Beverly Hills, Calif.-based company operates through three segments: Concerts, Ticketing, and Sponsorship & Advertising.

Pent-up demand for live music events, coupled with the reopening of outdoor activities, has improved the company’s concert pipeline for 2022 by double digits versus 2019. But its shares have declined 15.5% over the past month and 5% over the past three months. Although investors are optimistic about the company’s prospects because of its increasing sponsorship commitments and growing branding partners, LYV does not expect to host any major tours before 2022.

And since it could take a few years for the live entertainment and music industry to recover fully from its pandemic-induced downturn, the stock’s near-term growth prospects look bleak. In addition, LYV’s  growing debt burden and falling revenues could pose a significant risk to the stock.

Here is what we think could influence LYV’s performance in the near term:

Challenging Post-Pandemic Outlook for Live Music Industry

The live music market is expected to grow by $2.83 billion during 2021-2025, representing an approximate 6% CAGR. However, due to the pandemic’s impact on the industry, this represents a significant slowdown compared to  2020 growth estimates. While the widespread availability of COVID-19 vaccines and the pent-up consumer demand for live shows have improved the live music industry’s prospects, most businesses are still reeling from the devastating impact. With a substantial decline in advertising and revenue from tickets sold, live entertainment companies like LYV are still struggling to cope with their tremendous operating losses. Furthermore, as the world sees yet another COVID-19 surge with the rapid spread of the COVID-19  Delta variant,  the live music industry’s growth prospects look uncertain.

Weak Financials

For the first quarter, ended March 31, 2021, LYV’s revenues under its  concert segment declined 76% year-over-year to $239.4 million. Its ticketing revenue fell 90% year-over-year to $28.3 million, while its total operating loss rose 76% from the prior-year quarter to $303.2 million. LYV reported a $307.19 million net loss,  representing a  66.2% year-over-year increase. Its loss per share rose 53.2% year-over-year. The company’s adjusted free cash flow came in at a negative $225.7 million, while its net cash provided by operating activities declined 88.2% year-over-year. As of March 31, 2021, its net long-term debt stood at $5.29 billion.

LYV’s 15.7% trailing-12-month gross profit margin is 69% lower than the 50.7% industry average Furthermore,  its trailing-12-month net income margin, ROE, ROA, and EBITDA margin are negative 235%, 2,845.1%, 16.9%, and 169.9%, respectively. Also, LYV’s negative $1.64 billion trailing-12-month cash from operations compares with the $363.87 million industry average.

Premium Valuation

In terms of trailing-12-month EV/Sales, LYV is currently trading at 27.26x, which is 797.7% higher than the 3.04x industry average. In addition, the stock’s 805.49 forward EV/EBITDA multiple is 7,519.5% higher than the 10.57 industry average of 10.57. LYV’s 21.07 trailing-12-month Price/Sales compares with a 2.10 industry average.

Unfavorable POWR Ratings

LYV has an overall F rating, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. LYV has a D grade for Growth and Quality. The stock’s weak growth prospects and low profitability are reflected in these grades.

Also, it has an F grade for Value, which is consistent with the stock’s stretched valuation multiples.

In addition to the grades we’ve highlighted, one can check out additional LYV ratings for Sentiment, Stability, and Momentum here.

LYV is ranked #11 of 14 stocks in the F-rated Entertainment – Sports & Theme Parks industry.

There are several top-rated stocks in the same industry. Click here to view them.

Bottom Line

Even though substantial improvement in its concert pipeline and pent-up demand for live shows have raised investors’ hopes for LYV’s stock, given that the pandemic has strangled its revenue and profitability, it could still be a long time before the company can generate  sustainable growth. In addition to that, since the live music industry’s recovery could face bumps on the road due to the resurgence of COVID-19 cases, LYV’s stock could show further weakness. So, we believe it’s wise to avoid the stock now.

LYV shares were trading at $79.44 per share on Monday morning, up $1.73 (+2.23%). Year-to-date, LYV has gained 8.11%, versus a 18.43% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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