A Millennial-Appeal Stock Growing With The Live Entertainment Industry
Spotify and other music streaming competitors are often lambasted by those in the entertainment business as having slashed the income that artists could once realise through the sale of singles and albums. Without delving into the pros and cons, rights and wrongs of that debate, one undoubted outcome is that there are now more live concerts than ever before. The same can be said, to a perhaps lesser extent, for other forms of live entertainment such as stand-up comedy. The rise of Netflix, Amazon Prime etc., has impacted DVD sales. The answer? Make up the short-fall through more live shows.
It might be more work for the artists but as a fan there is certainly an upside. The live entertainment industry has boomed in recent years. It can be seen across sectors. Despite the huge increase in ticket costs that many say are forcing traditional fans out, English Premier League stadium attendances are buoyant and clubs are investing to increase their capacity. Music, sport, comedy, theatre, even eSports (competitive computer gaming) are attracting crowds like never before. Perhaps it’s because we spend so much of our time online, in a digital bubble, that we crave ‘special’ live experiences all the more.
If you are a millennial investing online and keen to invest in a sector you have an affinity with, and even if you aren’t and are just looking for attractive companies in high growth areas, the live entertainment industry currently offers some promising stocks. One in particular was highlighted over the weekend by The Telegraph’s Questor stock market column.
The first is NYSE-listed Live Nation. The company owns and operates major entertainment venues of the kind that can cater to top live acts and are relatively scarce. In the context of London, think Wembley and the O2. Live Nation’s ‘concert’ unit benefits from the growing number of big, live gigs and world tours of major artists often exclusively, or to a large extent, are only hosted by venues owned or managed by Live Nation. The company also organises festivals, with its UK roster including Isle of Wight, Reading, Wireless, Parklife, Download and more. Last year the unit’s operating margins were just under 15%, sales accounted for circa. 75% across the company and contributed 21% of operating profits.
Much more profitable, though reliant on the core concerts unit, is sponsorship and advertisement. This accounted for 32% of operating profits despite accounting for only 4% of revenue due to margins of well over 60%.
Live Nation’s third major unit is the ‘Ticketmaster’ brand. Ticketmaster sales account for 47% of the group’s profits on 21% of revenues and at margins around 20%. The rise in the popularity of live events has seen Ticketmaster sales steadily increase by around 10% a year and profits on that have kept pace, rising at a similar rate.
Judged on an ‘enterprise value’ that calculates value in a slightly different way to the traditional price-to-earnings (p/e) ratio, by looking at market value plus debt, Live Nation currently trades at x12 ‘ebitda’. This, the column argues, is very reasonable within the context of a solid business with strong growth. Worth a look. And the next time you are swithering over paying £80 for a concert ticket, at least you’ll know you are contributing towards your stock market portfolio!
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