It's been a rough year and change for the live music industry, but you can't necessarily say that about Live Nation (NYSE: LYV). Fundamentally speaking, it's in bad shape. The country's top concert promoter saw its revenue plummet 84% in 2020. However, take a look at its stock chart and Live Nation is singing a different tune.
Shares of Live Nation have nearly quadrupled since bottoming out like most growth stocks in March of last year. In a more understated but still ridiculously impressive performance, the stock is actually trading 13% higher since the beginning of last year. Live Nation is trading higher than it was at the end of 2019, when the economy was booming and we were packing ourselves like sardines into concert halls and music festivals because no one saw a pandemic coming.
Live Nation stock has bounced back in a major way. Is it still a buy? Let's plug into our amps, turn up the volume, and jam on the merits of Live Nation as an investment.
Image source: Getty Images.
Tune in
Last year was understandably a horrendous year for Live Nation, even as the stock inched higher for all of 2020. The wheels came off after the first two months of last year, with revenue posting year-over-year plunges of 97%, 95%, and 92% in the last three quarters. The red ink has been substantial, and Live Nation's deficit has clocked in wider than expected in two of those three quarters.
This isn't the kind of performance that would seem to warrant coming out for an encore, but there were plenty of bright spots in the cacophony. The bullish thesis for Live Nation needs music fans to come back to big-ticket shows, and for now the interest is still alive. A whopping 83% of Live Nation customers with tickets to canceled shows that have been rescheduled have opted to hold on to their seats. Just 17% of music fans have asked for their money back.
Live Nation is also going to emerge leaner out of this pandemic. It achieved $950 million in cost reductions last year. The near-term outlook isn't kind, either. New York began allowing arts and entertainment venues to reopen earlier this month, but the math won't work for the music world's most prolific acts. Capacity is limited to no more than 33% capacity, and even that is capped at 100 for an indoor performance space and 200 for an outdoor venue.
Tune out
Live Nation is expected to post another big loss this year, with a little more than half of the $11.5 billion in revenue it rang up in a record 2019. Analysts don't think it will take Live Nation long to get back on track. Wall Street sees Live Nation returning to profitability next year, earning $0.66 a share on $12.5 billion in revenue in 2022.
It's still hard to recommend Live Nation despite the potential of record results next year. The economy is recovering nicely, and we've collectively saved a lot of concert money during the COVID-19 lull. This bodes well for all consumer discretionary stocks. It's still hard to fathom a smooth transition to full concert halls to materialize in the coming months. Despite widespread vaccinations, we're seeing a global surge in COVID-19 cases again. Scares will happen. Folks will still turn out to support their favorite bands, but they may be less reluctant to go to as many live shows as before.
The trend was already not exactly Live Nation's friend. Remember that metric mentioned earlier -- with 83% of Live Nation customers clinging to their rescheduled tickets? We were at 86% six months earlier. Revenue rose just 7% in 2019. The 2022 target of $12.5 billion in revenue will likely be whittled lower as reality fails to live up to the hype. Live Nation was an opportunistic buy when the stock was slumping early last year, but now that it made up all of that ground -- and then some -- it's not a buy. There are plenty of other stocks that have recovered from their 2020 setbacks with clearer paths to growth.
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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Live Nation Entertainment. The Motley Fool has a disclosure policy.
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