1) Live Nation's business looks strong in the absence of uncertainties about the coronavirus that shaved 21% off its share price Monday through Thursday. Only 17 shows in China have been canceled to date.
2) 2019 revenue grew 7% to $11.5 billion and adjusted operating income jumped 14% to $942.5 million.
Fears of the coronavirus’s spread outside of China sent global stock markets into a tailspin. Live Nation shares fell 22.2% this week, mirroring losses in the share prices of airline and cruise ship companies. On Thursday, the Dow Jones stock index fell a record 1,190 points, more than 4%, on top of losses Monday through Wednesday.
Seemingly unphased by the international panic, Live Nation believes its geographic diversity protects it from any further spread of the coronavirus. Asia represents 0.01% of the company’s business, even with recent expansions into Taiwan and Singapore, CEO Michael Rapino said during Thursday’s earnings call.
But there has been a “minimal” impact from the cancellation of 17 shows in China with 75,000 attendance, said president Joe Berchtold. In Italy, where 400 cases and 12 deaths had been confirmed through Thursday, Live Nation has booked only 30 shows with 125,000 attendance, he said. And because most of its concerts happen in spring and summer, Live Nation could escape damage if the virus is soon contained.
That said, Live Nation expects “further areas of breakout” and some shows “canceled here and there” in hot spots. According to the Centers for Disease Control and Prevention, the coronavirus is “likely” to cause a pandemic that would spread into the United States. Once people are fearful enough not to gather in public places like music venues, promoters will have to postpone or reroute tours. If health concerns escalate, concerts might be outright canceled. But not to worry, explained Rapino and Berchtold. They insisted the financial damage would be limited. “We don’t pay the artist until the show,” said Rapino. Even if a show is canceled, it can move to a different leg of the tour. “We won’t net lose the business,” he said.
But with events on five continents, 4,700 of them amphitheater, arena and stadium shows, Live Nation isn’t concerned. “We’re headed for a record 2020,” stated Rapino.
Live Nation’s high-margin divisions had strong growth, too. Ticketmaster’s high-margin business had 15% growth in operating income and 11% growth in AOI on only a 1% gain in revenue. The Sponsorships and Advertising unit grew revenue 17% to $59.3 million and AOI 16% to $366.1 million.
To conceptualize its business model, Live Nation talks of its “flywheel,” an interconnected company with “no one killer innovation, no solitary lucky break, no miracle moment,” writes Jim Collins in his seminal book Good to Great: Why Some Companies Make the Leap...and Others Don’t. A flywheel is like a virtuous loop that feeds itself and gains momentum with each revolution. Live Nation’s business model starts with concerts and continues with tangential and ancillary businesses: ticketing, sponsorships and advertising, and hospitality. Concert growth fuels the momentum of other segments. Last year, concerts attendance increased 5%, split 2.5% for North America shows and 10.6% for international.
The flywheel requires innovation. Helped by a 66% sales increase in dynamically priced Platinum tickets at 3,000 events, the overall, average ticket prices for Live Nation’s amphitheater and arena shows have grown double-digits in the last three years. Acquisitions help the flywheel, too, and Live Nation consistently acquires ticketing companies around the world. Fans’ on-site spending is also on the flywheel. In 2019, gains in hospitality -- by reduced friction in purchasing items, VIP offerings -- helped amphitheater per-head spending to grow $2.50 to $29.
The guidance for 2020 is typically guarded. “Looking at 2020, we believe that our double-digit fan and show count growth so far this year against a backdrop of very high artist activity across all venue types and markets sets up our flywheel to deliver another year of strong global growth,” states the earnings report. In other words, excluding a harmful pandemic, Live Nation is booking more artists in more venues and expects to have a fantastic year.