SFX Entertainment is adding revenue, but the EDM promoter has a growing list of problems.
SFX’s revenue in the second quarter grew 48.3 percent to $121.1 million from 29 festivals and 238 other events. Festival attendance grew 37.7 percent to 1.1 million. The 13 festivals also owned by SFX in the previous second quarter experienced attendance growth of only 3.4 percent.
Net loss in the quarter grew 36.2 percent to $48.0 million. Net loss in the six-month period ending June 30 improved 1.9 percent to $89.6 million. The high growth in costs more than canceled out the growth in SFX’s top line. While revenue grew 48.3 percent in the quarter, direct costs grew 61 percent.
Live events accounted for 88.1 percent of total revenue. SFX owns such festivals as Tomorrowland, TomorrowWorld, Mysteryland and Electric Zoo. It owns half of Brazilian festival Rock in Rio, a joint venture that resulted in May’s Rock in Rio USA festival in Las Vegas. The remainder came from sales of digital music, certain marketing services and digital activities.
Shares of SFX Entertainment got battered Monday (Aug. 10), dropping 22.6 percent to an all-time low of $2.36 before second-quarter earnings were released after the end of the trading day. SFX shares have a 52-week high of $7.25. The earnings release provided a small amount of positive momentum, however, as shares were up 3.8 percent in after-hours trading Monday.
Investors seem to be losing confidence in both SFX and the proposal by chairman and CEO Robert Sillerman to take the company private. SFX has given Sillerman a deadline of 10 a.m. this Thursday to secure financing. Sillerman originally offered $4.75 per share for the shares he did not already own (he increased his stake to 38 percent on July 31). The offer valued the company at $1.32 billion, 63 percent below the $3.6 billion value implied by SFX’s IPO price of $13. After pushback from shareholders and analysts, Sillerman increased his offer to $5.25, valuing the company at $1.46 billion.
But the market is showing little faith Sillerman will secure financing. At Monday’s close, SFX shares were 55 percent below Sillerman’s $5.25 bid. A large difference between the bid price and a share price suggests investors don’t expect to sell at $5.25. Put another way, if Sillerman was certain to secure financing and offer $5.25 to all shareholders, any difference between a purchase price and the $5.25 bid price would be guaranteed profit.
SFX has revealed it has not received a competing offer, although it did receive “several indications of interest” regarding “various components” of SFX’s business.