What good is a concert promoter without concerts to promote? Not much, according to investors who sent Live Nation’s stock down from $59.84 to $21.70 during two weeks in March 2020.
The stock has been rising fitfully ever since — it exceeded $100 for the first time ever on Oct. 5, hit an all-time high of $102.85 on Oct. 15 and closed at $102.41 on Oct. 18. Investors are excited that concerts are coming back: Big festivals have gone well so far, and major touring acts like Dead & Company have returned to the road. But since Live Nation now trades at a multiple of between 30 and 31 times its 2019 EBITDA (earnings before interest, taxes, depreciation and amortization), compared with 19 in early 2020, they’re betting on considerable pent-up demand, both among artists to return to touring and among fans who can’t wait to see them perform.
Live Nation, which increased its debt by 62% during the pandemic, is telling an alluring story of a business that’s preparing for unprecedented growth. On the company’s Aug. 3 earnings call, president/CEO Michael Rapino and president/CFO Joe Berchtold predicted double-digit increases from 2019 to 2022 in both the number of events and tickets sold, as well as similar growth in sponsorships. (Some of those increases will come from OCESA, the Mexican promoter Live Nation agreed to purchase for about $450 million, and will fund by selling an equivalent amount of common stock.)
Investors are buying into the narrative, says Huber Research analyst Doug Arthur, whose price target for Live Nation is $70 — and they’re assuming concerts will resume without COVID-19-related hiccups. “That’s the only thing that can justify it being at $100,” says Arthur, along with the belief “that 2022 is the first of a run of years to address pent-up demand.”
Live Nation thinks it might be. “We’ve got three, four years here of strong demand that we’re going to smooth out over time so everyone can get the right market and the right Friday nights and the right dates,” said Rapino during the earnings call. Still, the market appears to expect a temporary boom. Citi analyst Jason Bazinet has found that clients expect one to three quarters of above-average concert activity to feed pent-up demand. His $97 price target puts him near the middle of 14 analysts tracked by Refinitiv that range from $70 to $112 and a median of $98.
There are other limits, though. “We all want normal touring back,” says Artist Group International COO Jarred Arfa, “but there are only so many consumer dollars out there. If you’re the 10th band in your genre [to go on sale], the money might be out of the market by then.”
Perhaps a conservative approach is merited here. In March 2020, few people thought more than 700,000 Americans would die from COVID-19. Vaccinations became a political wedge issue rather than a public health matter. Even if concert promoters have full slates in 2022 and 2023, investors may be underpricing uncertainty. For Citi analyst Jason Bazinet, who has a $97 price target for Live Nation, COVID’s unpredictable nature adds a wrinkle to forecasting.
“If something’s going to go wrong, it’s the thing nobody is talking about.”