I’m very uncomfortable with Live Nation’s accounting.
Live Nation does not seem interested in helping investors figure out how much money the company actually makes. One of the unnecessarily tricky areas of Live Nation’s accounting is the interaction between ticketing advances and Adjusted Operating Income (AOI). I would consider all ticketing advances to be operating expenses. However, Live Nation adds a subset of ticketing costs to Adjusted Operating Income since non-recoupable ticket advances are amortized. Management’s definition of AOI seems to be designed to mislead.
Live Nation has various business lines associated with live music and live events. They are pursuing a strategy of vertical integration, trying to find synergies between the various parts of their business. On the concerts business side, the vertical integration strategy has been tried multiple times with little success. Will this time be any different? John Malone seems to think so. Liberty Media has been buying more Live Nation shares.
Let’s start with an overview of the ticketing industry.
Google Trends may be an interesting tool for investors.
- It allows investors to gather data on a company that’s fresher than the last quarter’s earnings release. This can be helpful in turnaround situations such as Aeropostale (ARO) and Cafepress (PRSS).
- Having leading earnings indicators can be helpful for manufacturing companies (e.g. RGR, SWHC) where there is not much data on consumer demand due to fluctuating inventory at the retail and distributor level.
- In rare cases where fraud is suspected, Google Trends may provide some indications about actual revenues.
Here is an example of Google Trends in action:
Overall, my portfolio is down several percent YTD mainly due to a longshot bet on Yongye put options and mark-to-market losses on Altisource common shares.
On the short side, shorting common stock has worked incredibly well for me this year. Unfortunately, my gains were offset by losses on Yongye puts.
On the long side, I made massive bets on Kinder Morgan warrants and Altisource common stock. The former has been profitable while the latter hasn’t. Altisource has been beaten down -53% YTD and I have been adding to my position on the way down. While Altisource continues to have absurd earnings growth, its share price has fallen dramatically due to fears that regulation may hurt the company.
Liberty Media continues to buy shares of LYV on the open market. I don’t see crazy undervaluation at LYV, though there are a few things about the company that stand out to me.
- The accounting is misleading. Live Nation has lots of non-cash depreciation and amortization charges that deflate earnings. Its stated depreciation is excessive. Its true earnings might be somewhere around $120-150M/year. This suggests an adjusted P/E ratio of around 16-20 (at $12.69/share).
- This company is leveraged. If you account for the debt, its valuation seems a little rich.
- Live Nation seems to be a bet on innovation increasing its earnings.