Don't underestimate the power of pop music...

When Taylor Swift announced her new Eras tour back in November, folks knew it would be huge.

The singer's latest release, Midnights, was the first album in history to occupy all 10 spots on the Billboard Hot 100 at once. And with concerts back in full swing following pandemic shutdowns, fans anticipated massive demand.

What they didn't anticipate was that sales would be an unmitigated disaster.

To put it mildly, Live Nation Entertainment (LYV) subsidiary Ticketmaster dropped the ball... big time.

Ticketmaster, which is the biggest ticketing company in the world by far, is the go-to for music's biggest stars to organize concerts and tours.

In the leadup to the first round of sales on November 15, 1.5 million "Swifties" – as Taylor Swift's fans call themselves – were given presale codes. The singer herself later said that Ticketmaster assured her the company could handle it.

But when it came time to buy, fans encountered glitches, crashes, and unprecedented wait times.

Most people only got a chance to purchase the worst seats in the house. Even seats in the last row or with obstructed views went for thousands of dollars. Two days later, Ticketmaster canceled general ticket sales.

Swifties were furious... And they weren't the only ones. The Taylor Swift tour debacle reignited conversations about breaking up Ticketmaster's hold on the music industry.

As I'll explain today, things still don't look great for Ticketmaster and Live Nation. Business could get a lot harder for this ticketing empire as regulators take a closer look.

This isn't just a supply and demand imbalance... It's a monopoly in practice.

Live Nation controls a lot of venues and most concert ticket sales. In addition to the U.S., it operates in 44 other countries.

When the company bought Ticketmaster in 2010, some folks were concerned about anti-competitive practices. The merger went unchecked at the time. But lawmakers continue to sound the alarm periodically.

Following the disastrous Taylor Swift ticket sale, Congress announced an antitrust hearing on the company's practices. And angry Swifties took matters into their own hands... One group filed a complaint with the U.S. Federal Trade Commission for alleged anticompetitive practices and for misleading customers.

This is only the latest in a string of difficulties for Live Nation. The company has had a tough few years.

As you might have expected, Live Nation didn't do well during the pandemic...

With few people organizing and attending concerts, Live Nation lost a lot of money in 2020. Even though it tried to recover in 2021, it was still burning cash.

The company's Uniform return on assets ("ROA") was already down. It had fallen from 20% in 2017 to 13% in 2019... and it plunged to negative 33% in 2020.

Take a look...

In 2022, Live Nation did everything it could to recoup its money. And it wasn't subtle about its efforts... Ticket prices were sky-high as desperate fans tried to see their favorite artists for the first time in years.

On the surface, it looks like those efforts paid off. Live Nation's Uniform ROA is expected to reach an all-time high of 68% in fiscal year 2022.

This huge jump in profitability might look like an investment opportunity...

But there's another important factor to consider. Before you put money to work in any stock, you must understand what the market thinks.

We can see this through our Embedded Expectations Analysis ("EEA") framework. It uses Uniform Accounting to determine what investors expect from a company based on its current stock price.

The market expects Live Nation to improve its already high profitability in fiscal year 2022 and beyond.

Check it out...

Remember, the company is already expected to hit record-high returns in 2022. Investors think that's only the beginning... They expect ROA to reach 82% by 2026.

That's more than six times the 12% corporate average.

Market expectations seem overly rosy for Live Nation...

If music fans get their way and regulators break up the business, ROA will likely be much lower in the coming years.

Even if that doesn't happen, there's a good chance of increased regulation at a minimum.

Numerous artists and fans alike have complained about the company's exorbitant ticketing fees. That could be a logical place for Congress to make changes. And it would bite into Live Nation's returns as well.

All of these possibilities put Live Nation in a difficult spot. It has a lot to live up to in terms of the market's expectations. That doesn't seem likely with more regulation potentially on the way.

Investors should be wary of putting money into Live Nation stock today.


Rob Spivey
January 12, 2023