NYQ:LYV | Livenation - What Am I Not Seeing?

14th Feb by pinball

14 comments 332 reads

So I've been crushed on this stock since last March. Can anyone help me with a sanity check?

Heads up, I work in the music // live entertainment industry and I definitely have a personal axe to grind. This company is one of the worst examples of monopolistic behavior // predator capitalism that I have ever had the misfortune to witness up close and personal and I wish them nothing but harm. My wife thinks I am allowing my hatred to influence my trading, which could be true, but I don't think so.

So I shorted this at $66 back in March of 2020 and again at $48. I legitimately thought this could end up being a $0 stock. I followed it all the way down to when it briefly touched $22 and now all the way back up to ATH of $83 (it was at ATH of $77 pre-COVID).

Now this is a company that has NEVER made money and was consistently losing $300m per quarter, even at full throttle. Since March of 2020, Livenation has seen its entire business go to zero, with an initial burn of $350m-450m per MONTH. At the outset of the pandemic, they made big noises about keeping their entire team intact, but over the months, they have had to make massive cuts. Their monthly burn is down to "only" $150m per month now, and since COVID they have added over $4.5billion in debt just to stave off bankruptcy. They are issuing debt that matures in 2027, selling significant stakes to the Saudis, anything to survive.

All of the models (Stockopedia etc.) suggest this is a company in severe trouble, yet the share price continues to rise. I am stubbornly holding onto my short position, but I am close to triggering margin calls. I can't see the live entertainment sector back to full steam ahead for another year at the least, with lots of potential pitfalls in between, during which time they might burn another $1-2billion. Can anyone help me see what I cannot - I mean, the broader markets are completely and utterly irrational, but this one takes the cake.

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gus 1065

14th Feb

No pearls of wisdom other than to trot out the old JM Keynes adage that the “Markets can remain irrational longer than you can remain solvent.”

Mike888

Pre-covid it looks like they were about to break into profit. Obviously not worth the current market cap. But there are a lot of companies now trading at pre-covid levels on sales that are nowhere near what they were, and on balance sheets that are far weaker. I guess its all about an investors time horizon.

It does beg the question though, as to whether the market will value these stocks on the new expensive baseline and earnings growth will be reflected as incremental from this point. Or whether the market will gain some sanity and price to multiples appropriate to their actual earnings, and what was considered as appropriate pre-covid. Either way, in my opinion this stock was very expensive before and now ridiculously so.

pinball

thanks Mike and agreed. What would be an appropriate way to trade something like this (if I was to have my time all over again)?

I have thought of this many many times over the last 12 months

smegster

I have never heard of Livenation so I can't comment on it.

However shorting can be a very dangerous activity. There have been quite a few youtube videos on shorting recently, here is one of the better ones

Why Warren Buffett Avoids Short Selling

It explains quite well how you can lose money, even when your investment thesis is correct (see 7.25 mins onwards)

thanks Smegster. Yeah, been into the weeds on shorting over the last 12 months. Was also screwed mightily on a Chinese (fraudulent) education stock GSX (check out the price action there and imagine being on the wrong side of that!).

I still think that it's a worthwhile endeavor with the right precautions in place. The very fact that it's not very widespread appeals to my contrarian nature. Honestly, there have to be some good opportunities upcoming using this strategy if you believe (as I do) that markets are way overdue a retraction. I do need to really wrap my head around options, because it seems that put options would be more sensible than naked shorts.... more to come!

Gromley

In the past, most of my "conviction shorts" have burned me. By this I mean when I have an active view that a share is overpriced and should be much lower.

I think there is a particular psychological trap here, but I do not know what it is - I have however learned that fire burns, so I no longer put my hand in it.

Most of the stocks in the past that I have had conviction shorts on have had poor Value & Quality. To be fair I cannot recall amongst those cases an instance where I have been wrong on the fundamentals but (share-price) momentum has undone me too many times.

I do still short, but on a much broader portfolio basis and explicitly on the basis that I will cut positions that move against me. In fact if the momentum move against me starts to be backed up by V & Q I may even consider flipping and going long.

Mostly, however, if I see a stock that I think is grossly overvalued, I just walk away. The truth is that for whatever reasons the market often grossly overvalues stocks and increases the overvaluation - maybe I could learn to understand why, but I think there are better (and more profitable) things to exercise my mind.

Just my views and to be clear everyone's outlook and psyche is different so my view may not work for you. However, if a particular type of trade repeatedly does not work for you; walk away I think is the answer.

15th Feb

I rarely short stock for the reasons Gromley has stated, probably no more than half a dozen a year max. Markets more often than not want to go up not down, so the odds of a successful short are already against you. However when I do short it's usually when the market has made its move, I would never short a stock purely on fundamentals regardless of how ridiculous the price vs them seems to be. Likewise I exit a short by listening to the market, after all the market sets the price.

So I think you did great entering at $66, There was what Elder calls a kangaroo tail on the 18th March, generally a sign that a reversal could occur, and a few days later it did with the MACD rising with an eventual cross-over a few days later on the 24th. I would have exited the short then at $43 and stayed away from it after that point. I'm never greedy, I've learnt the hard way that when greed starts raising it's ugly head, more often than not, I lose.

Everyone has their own techniques, the above generally works for me, but there are a lot of variables that need to be in play before I would take a position, and so my universe on shorts is extremely small.

andrewdb

On shorting:

I go short on an individual stock about once a year - for the reasons mentioned above.
If I do I always hedge, ideally against a close substitute you are positive about (but if you are wrong on both this just makes things 2x worse ...and that has happened to me) or more usually hedge against the index (e.g. short glaxo, long ft100).

And have both a stop loss and a target in place. Not necessarily guaranteed, (I only dabble in large caps and they do not gap up very often)

IG allow trailing stops, this is either something that locks in a profit - good, or stops you profiting from a big fall with retracing over a long period - bad. The view depends on your convictions / appetite for risk
(in your example I probably would have been stopped out ~32-37 as it went back up from 22)

On Livenation:

When lockdown ends in June (?) no-one will have gone to an event for ~18 months. Some people think there will be 18 months worth of business happening in 6 months - and lots of people looking to buy tickets on a secondary market etc.

It may also help that robinhood clients may well have heard of Livenation

The market looks ahead and sees that income coming. I have no idea if the market is right or not.

StocksAndrew

The markets seem littered with companies carrying huge debts. And no active buisness. I personally have been attending a gig cancelled three times since last year. Problem with live nation, is that as a company they have 360 deals with various artists, where the total output is part of the contract not just live music. So releases, video output, management fees. The whole shebang. I would imagine there is a huge vested interest from affiliated record labels and video services to prop the whole thing up. All it takes is a few critical artists to rectify cash inflows. In a similar way that coldplay can impact their record label with one release cycle altering stock prices. This kind of monopolistic practices make me believe that we may see regulatory activity through out many sectors in the next decade.

But yeah non of this makes sense !!!

For instance 2017 Jay-z supposedly turned over $40+ million on one tour. I imagine they have artists loaded up into the stalls, ready for when the barrier drops.

Lady Gaga is pencilled in for a tour this year. Just a few gigs should bring in 40+ million.

This is their list of uk festivals.

I would suggest they are counting on these things to stop the current situation. Your figures show that the situation on the surface seems highly unusual. As with companies like Carnival. And the rest of the entertainment, leisure and hospitality industries. Some "horrendous" balance sheets. But the fact that they have decade long contracts with many established artists, and people are buying up this debt. Means that the vested intrests are on the increase. But as for the share price, what can explain any of this. I guess they have put people in contracts from prices that seemed reasonable at the time. But who knows where we are heading...

I want to edid that response. As it maybe factually incorrect. The list of festivals. But apparently they own 25% of the UK festivals.

Forbsy

Just my 2 cents but not sure of the sense in looking to go short on anything over an extended period of time when markets are this bullish... short term trades on climactic tops showing trend exhaustion possibly, but still too many opportunities in the other direction imo. Sectoral cycling is my preferred tactic just now.

If I was going to short any stocks, the Relative Strength of the stock vs it’s index would be the most important factor for me...

The sp action on insolvent companies such as Hertz last year show anything can happen in the current environment.

Thanks for the response. A few thoughts in return

the nature of the promoter deals when it comes to these bigger artist tours means that the upside is generally capped to 5-10% and the downside is 100% - a bit like shorting really. Honestly, the business model is so bad
I think the management company (Maverick) is a pretty small part of overall revenues.
I do believe that when COVID is over, the revenge spending will be huge, but that energy will run out very quickly. Many people will have lost jobs, those that haven't will be much less willing to spend huge amount on temporary experiences, and lots of people will struggle in tight spaces. Ultimately, I don't believe you can smash 18 months of business into 6, as people can only physically go to so many shows. We've seen this in China where I mostly operate.

Anyway, do appreciate everyone's answers. I think the Robinhood comment is one of the best though - I believe this is a "sexy" stock - people want to be involved with superstars and companies with fun and easy to understand activities. I'm going to hold onto my short for a little while longer and see how the vaccinations hold up.

Livenation - what am I not seeing?

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Pinball

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