A small number of companies are so uniquely positioned against their competition that they take on the characteristics of toll bridges - consumers must pay the toll for something they want or need. One such company is Live Nation Entertainment, Inc. Whether one wants tickets to attend most rock concerts, see Hamilton on Broadway or watch their favorite sports team, such as the Philadelphia Eagles, for example, one must pay Live Nation/Ticketmaster (alternatives do not offer as wide a selection or a guarantee of authenticity).
Live Nation’s toll bridge quality provides price power which translates into high returns on capital. It also leads to growth as there is no other company that can offer a comparable service to the ever growing entertainment industry.
The advantages of Live Nation’s qualitative characteristics are reflected in its quantitative characteristics. For the past two fiscal years, the company has generated about $400 Million in free cash flow (owner earnings). Both free cash flow and revenues have grown at healthy rates over the past several years.
Current weakness in the market (though companies are still generally at high valuations) and company specific concerns regarding antitrust issues appear to have created an opportunity. Live Nation’s current market capitalization of $10.5 Billion is a reasonable price to pay for a growing company generating such owner earnings. In other words, it is a reasonable approximation of the present value of future earnings. As there is little margin of safety and questions regarding antitrust issues to be resolved, a small addition to a portfolio should be considered.
As we find that articles that merely discuss companies in isolation are of limited value to investors, future posts will discuss how one decides how much of a company to add to a portfolio and how to manage a portfolio to achieve consistently high returns over long periods.
Disclaimer: the author owns shares of Live Nation. No one has sponsored or compensated the author to write this article.
This website uses cookies. By continuing to use this site, you accept our use of cookies.