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Ticketmaster (TKTM) @ $6


Raytoei's picture

By Raytoei - Posted on 31 January 2009

After some initial research, I chose Ticketmaster (TKTM), and ended up buying a minuscule position at $6.45, while I continue to do some due diligence before I decide whether to buy more or not.

What I like is that
(a) it is the market leader in online new ticket sales (see http://www.ticketnews.com/ticket_industry_rankings ),
(b) It also bought the 2nd largest resale ticket company Tickersnow
(c) It has been around for the last 30 years and has brand recognition.

It is cheap because
(i) Its largest client Live Nation has split and created a competing ticketing site
(ii) Live Nation has started to poach existing TKTM customers
(iii) People generally dislike TKTM pricing policies so they view this a start of a major erosion in TKTM's market share.
(iv) Lastly, there is a recession looming, and discretionary spending will fall. So the shares are selling at 3 x the trailing 12 months earnings.

I think the critical questions to ask is
(a) how much damage can LYV do to TKTM, firstly by sales conversion of stadiums and by lowering prices to fans
(b) How much are people going to cut back on entertainment ?

Well, firstly, this is the most serious threat, I do not know since there is a lot of posturing in the market, but currently LYV as the largest client, had about 20% of TKTM's revenues in 2008, so I can presume LYV can do a fantastic job of stealing another 20% elsewhere, LYV is strapped for cash, I doubt if their prices is lower than TKTM, current feedback from fans is that LYV is the highest price so far. On the second point, in one of TKTM's presentation, they alluded from a McKinsey Dec 08 study of the 1990~91 & 2001 & 2002 recessions that entertainment (in the form of tickets for events and trips) has the smallest cutback (-6%) in the household spending categories.

So let's assume the worst case scenario, revenue gets killed by 50%, and profit drops 70%, i do a simple blend of 2007 + 2008 (TTM) /2 * 30% = 40m net income. At this level TKTM is still selling around 8.5 times forward earnings. I could still be wrong in my analysis and the price is still quite attractive.

The upsides are there:
(a) LYV is in violation of debt covenants and goes into receivership
(b) Upside from ticketsnow.com (c) Recession is here but people cut back less on simple luxuries(like a concert) than large expenditure.

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