Why is Live Nation's stock trading so high in the middle of a pandemic that has brought its industry (live entertainment) to a total halt?

Question

To help me better understand the stock market and really what drives it, why is Live Nation's stock trading so high in the middle of a pandemic that's brought its entire industry (live entertainment) to a grinding halt? Live Nation is the number one or two largest live-entertainment producer in the entire world (AEG being the other, a non-publicly-traded company).

Live Nation's share price is at early-2019 levels, a time when the industry was rocketing on a decade-long historic run that is maybe more impressive than any other industry (generating record revenue each successive year for at least the last 5). More people were attending live events in 2019 than in the history of the industry with single events (individual music festivals) selling half a million tickets. And right now it's at a complete standstill with no end in sight–no idea how many years until an indoor stadium can be filled again–yet the biggest player's share price looks relatively healthy.

NYSE: LYV
Live Nation Entertainment Wikipedia

Answer 1

Without digging into the specifics of this company, stock prices aren't just fueled by current activity, but by future cash flows. Most think (or hope) that the pandemic will end in the near future, and that most businesses will return to normal.

That (among other things) is why you've seen the market overall rebound to all-time highs, and could likely be the reason for the optimism for the future for this company.

There could also be other avenues of revenue for the company besides live entertainment, but the bottom line is that the price (whether rationally or not) is focused more on a future normal economy that a transient pandemic.

Answer 2

so high

According to whom?

While S&P 500 is +20% since September, LYV is -19%. An entertainment ETF that represents the industry is -22%. How is that objectively "high"?

Stock price represents the discounted cash flow per share of literally 30-50 years of the future. The pandemic lasts 2-3 years max based on historical timeline of vaccine development.

Answer 3

Live Nation has a long history of buying out smaller independent venues to ensure that everyone pays Ticketmaster fees. If you assume they have a lot of cash on hand to weather the epidemic, COVID will be forcing a lot of small venues that don't have cash reserves to consider selling, and Live Nation may be able to snap them up at a discount, giving them an excellent long-term gain.

Answer 4

First of all, Live Nation stock is still way down this year. It may even still be a good buy. ;)

But ultimately stock prices are dictated by the expected future value. As for speculators with a buy and hold strategy, Live Nation may actually have more future value than the average stock. Perhaps, when the pandemic is finally over, there are going to be a lot of people partying it up, which will undoubtedly include large live events. It's not inconceivable that 6 months after the world is (kind of) back to normal that Live Nation has reported record quarterly earnings, along with other recreational based companies.

Answer 5

Main thing to realize is that the value of stock is not defined by the value of the company, but only by how much people are willing to pay for the stock. This might sound circular, but there is no inherit relationship between a company and its stock beyond 'if it goes bankrupt it will be delisted'. What needs to be evaluated is what makes a stock attractive to different owners. Traditional traders would typically look at future predicted cash flows of the associated company, then there are many traders which only look at trends in price and don't even care about the associated company, then there are many modern traders that look at the popularity of the CEO and the product of the associated company to determine attractiveness of a stock. The average of all those different investors and gamblers is what determines the value of a stock. And there is no right or wrong to any of those.

So to get back to your question, "To help me better understand the stock market and really what drives it" you shouldn't be looking at the associated company of a stock, you should be looking at the people who are interested in buying the stock. Specifically there are a lot of non-traditional traders who looked at previous market crashes and realized that there is no strong link between a financial crisis and the eventual value of stock, so investing when the market crashes made a lot of sense to them. Obviously that means they take on the bankruptcy risk, so whether they will be eventually 'right' only time will tell or maybe we will make it possible one day to trade even bankrupt stock.