I thought I'd take a look at two companies that reported earnings earlier in the week that share a couple things in common. First, they deal with music. Second, their prospects have been defined, in part, by the surge of Apple's (NASDAQ: AAPL) iPod/iTunes zeitgeist.
Let's begin with Warner Music Group (NYSE: WMG). According to Reuters, Warner Music Group lost 25 cents per share from continuing businesses in Q3. Analysts wanted to see a loss of only 16 cents per share. In last year's Q3, the company lost 6 cents per share. Not a good trend. Warner Music Group's management unfortunately fails to impress.
Now, let's hear how Live Nation (NYSE: LYV) did in the company's second quarter. It did terrible: the concert promoter lost 33 cents per share on a reported basis. Twelve months ago, only a single penny was lost. On an adjusted basis, Live Nation lost 15 cents per share. What were analysts hoping for? Would you believe a 17 cent per-share profit? Big differential there, guys.
Live Nation, which is combining forces with Ticketmaster Entertainment (NASDAQ: TKTM), produced a decent cash-flow statement, though, judging by the earnings press release. I wasn't too taken by Warner Music Group's cash flow, however. It's an interesting situation because, as I alluded to before, digital music downloads as promoted by companies such as Apple and Amazon (NASDAQ: AMZN) have severely altered the music-selling model. Warner Music Group can't really grow on sales of tunes stored on physical media. Instead, it has to focus on building its digital business (and management obviously has to do a better job on that count). Live Nation, on the other hand, is something of a beneficiary of the new culture. Famous artists are flocking to this company because they realize that you've got to have a strong promoter backing up both your ticket sales and your merchandise grosses to offset the lackluster revenues being generated by physical media. Both businesses should make greater efforts at reducing costs. And they must do what they can to make more economically feasible contracts with talent.
So, which one appears to be the better investment? Well, the answer is really neither. If I were forced to pick between the two, I might give the edge to Live Nation, just based on the cash flow. Both stocks, however, are highly speculative, and both quarterly reports didn't do much for me.
Warner Music Group and Live Nation are basically lottery tickets. If you look at their respective charts, you might conclude that they'd be attractive bets as the economy gets better. Hey, they both might indeed rise as the headlines on macro data improve. Still, I'd rather go with stronger, less chancy situations.
Disclosure: I don't own any company mentioned; positions can change without notice.
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Reader Comments (Page 1 of 1)
8-08-2009 @ 5:42PM
Dan Barnett said...
Okay Steve,
I really don't know anything about the field, but it seems that I've heard lots of news about the (possibly) illegal downloading/sharing of music. How do you deal with the issue?
I assume that the musicians are no more eager to take a pay cut than the rest of us.
As for concerts etc. I am just too out of the loop to comment for secondary acts. I mean Paul McCartney will always draw, but the guy only has 365 days in his year.
There have also been suggestions of taxes/fees that I am not familiar with to comment on.
I'll stay dubious.
8-08-2009 @ 7:10PM
ps3download said...
These record companies saw the digital era coming a long time ago and didn't react. Technology has changed the course of everything but the record industry had a good heads up on this. They watched the idea of digital downloads taking place and didn't come up with their own Itunes or Amazon download site. They haven't done anything and really should be leading the digital era, not other companies.
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8-09-2009 @ 8:32AM
beachpaul said...
Warner is a lottery ticket, especially if you bought it at $2. It should have been sold by now. That TWX has gone over $25 is another lottery winner. It couldn't do that when the economy was booming! The music industry stocks are a window into how much hot air has been pumped into this latest stock run. Fundamentally, nothing had changed for any of them. They have lost control of their products distribution and pricing, yet their stocks doubled and tripled in ninety days. The beauty of this rally is that it is exposing for all who want to see, what a casino the market has become.