Stock of the Day - February 18, 2009 - TKTM

Ticketmaster Entertainment, Inc. (TKTM)

Ticketmaster (TKTM) is the world’s leading live entertainment ticketing provider. The giant e-commerce website boasts over 10,000 clients located in 20 global markets. Ticketmaster has been the source of a lot of talk recently, as it has accepted a merger deal with Live Nation (LYV), the largest live concert producer in the world. I’ll analyze the merits and weaknesses of both the merger and Ticketmaster as a company to determine whether or not the stock is worth buying.

Both Ticketmaster and Live Nation have agreed to the merger, but it’s possible that the partnership could violate antitrust laws. Many are worried that combining the world’s largest concert producer with the world’s largest ticket seller could cause a destruction of competition that would be illegal. Live Nation is 3 times as big as its nearest competitor, and most of its competitors use Ticketmaster to sell tickets to their concerts. Naturally, this merger would provide a large advantage to Live Nation that would further extend their market leadership.

The fact that the deal is being looked into for causing an unfair advantage should key you into how great a deal it would be for the two companies. Ticketmaster would instantly gain a monopoly on all of the concerts that Live Nation produces. As of right now, a substantial number of tickets put on sale for live events are not sold. If the two companies combined, they could sell more seats with the competitive advantage of having artists, concert producers, and ticket sellers all collaborating.

So, does the deal have a shot at being approved? I think that it’s possible. I base my belief on the fact that the two companies do not perform the exact same function. While they both operate in the live entertainment industry, one works with artists to produce concerts, and the other sells tickets to concerts. The companies provide two different services, so the potential joining would be a vertical merger. Vertical mergers tend to fare better with legal determinations than horizontal mergers (joining of companies that provide the same service).

Let’s ignore the possibility of the merger and focus on Ticketmaster’s business. I’m concerned about the company alone because it provides a service that is a customer luxury, and we’re not currently in an economic situation that supports luxuries. It wouldn’t surprise me for the two companies to use this argument to create a survival theory in the courtroom, as they will claim that they need to merge in order to survive in these harsh market conditions.

But some people argue otherwise. The average concertgoer attends a live performance one and a half times a year. Attending a concert is already a rare luxury, so people may not cut back as much as expected. The third quarter revenue of TKTM may support this theory: the company brought in 16% more revenue in the 3^rd quarter than the corresponding quarter a year earlier. Additionally, the massive ticket seller still dominates its competition with 70% of the market share.

So how will the potential merger and recessionary conditions affect the company’s stock price? If the merger with Live Nation were guaranteed to be approved, TKTM would be a sure buy. If the merger doesn’t happen, then Ticketmaster still resides on solid fundamentals and a great business. You’d certainly be taking on some risk by buying now, but without some risk there is no potential for reward. I personally believe that the merger has a good shot of being approved, and as a result, I’m in favor of investing in Ticketmaster. I encourage you to do some homework on the subject and decide whether or not you believe there is money to be made.

 

-Matt Schwartz

College Trillionaire