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Ticketmaster's Massive Convenience Charges Have Proven To Be No Help In Escaping A Massive Impairment Charge

By Peter York, Published: March 19th, 2009 7:22 PM CDT


A 1.1 billion dollar loss for a company currently valued at 234 million sounds unusual to me too.  Ticketmaster Entertainment, Inc. (TKTM)   seems to be in more trouble than its company executives would like to admit.  With its massive operating expenses covering approximately 6,700 independent sales outlets and 19 call centers worldwide, and now including a series of acquisitions, Ticketmaster stock has plummeted during its short lifespan as an independent company.  This has caused a massive 1.1 billion dollar goodwill impairment charge.

In Ticketmaster's case, this could be significant because they are now 865 million dollars in debt with a cash position in decline.  Creditors would have looked at the goodwill on the balance sheet as a positive excuse to lend to the company.  Now, they will see their total asset line cut by almost 40%.  Ticketmaster's CFO, Brian Regan stated that they are "well within" their debt covenants, which are based on EBITDA earnings and cash.  The impairment charge almost guarantees they will hit a brick wall when it comes to being lent any more money unless things dramatically change.

Without the impairment charge, the company missed the Q4 earnings expectations of analysts by about 45%, despite the fact that revenue was in line with expectations.  The company said this was due to their recent acquisitions, which apparently contributed the majority of the company's adjusted operating income.

This suggests that without the acquisitions of TicketsNow, Paciolon, SLO and Front Line, Ticketmaster may not have been "well within" their debt covenants at all. In other words, economic conditions likely forced Ticketmaster to make the acquisitions or else default on their loans.

Further concern was raised by an analyst on today's conference call about whether or not Ticketmaster would see consistent earnings from the newly acquired companies.  However, CEO Irving Azoff admitted to some of the acquisitions being "cyclical" businesses.

Last month, Ticketmaster announced "a merger of equals" with Live Nation, a company which they were partners with prior to 2009.  Shortly after their long term partnership ended, each company apparently found that business model to be unsustainable since they promptly announced a merger.  Live Nation subsequently posted a loss for the previous quarter and full year.

The proposed merger has been met with resistance by members of Congress and will need to get by the Democratic administration's Department of Justice, suggesting another possible costly and time consuming XM/Sirius fiasco.

Overall, this merger appears to be very necessary for the company and its stock to move forward.  Ticketmaster is now about $16 per share in debt with $8.60 cash remaining on the balance sheet, leaving a value of negative $7.40 (outside of other tangible assets and liabilities).  The company provided no guidance suggesting they will not meet pre-earnings report analyst expectations of .97 for the year.  If we apply the 45% miss of this quarter's expectation to next year's analyst outlook, the company would be looking at approximately .44 earnings per share.  If we give it a generous factor of 20 times earnings and deduct the debt, we are still left with only $1.40 of value.  This would still assume that the new acquisitions continue to perform well and the company will not be drained by expenses relating to the proposed merger.

Needless to say, from a valuation standpoint and not having any concrete guidance to work with, it is difficult to come up with a strong case for investors to get excited about this stock.  

Related: TKTM

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