Investment thesis
LiveOne’s (NASDAQ:LVO) total revenue growth rate overshadows its not-so-special organic growth rates, while investment expenses are high. Combined with high cash burn, limited resources, and intense competition, I think it’s a hold for now.
Table of contents
- Introducing LiveOne
- Market Opportunity
- Competitive analysis
- Growth analysis
- Margin analysis
- Risk analysis
- Valuation and Conclusion
Introducing LiveOne
LiveOne is a digital media firm that buys, distributes, and monetizes live music, Internet radio, podcasting/vodcasting, and music-related streaming and video content.
It owns and runs:
- LiveXLive, a live music streaming platform
- PodcastOne, a podcasting platform
- Slacker Radio, a streaming music service
The firm also produces and transmits live music events to its subscribers through the Internet and satellite networks, as well as providing auxiliary goods and services including regulatory and post-implementation assistance.
Personalized items and presents are also developed, manufactured, and distributed through wholesale and direct-to-consumer distribution channels.
Additionally, the firm gives access to live events, audio streams, original episodic material, podcasts, vodcasts, video on demand, real-time live streams, and social sharing of information through an app.
Market opportunity
The addressable market of LiveOne includes streaming of live music and entertainment, Internet radio, audio downloadable music, and podcasts. These markets are high growth and now represent the majority of the music industry’s overall revenue, as physical and digital record sales have steadily declined. The music market is has mostly matured and thus, I expected a CAGR that’s slightly higher than economic growth.
In line with what I expect, according to a Research and Markets report, the recorded music market is expected to grow at a CAGR (compounded annual growth rate) of 7% by 2025.
Competitive analysis
LiveOne is part of the recorded music market. Its competitors include:
- broadcast radio providers, such as CBS and Sirius XM
- interactive on-demand audio content and pre-recorded entertainment, such as Apple Music, Amazon Music, Spotify
- podcast providers, including Amazon Music, Apple Music, Apple Podcasts, Spotify, and iHeartMusic
- large merchandise retailers
I selected several companies which have exposure to this market to create an industry proxy. Throughout this article, I will use a computed median of this group in order to benchmark LiveOne’s statistics.
Selection of companies with exposure to the recorded music market:
Company name |
Symbol |
Market Cap |
Sirius XM Holdings Inc. |
(NASDAQ: SIRI) |
26.14B |
Cumulus Media Inc. |
(NASDAQ: CMLS) |
212.70M |
Spotify Technology S.A. |
(NYSE: SPOT) |
30.31B |
Live Nation Entertainment, Inc. |
(NYSE: LYV) |
26.84B |
Entravision Communications Corporation |
(NYSE: EVC) |
562.53M |
I believe that companies with a combination of technical expertise, brand recognition, financial resources, and digital media experience pose a significant threat to developing competing on-demand audio distribution technologies. LiveOne is an extremely small player with a market cap of 72 million, competing against large businesses that are worth billions, as portrayed in the table above. Also for podcasts, many well-known podcasts are offered by companies that have significantly more resources, which would make it incredibly difficult to differentiate and thrive with its podcast services.
Furthermore, in its most recent annual statement, LiveOne believes that its (sustainable) competitive advantage is the experience of the management team and the partnerships formed with major and independent labels. Although these are nice assets to have, these are not unique or special, especially considering the size and brand name of its competitors.
Thus, I believe that LiveOne doesn’t have a very strong position in the market and that it won’t significantly organically outgrow the industry.
Growth analysis
Revenue growth performance of LiveOne and other industry players in %:
Stock |
Revenue Growth (Quarterly YoY) |
Revenue Growth (TTM YoY) |
Revenue Growth Rate (3Y) |
LiveOne |
72.02 |
112.01 |
108.52 |
Sirius XM Holdings Inc. |
4.2 |
8.16 |
14.65 |
Cumulus Media Inc. |
2.61 |
12.28 |
-7.03 |
Spotify Technology S.A. |
24.03 |
22.69 |
22.5 |
Live Nation Entertainment, Inc. |
1038.74 |
236.8 |
-16.55 |
Entravision Communications Corporation |
36.24 |
120.97 |
36.67 |
Industry median |
24.03 |
22.69 |
14.65 |
Source: Seeking Alpha, income statement and earnings
LiveOne had high revenue growth in recent years, which can mainly be explained by the acquisition of PodcastOne, its podcasting platform. Pro forma growth (which includes the revenue prior to the acquisition and is thus closer to the organic growth rate) was roughly 9% in 2021.
Growth estimates by analysts in percentage:
Stock |
Revenue 2022 |
Revenue 2023 |
Earnings 2022 |
Earnings 2023 |
LiveOne |
74.7 |
16.0 |
-9.4 |
39.7 |
Sirius XM Holdings Inc. |
3.3 |
4.1 |
nan |
12.5 |
Cumulus Media Inc. |
10.6 |
4.1 |
143.4 |
43.6 |
Spotify Technology S.A. |
20.4 |
16.6 |
110.5 |
958.3 |
Live Nation Entertainment, Inc. |
120.8 |
11.1 |
114.6 |
222.2 |
Entravision Communications Corporation |
19.6 |
nan |
45.7 |
nan |
Industry median |
19.6 |
7.6 |
112.55 |
132.9 |
Source: Analyst estimates from Seeking Alpha
I believe that either the future growth rates estimated by analysts are too high, or they include some forecasted acquisitions. With an organic growth rate in 2021 of 9%, very intense competition, limited resources, and no unique differentiator, I believe that the (organic) growth rate will be around the expected industry CAGR or a few percentage points above, so around 10%.
Margin analysis
I computed several key margins for LiveOne and its industry. The first number in the cells in the following table refers to LiveOne, while the number between the parentheses refers to the median of the industry.
Accounting item as % of revenue: LiveOne (Median Industry):
Accounting Item |
Last 4 Quarters |
2021 |
2020 |
2019 |
2018 |
Gross Profit |
20.5 (30.5) |
24.9 (30.5) |
15.2 (38.4) |
7.5 (42.9) |
NaN (42.8) |
Operating Expense |
54.0 (27.2) |
69.9 (27.2) |
108.3 (32.3) |
108.1 (33.8) |
NaN (30.1) |
Normalized EBITDA |
-27.3 (11.4) |
-35.1 (11.4) |
-70.8 (8.5) |
-79.8 (16.4) |
NaN (18.2) |
Free Cash Flow |
-12.7 (7.8) |
-19.5 (7.8) |
-19.3 (2.3) |
-24.6 (6.5) |
NaN (5.4) |
Normalized Income |
-39.2 (-1.1) |
-56.2 (-1.1) |
-100.7 (-3.4) |
-112.0 (-0.1) |
NaN (4.2) |
Source: Seeking Alpha, income statement and earnings
The margins of LiveOne look rather weak. Its gross profit margin is low. Furthermore, it has high operating expenses, which largely exist of investment expenses such as marketing and R&D expenses. However, these high operating expenses don’t really match the mediocre (expected) growth rates. Its low gross margin business model combined with high investment expenses, results in a high cash burn, while competitors secure fairly decent profitability margins.
Risk analysis
Before I get into the valuation of the stock, I will touch upon the risks of owning LiveOne.
Key risk measures:
Stock |
52W Beta, daily |
Market Correlation |
Net Interest Coverage |
LiveOne |
1.39 |
0.27 |
-8.22 |
Industry |
1.1 |
0.65 |
2.88 |
Source: Yahoo Finance prices and Seeking Alpha
LiveOne has a beta of 1.39, showing that it’s quite sensitive to market movements. Correlation to the market is quite low, indicating a good additional diversification for a portfolio.
Furthermore, a huge risk is its huge cash burn, which is more than 10% of its revenue. Not only does the company have a high cash burn, it also has debt of more than 25 million USD, while its market cap is 72 million USD. Investors need to keep in mind that all this suggests a very high-risk level for this security.
Lastly, I believe that its historical growth rates overshadow its very ordinary organic growth rate. Future disappointment in growth rates might push down the stock price even more.
Valuation
I have computed several key current valuation metrics.
Key valuation measures:
Stock |
Enterprise Value / Revenue |
Enterprise Value / EBITDA |
Enterprise Value / Gross Profit |
Forward PS |
Forward PE |
LiveOne |
0.72 |
-2.23 |
3.51 |
0.51 |
-2.54 |
Sirius XM Holdings Inc. |
4.05 |
13.94 |
7.45 |
2.8 |
18.32 |
Cumulus Media Inc. |
1.08 |
6.98 |
1.77 |
0.2 |
3.47 |
Spotify Technology S.A. |
2.94 |
66.55 |
10.97 |
2.0 |
124.34 |
Live Nation Entertainment, Inc. |
4.69 |
336.40 |
15.37 |
1.7 |
79.56 |
Entravision Communications Corporation |
0.81 |
7.42 |
3.47 |
nan |
inf |
Industry median |
2.94 |
13.94 |
7.45 |
1.88 |
79.56 |
Source: Seeking Alpha
LiveOne is discounted compared to its industry when using the EV / Gross Profit ratio. In my opinion, it is discounted rightfully because of the high risk level and my doubts about the lack of its organic growth potential.
Even though an EV/Gross profit of 3.51x itself is fairly low, I’d rather put my money into stocks that either have high growth potential, unique competitive advantage(s), and/or better profitability margins.
When the company develops one of these characteristics, I will evaluate this stock again.
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