http://www.businessweek.com/stories/2002-04-21/is-ticketmaster-your-perfect-date

Magazine

Is Ticketmaster Your Perfect Date?


Forget The Barker Portfolio. I'm starting fresh as Mr. Lonelyhearts. As much fun as it is reading 10-Ks, that can't compare with scanning personal ads on the Internet. There, each soul's cry for connection seems only to be outdone by the next. "If you cook, contact me," says a Los Angeles woman. From Sedona, Ariz., another asks: "Got your mojo workin'?" Men are worse. Much worse. "In search of intelligent biped," says a guy in Gurnee, Ill., while an Itasca (Ill.) man headlines his ad: "Willing to lie about how we met." A true romantic up in Whitewater, Wis., whimpers, "I feel like a dog at the pound."

Better even than the personals, though, are the Rubenesque profit margins they yield their publishers. Category leader Match.com, for one, saw a 43% operating margin as 2001 ended, with its subscriber roll up 144% during the year. It's one reason stock in Match.com's parent, Ticketmaster (TMCS), soared 80% in the first quarter. Ticketmaster sees cash flow from Match.com surging by more than 80% this year. That's atop steady gains in cash flow from its familiar, and much larger, business of selling seats to sports events and concerts. "We feel really bullish about 2002," says CEO John Pleasants.

Before trying to make a match with Ticketmaster, investors should also examine a wart or two. Pleasants made a good case to me why Ticketmaster's business is strong, but something tells me that the market in the stock, lately near $28, has gotten a touch starry-eyed.

Future growth, for starters, is always questionable. And while Ticketmaster has an array of promising initiatives--from Match.com's expansion abroad to Ticketmaster's aim to make a secondary market for tickets to ball games or symphonies that season-ticket holders aren't using--earnings growth is destined to slow. Ticketmaster, which is majority-owned by media impresario Barry Diller's USA Networks (USAI), last year saw revenue of $675 million and a net loss of $164 million. But it has succeeded in focusing Wall Street instead on earnings before interest, taxes, depreciation, and amortization, or EBITDA. That measure leapt 107% in 2001, to $79 million. Pleasants sees maybe $125 million this year, a 58% gain, and estimates $188 million in 2003, a 50% gain. Beyond that, he told me, "the company can sustain very strong, double-digit growth," albeit at much lower rates.

One reason why EBITDA growth will slow is that even for all its profitability, Match.com may top out at about 20% of Ticketmaster revenues by the end of 2004. Another is persistent competition from much smaller rivals, among them Tickets.com (TIXX), which handled admissions to the Salt Lake City Winter Olympics and is making inroads into professional sports, especially Major League Baseball. "You're seeing a seismic shift," boasts Ron Bension, Tickets.com's chief executive.

Perhaps. What definitely looms over Ticketmaster is a court battle that has been running since 1999. Tickets.com claims Ticketmaster is unfairly monopolizing ticketing markets. The case is set for trial in federal court next February. Ticketmaster denies the allegations. "We are very confident in our position," Pleasants said, noting that he doesn't see the suit as "a huge risk." However, he added, "when things go to trial, crazy things can happen." Meantime, Ticketmaster's legal costs are a multimillion-dollar drain. By contrast, Tickets.com's attorneys are confident enough to have agreed to pursue the case on a contingency basis.

Worries over growth or the lawsuit may not pressure the stock for months, if ever. But it's worth noting that at least one big insider decided to take its money and walk. The Washington Post Co. (WPO) last year wound up with Ticketmaster shares via a stake it held in Citysearch.com, an online urban guide that merged into Ticketmaster. John Morse, the Post Co.'s chief financial officer, told me that the company held its Ticketmaster stake while the stock slumped in 2001, dipping as low as $7, and awaited a propitious time to sell. That moment came in March. The Post dumped all 748,693 of its shares as the price neared $27, or 30 times this year's estimated EBITDA. The sale brought proceeds of $20 million. How's that for market mojo? By Robert Barker


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