CEO Shakeups: A Game Changer For Apple, Pandora And Sirius XM

Includes: AAPL, P, SIRI
by: Little Apple

Currently there are two "Major Heavy Hitters" in the Radio Business presumably looking for work. Former Sirius XM (NASDAQ:SIRI) CEO Mel Karmazin and current Pandora (NYSE:P) CEO Joe Kennedy are both top candidates for running any mega media business. Although both are multimillionaires with no chance of hitting the unemployment lines, they still have a lot to offer before completely retiring from the music scene. All of this activity has brought on headlines like A CEO Swap For Sirius XM and Pandora, and Pandora Seeking CEO - Would Mel Karmazin Fit The Bill?, etc. However, if this had been two auto industry leaders leaving at the same time, the stories would be playing out on national television in our living rooms. Where these two guys end up can have a dramatic impact on all of the companies involved.

When Karmazin left Sirius XM in December, investors panicked. But he was quickly replaced by Interim CEO James Meyer, a Sirius insider who had worked side by side with Karmazin at the company for years. Investors approved, but the ballots are still out, as to whether he stays at the job permanently. He could be replaced at any time. On Thursday I did a quick comparison of his talents versus those of Kennedy and determined that Kennedy would not be the right person for the Sirius XM CEO position. However, some Pandora investors thought that the following statement from that article was a "cheap shot" toward Kennedy:

When the headlines and stories credit the jump in share price to his resignation, then a lot of Pandora investors must agree:

Shares of online music streaming company Pandora Media soared on Thursday following news that CEO Joe Kennedy will be stepping down after nearly a decade at the helm.

Here is one of the comments from SA's DigitalMediaView:

DigitalMediaView Comments (250)

It's completely unfair and inaccurate to assert that P's share price went up BECAUSE Joe Kennedy announced his resignation. As reputable sources like WSJ reported, P's stock popped because during earnings when the resignation was also disclosed, P reported numbers that beat analysts' forecasts. ( I'm not arguing that SIRI should hire him, but Kennedy is a highly professional and capable executive who doesn't deserve a cheap shot like this. For almost a decade, Joe was the guiding force in "turning a concept into a company" ( Analysts have noted that his loss is a major concern for P shareholders (

And as I answered DMV in the comments, there were several other reasons for Pandora stock jumping which were beyond the scope of that article. When the earnings were announced on March 7, many Pandora Bulls credited a $2 jump in price the next day to those quarterly results. And, on the other hand, the Bears said it was the result of Kennedy leaving as noted above. However the 50-day Moving Average jumped above the 200-day MA to produce one of the most bullish technical patterns: a Golden Cross, which triggers very strong buy signals:

Chart forPandora Media, Inc.

Pandora Share Price Leading up to Earnings:

Date Open High Low Close Volume Adj Close*
Mar 8 14.63 14.70 13.49 13.79 37,813,800 13.79
Mar 7 11.78 12.16 11.64 11.73 14,219,400 11.73
Mar 6 11.97 11.99 11.54 11.67 6,962,300 11.67
Mar 5 12.23 12.50 11.80 11.81 6,131,200 11.81
Mar 4 12.21 12.40 11.96 12.00 4,215,100 12.00
Mar 1 12.22 12.33 11.96 12.30 4,640,800 12.30
Feb 28 12.00 12.66 11.92 12.20 7,499,200 12.20
Feb 27 12.20 12.93 12.20 12.74 4,704,100 12.74
Feb 26 11.90 12.30 11.88 12.23 2,683,400 12.23
Feb 25 11.95 12.28 11.68 11.81 3,900,300 11.81
Feb 22 12.01 12.18 11.66 12.11 4,052,500 12.11
Feb 21 12.18 12.19 11.48 11.76 5,996,900 11.76
Feb 20 13.10 13.12 11.98 12.12 5,284,700 12.12
Feb 19 13.01 13.50 12.85 13.20 5,666,100 13.20

The share price high was $13.50 on February 19, only 29 cents lower than the close on Friday, March 8. So there are other factors that may be involved, including a huge short interest in Pandora over the last year. It has jumped from 8 million shares to over 38 million, or 25% of the float. According to Nasdaq:

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
2/28/2013 38,606,966 4,973,814 7.762045
2/15/2013 36,142,579 4,140,566 8.728898
1/31/2013 34,592,306 3,940,926 8.777710
1/15/2013 36,661,426 5,574,340 6.576819
12/31/2012 37,248,031 4,103,450 9.077247
12/14/2012 35,880,711 8,665,530 4.140625
11/30/2012 31,038,398 4,431,212 7.004494
11/15/2012 34,222,585 2,583,536 13.246413
10/31/2012 33,712,455 6,532,395 5.160811
10/15/2012 30,032,826 2,837,922 10.582682
9/28/2012 31,329,783 4,699,220 6.667018
9/14/2012 31,164,948 9,743,524 3.198529
8/31/2012 31,771,487 6,616,754 4.801673
8/15/2012 28,882,264 2,779,058 10.392825
7/31/2012 25,660,865 2,295,419 11.179164
7/13/2012 23,909,275 2,846,345 8.399992
6/29/2012 22,028,706 3,437,854 6.407691
6/15/2012 21,649,455 3,156,293 6.859140
5/31/2012 19,867,796 5,011,741 3.964250
5/15/2012 18,722,469 2,237,836 8.366328
4/30/2012 17,621,282 2,325,134 7.578609
4/13/2012 15,547,001 3,222,410 4.824650
3/30/2012 11,100,398 2,746,138 4.042185
3/15/2012 8,051,263 6,639,087 1.212706

This would take around 8 days to cover, and it could explain why the price jumped. The bulls were buying because they liked the earnings report. The bears were buying because they were glad that Kennedy was leaving, and the shorts panicked and covered as the price suddenly jumped. According to excerpts from the Q4 2013 earnings conference call:

Joseph J. Kennedy - Chairman, Chief Executive Officer and President:

For the fourth quarter, total mobile revenue grew 111% to $80.3 million from $38 million in the same quarter last year, outpacing mobile listener hour growth, which grew 70% year-over-year. For the fiscal year ending 2013, total mobile revenue more than doubled from fiscal 2012, growing 105% to $255.9 million, with full year mobile revenue growth also exceeding full year mobile listener hour growth, which grew 89% year-over-year. Total listener hours for the quarter grew 53% year-over-year, exceeding 4 billion for the quarter, compared to 2.66 billion in the same quarter last year. For the fiscal year ended 2013, total listener hours grew 70% year-over-year, exceeding 14 billion compared to 8.2 billion in fiscal year 2012. Pandora's market share of all U.S. radio as of January 31, 2013, also reached a high of 8.03%, up from 5.55% a year ago. Fourth quarter results exceeded the high end of our revised revenue and earnings expectations. Pandora's total revenue grew 54% to $125.1 million, and non-GAAP EPS was a loss of $0.04.

The jump in revenue shows tremendous promise, but it is the last sentence that made me side with the bears. The earnings need to get into the green territory. That requires a strong CEO that can either push the revenue even higher, or cut costs, or both. That is the only way that Pandora is going to finally make a profit. Mel Karmazin is good at doing both of these things. And some investors are speculating that the new weekly 40-hour cap on listening at Pandora may be a test of the subscription model. If so, Karmazin would be a great fit, since Sirius is based on that model. And it has done very well in the last several years. However Karmazin running Pandora could be detrimental to Sirius.

But there are some analysts that speculate the founder and current CSO of Pandora, Tim Westergren will take over as the CEO. Whoever takes over Pandora needs to get the share price back up to what it was when the stock first went public in 2011:

Chart forPandora Media, Inc.

In my opinion, Kennedy would be a great fit at Apple (NASDAQ:AAPL). That company worked arm in arm with Pandora to develop one of the most popular Apple Apps anywhere. Apple is currently working to launch iRadio, but according to recent insider reports quoted by the New York Post, it has hit a snag in negotiating the contracts with the music industry. The company reportedly only wants to pay 6 cents per hundred songs streamed, which is half of what Pandora pays:

Apple wants to get into the streaming radio business, in part, because it is seeing 50 percent of its iTunes revenue flow from mobile. Pandora is one of the most popular apps. Apple views radio as a way to make better use of its iAds advertising platform. An Apple iRadio product would be ad supported. The music labels, for their part, want an upfront fee and a percentage of that ad revenue in addition to the streaming fees, said sources. Apple's chief music negotiator, Eddy Cue, created a lot of static last September when he tried to get the industry's biggest music publisher, Sony/ATV, on board. Apple, sources said, had hoped to rush iRadio into the iPhone 5 launch, but was forced to backpedal.

Kennedy could probably help Apple with these problems by heading up iRadio. And if not, just the fact that he is leaving Pandora could give Apple an edge in the personalized radio wars. Unless, as I mentioned above, Karmazin were to go to Pandora. Karmazin is also a pro at negotiating in the music business. Apple doesn't need help with the technical part of iRadio; after all the company developed the iPod, which is the basis for all of this personalized music technology. But Apple clearly needs help, as its share price has tumbled in comparison to Sirius and Pandora:

Chart forSIRIUS XM Radio Inc.

It is not a very pretty picture (red line). There has been a lot of pressure from Apple investors, which started when hedge fund manager David Einhorn began to press for some type of return for Apple investors, after suffering such heavy losses. And he does have an awful lot of loyal followers. Some analysts call it the Einhorn Effect:

At last year's Sohn Investment Research Conference, he questioned the construction company Martin Marietta Materials, Inc. (NYSE:MLM) and its shares skidded 14 percent in 8 minutes. He said the Dick's Sporting Goods Inc. (NYSE:DKS) would face troubles, and the retailer's shares plunged 6 percent in 3 minutes. He didn't mention Herbalife Ltd (NYSE:HLF), which many expected to be criticized by David Einhorn, and its shares soared. The impact of his comments on investors is unbelievable. The Wall Street Journal reviewed 22 stocks after they were publicly mentioned by the 44-year old hedge fund manager. Nine companies on which he made negative comments saw their shares plunging 4.9 percent on an average on the same day. Within one month, the average decline was 13 percent.

Apple CEO Tim Cook laughed it off, and the whole thing ended with a failed lawsuit brought on by Einhorn. Warren Buffett suggested that Cook should run the company well, and significantly increase the Apple share buybacks. As he famously told Steve Jobs, when Apple shares were considered "cheap": "If you could buy dollar bills for 80 cents, it's a very good thing to do." So now Cook is "seriously" considering returning cash to shareholders. But he also needs to bring in some big new media talent to get the iRadio project off the ground. Combined with a restructured buyback plan, Apple might just get its shine back.

And I expect Pandora to shine again around the middle of April as the options close. With 1 out of 4 Pandora shareholders shorting the stock, there will be another short squeeze, which should send the shares above $14 again. However it may only be temporary. Sirius shares are marching to the beat of their own drum right now as the company is in buyback mode. But that will change when the earnings news is released, as it is expected to be good.

In summary everything could change depending on where these top media leaders end up. And this is all pure speculation considering that both of them may have non compete clauses, which would prevent any of the scenarios mentioned in this article. But these top job openings will be filled, and it will change the game for all three companies as they battle for listeners.

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.