Whether I agree with them or not, fellow Seeking Alpha contributors Cameron Kaine and Spencer Osborne stand as two of my must-read authors. Not only does each man always have something to say, but, more often than not, what they write gets me thinking and makes me react. And, really, that's what it's all about.
In his recent article, Why Pandora Will Always Be Sirius' Apprentice, Kaine made the following statement:
Pandora’s (P) potential success has always been a sensitive topic for many Sirius (SIRI) investors, but the irony is that any potential sign of optimism that the company generates has been due to the success of Sirius. It was not too long ago when Sirius XM was where Pandora is today. There were many investors who risked and ignored fundamental wisdom to invest in a satellite radio idea that had showed no clear signs of earning a profit.
Correlation is not causation. While what Kaine writes is plausible on the surface, it's more distortion from the Sirius XM permabull cult. Kaine's opinion strokes Sirius XM as the weary, battle-tested warrior that has pioneered its way to success and opened the door for green companies such as Pandora. I guess you could make the same case for every other money-losing IPO that came after Sirius XM. Sirius XM likely did not even enter the minds of long-time Pandora investors who, even after the IPO, have enough confidence in it to own most of the company.
Kaine expects readers to believe that "any potential sign of optimism that (Pandora) generates has been due to (i.e., caused by) the success of Sirius." This thesis represents not only another bit of distortion that emanates from SIRI loyalist longs, but it posits a delusional and recurring argument. For some reason, the most ardent Sirius XM users, advocates and investors really believe that the world revolves around this company.
Consider Obsborne's recent article: BlackBerry Music Service No Threat To Sirius XM. Well-written as usual, but it just reinforces the fact that many of those who passionately follow Sirius XM operate in a vacuum.
They should dedicate a ward at Bellevue to this affliction. Everything that happens everywhere either happened because of Sirius XM or was initiated and executed to keep Sirius XM down. Thankfully, Osborne ventures out of this vacuum frequently enough to avoid appearing like the homeless man who tries to sell passersby on a government plot to make it rain.
No matter what line you're in, it pays to step back and look at things from somebody else's perspective once in a while. While some SIRI permabulls take offense in being referred to as cult members, they exhibit cult-like behavior. Consider the warning signs of a cult, placing Sirius XM in the role of group leader. Sure, it's funny, but it's also quite telling. Irrational emotional attachment at its "finest."
Here's the reality: Pandora CEO Joe Kennedy and the company's group of long-time investors rarely, if ever, think about Sirius XM. The two companies run in the space to the extent that they compete for the consumer's audio listening ear. Other than that, they're basically irrelevant to one another. They're completely different companies.
That's not to dilute the notion of competition between the two. It's very real from a consumer standpoint. If I choose to spend my commute or my workdays with Sirius XM, Pandora loses. Just as Pandora and Sirius XM both lose, if I opt for Spotify or Apple's (AAPL) iTunes. You can also take it to a logical extreme that Sirius XM, Pandora, Spotify and Apple all lose if I decide to stream Netflix (NFLX) movies at my cubicle all day long.
In this broad sense, companies within this wide-ranging space compete against one another. Consumers only have so much time, patience and money. They'll make choices. These choices, collectively and over time, produce winners and losers. As such, this fight for ears and eyes and general attention generates a fierce battle.
Bringing it back to Sirius XM and Pandora, this is where the comparisons should end. Two objective differences exist between Sirius XM and traditional terrestrial radio companies: Sirius XM delivers its content via satellite and it charges subscribers a monthly fee to consume that content. At day's end, Sirius XM has done nothing that is ground-breaking, game-changing, earth-shattering or even close to pioneering other than use the satellite to deliver content.
Pandora, meantime, is a true pioneer. It fits the mold of an Internet/new media/tech company. This is the direction I would have liked to at least see Sirius XM lean in, but it simply did not happen. And it shows no signs of happening.
All of the talk, littered with distortion, regarding Pandora and profitability loses sight of both of these realities and the bigger picture. Sirius XM loyalist longs like to claim that Pandora CEO Joe Kennedy once said that he's not sure his company will ever turn a profit. That could not be further from the truth.
Here's the video. Watch it. Kennedy got grilled by CNBC. As a result, it did not come off as his best moment, but in the fog of asking the guy the same question repeatedly, CNBC's gaggle of reporters missed the larger point Kennedy was trying to make.
Pandora is a long-term growth story. It's funny how a considerable number of investors hold deep disdain for companies like Pandora and other IPOs like LinkedIn (LNKD) and Demand Media (DMD). When companies that form this supposed bubble actually turn a profit, some investors chide them for their high valuations. The ones that lose money get hit even harder. The long-term story gets lost in the noise.
Despite the fact that many investors would lead much more boring lives without them, serious angst - or, better yet, envy - gets directed at the entrepreneurs behind companies like Groupon, Twitter, Facebook, LinkedIn, Demand Media and Pandora. Howard Lindzon said it best:
Most importantly for the upside of the market, no one owns stocks. There are millions of traders flipping stock with institutions in high growth names, but there are no rational conversations about the growth opportunities.
All the while, entrepreneurs are chasing dreams with little bits of angel and venture money. Companies with massive opportunity and now loads of cash are going public and dominating their verticals or mindshare. That’s not a bubble.
We the entrepreneurs believe at some level that we have the next Facebook, LinkedIn, Google (GOOG), Pandora and our passion, fear, hunger and envy drives us. First hand let me tell you how humbling it is to have a board meeting with the investors in Zynga and WordPress - to name a couple - and explain our growth.
We are the early stages of a cycle and we need as much enthusiasm as we can get. There will be oodles of time for bubble talk in 2015.
Heads down please.
When Pandora went public it did so with a very thin float. If you watch the video where CNBC asked the same questions and Joe Kennedy gave the same answers over and over again, you'll also hear why the IPO float was so thin. Long-time Pandora investors, who went on camera and said so themselves, had no interest in selling out to the public. That should tell you something.
These are the people who our world actually revolves around to some extent. Out of the thousands of start-ups dying for venture capital, dying to grow, dying to be heard and not even thinking about going public, these big investors select the chosen few. Thousands of companies never see the light of day for every one that goes public like Pandora did.
As investors we're often urged to be patient. It's good advice, but you've also got to consider the context. Your patience should wear thin with a stock that may never see $2.00 again and a company executing something we've all seen go down before.
Sirius XM is terrestrial radio via satellite that you have to pay for. The company, by unfortunate association, and its permabulls become more of a non-factor each time they cheerlead and ask for your patience.
At this juncture, it's important to make a clear distinction. Indeed, SIRI permabulls do an injustice to their company. I can't think that CEO Mel Karmazin is proud of or thankful for his most vocal cheerleaders. Knowing Karmazin, though not personally, I can tell you that he is made up of anything but the tripe you read on message boards and in articles from the permabulls and cheerleaders.
Like Pandora, Karmazin has his head down. He's working hard on taking Sirus XM to the next level. I just think he's doing it on the back of what is pretty much a terrestrial model that users must pay for. I doubt he thinks about Pandora as much as the cult he would probably like to see disappear does. By the same token, I doubt Sirius XM gets brought up very often, if at all, in the hallways of Pandora's Oakland headquarters.
Disclosure: I am long P.