I read an article so absurd on Monday (not at Seeking Alpha) that I do not even want to link to it for fear of further embarrassing its author. The article contained speculation about who might buy Sirius XM (NASDAQ:SIRI) in 2012 (as if it's a foregone conclusion).
The author listed Pandora (NYSE:P) as a potential suitor.
First, the obvious - Sirius XM has a market cap of nearly $8 billion. It could receive a 50% to 75% haircut and Pandora would still likely never be able to do such a thing. Pandora has about $90 million worth of cash. Granted, it has no debt, but I don't think you would find an investor or bank in his, her or its right mind that would front Pandora the money to make such a horribly misguided move.
Here's the logic for this spaghetti toss against the wall. Pandora only has music and comedy. Sirius XM has a whole smorgasbord worth of content. It's only sensible for Pandora to want to widen its appeal. Plus, Sirius XM is in about two-thirds of the nation's new car dashboards. An acquisition would give Pandora instant access to the satellite radio provider's massive subscriber base.
First thing's first. Even bears who believe Pandora's business model does not warrant the space on the back of an envelope would agree, if nothing else, the company is hyper-focused on doing what it does and doing it well. That's personalization, almost solely focused on music. As I noted in a recent Seeking Alpha article that credited both Pandora and Sirius XM with laser-like focus ...
Why try to be a jack of all trades, master of none? And, maybe more importantly, how prudent is it for Pandora to jack up its costs to acquire expensive content?
If the words "buy Sirius" or another company that costs more than a few million bucks even came out of somebody's mouth at Pandora, I would terminate my long position in the stock on the spot.
I do like to hear, however, companies like Pandora and Sirius talk partnership. Pandora has fast-tracked its way into the nation's vehicles and hundreds of consumer electronic products in almost unprecedented fashion. Its brand and service is on its way to ubiquity, a key theme I look for when deciding whether or not to buy a company's stock. And that's because it's not afraid to get into hookups with all sorts of companies, even ones viewed as potential competition.
Company founder Tim Westergren, apparently, does not oppose a relationship with Spotify, a firm many consider Pandora's arch rival. That's smart business. And it's exactly the type of thinking sharp Clear Channel (CCMO.PK) CEO Robert Pittman embraces as he offers access to his company's iHeart app to any and all takers, even competitors.
That's the kind of forward-thinking I want to see from Sirius XM. All along, I have backed the notion of Mel Karmazin going to a company like Pandora and basically saying, you're young, we're old, we have this, you have that, let's help one another out. There's no question mutual benefits exist in a collaboration between Pandora and Sirius XM. The idea, however, that Pandora should - or even could - buy Sirius XM gives an often worthy endeavor like speculation a bad name.
And not so by the way, later this week I expect to have a Seeking Alpha interview with Pandora CFO Steve Cakebread. It should be good and of use to investors in the audio entertainment space.
Disclosure: I am long P.