What are you thinking?
Or they should, at the very least, ask serious questions.
The exchange Karmazin had with Jim Cramer the other night should boggle the mind of any person with vision that extends beyond his or her own front yard:
Karmazin: Okay. But the fact is that when you have all of this free cash flow you could make - you use the free cash flow for an acquisition. There is nothing else. )Mel actually said "there is nothing out there").
Cramer: There's nothing.
Karmazin: There is nothing, zero, out there that I want. OK. So you're not going to make an acquisition. You could return the capital to shareholders. At the end of this year, at the end of this year, we'll have between a $1.2 billion and a $1.5 billion of cash on our balance sheet. I don't know what to do with it other than to use it as you're characterizing.
Cramer: Fair enough.
Karmazin: Now it's a board decision.
Karmazin: It's a board decision. I would hope that the board would share my feelings that way, but that has to be the agenda.
That's one of the most asinine statements you've ever heard in your life. Let us consider why I am making such a bold presumption.
As Mel sees it, he can do one of two things with his company's cash - make an acquisition or return capital to shareholders. It's black and white. So cut and dry. A classic Bushian dichotomy.
The Sirius XM (SIRI) board needs to ask Mel some pointed questions. In particular, do you have any other ideas for the cash? What could we do other than buy another company or execute a buyback? If he does not answer these questions with answers that include words like "growth" and "reinvest" and "return on investment," the board needs to promptly show him the door.
Sirius XM is not a utility. It does not operate in a space without endless possibilities. In the audio entertainment sector the possibilities are truly endless. Great companies grow, reinvest and, most importantly, they innovate by leading from the front.
Consider Intel (INTC):
August 10, 2011: Intel Capital Creates $300 Million Ultrabook Fund
February 29, 2012: Intel Capital to Invest in Future of Automotive Technology
March 13, 2012: Intel Developing Web-Based TV Service
That's evidence that Intel not only sees the future, but it's willing to adapt, evolve and pioneer the future. It's not ready to fall into slow-growth mode and become a blue chip while firms like Apple (AAPL), Amazon.com (AMZN) and Pandora (P) move to the forefront with aggressive plans expand and seize tomorrow.
You can call this take a bash all you want. That does not make it so. It's undoubtedly a bear case - I make no apologies for that - but it's not a bash.
By setting up a dichotomy with regards to his company's cash, Karmazin shows that he has very little foresight. It's clear that he's not a visionary, nor has he ever been one, but he could at least have the sense to surround himself with folks who are. Intel realizes that filling tired old PCs with its chips will not fly going forward. As such, the company recognizes opportunities in the market for an affordable Macbook Air alternative - the "ultrabook" - and the rapidly changing auto and media spaces. And it acts accordingly. Intel steps to the front of the future before it fully takes place. It becomes part of the future, not merely one of the many reactions to it.
Practically everything Karmazin has done at Sirius XM is a reaction to something else. Most of the company's promotions do not look forward. They do not create new markets and capitalize on fresh opportunities. They're little more than old radio stunts.
The 405-Freeway in Southern California closes for the weekend and Mel ups traffic coverage. Charlie Sheen freaks out and Karmazin fires up an all-Charlie Sheen station for a minute. It's the stuff WKRP in Cincinnati is made of. Multi-platform becomes hot and Karmazin, finally though feebly, steps up the game with mobile and online refreshes. The list goes on. It should be no surprise that it all comes from an old terrestrial radio guy at heart.
This sort of thing has a place in Sirius XM's grand plan, no doubt, but, at day's end, it is short shelf-life type of stuff. The bigger piece of the puzzle, however, involves putting that cash to good use to achieve robust growth and cement the company as a leader in new media circles. I'm convinced there's no way Mel can get that done.
He should be hiring recruiters to poach creative thinkers from places like Apple, Facebook (FB), Twitter, Zynga (ZNGA) and companies with like mindsets. Bring bright young talent in, pay them well, make them COO or something. Promptly send them into a room to do what they do best - vision. Be creative. Consider what tomorrow looks like and how Sirius XM not only fits into tomorrow, but how it can define what tomorrow will be.
Right now, there's no question about it - fellow Seeking Alpha contributor Cameron Kaine is correct. SIRI is one of the top shorts in the market. Don't shoot the messenger. Instead, consider the near-term reasoning Kaine employs and the long-term view I endorse. In my book, valuation only enters the picture as a negative when it's high and the underlying company has no plans to accelerate revenue growth that has not been all that impressive, relative to its peers, in the first place.