The biggest threat to Sirius XM's (SIRI) stock value could be its CEO, Mel Karmazin. Mel's behavior seems to be becoming more egotistical and erratic, and it will definitely hurt Sirius's stock value. If his erratic outbursts don't stop soon, Karmazin could turn into his company's biggest liability.
On Tuesday, May 22, Karmazin gave a performance worthy of Charlie Sheen at Sirius's shareholder meeting in New York City. Among other things, Karmazin claimed that he was smarter than the Oracle of Omaha. The Wall Street Journal reported that Karmazin said, "Even Warren Buffett would not be a suitable boss if he controlled the board."
If that egoistical outburst was not bad enough, there was what Karmazin said about his company's own stock with a Wall Street Journal reporter sitting in the room. He said, "Our stock sucks." That's right, Karmazin said his own company's stock is a terrible investment with the press in the audience.
Then Karmazin made yet another outburst that calls his sanity into question. He said, "Sirius is the only stock I own." That's right, he claims Sirius stock is a lousy investment, but admits it is the only stock he owns. So Mel claims he's smarter than Warren Buffett, but admits that the only stock he owns is a bad investment.
The best thing that could be done for Sirius's stock value would be to keep Karmazin from making any public statements. Every time he does, he makes himself and his company look very bad. A few more outbursts like this could send Sirius's stock down below the $1.50 level.
Yet some of the things he said at the meeting actually sounded good for investors. Among other things, the Journal reported that he said was that Sirius will generate $700 in cash flow this year. The Journal article did not say what Karmazin was basing this claim on. The article also mentioned revenue of $3.3 billion a year at Sirius.
Karmazin Wants to Keep Control
Karmazin's bizarre ramblings also touched upon the takeover attempt by Liberty Media (LMCA). At least one stockholder asked Mel about his selling off of 17 million Sirius shares he had options for last week. That's right, Mel sold off a huge block of shares right before the shareholder's meeting. That action caused Sirius's stock prices to drop. The stock rebounded to $1.96 by the morning of May 24, 2012.
"If John Malone or anyone else wants to buy that stock, there's nothing we can do," Karmazin reportedly said. John Malone is the Colorado billionaire who owns Liberty Media. Actually, there was something that Karmazin could have done; he could have not sold the stock in the first place. Apparently, Karamzin thinks his actions are logical and reasonable and cannot understand why anybody is questioning them.
That's the behavior of a third -world dictator, not the CEO of a publicly -traded corporation. This behavior is getting close to delusional on some level. The Journal also noted that Mel claimed he wanted to make Liberty pay a premium for Sirius, although his stock option sales have actually lowered the price Malone would have to pay.
Karmazin wants to stay, but his recent actions seem to be facilitating Liberty's takeover bid. The Journal noted that Malone now owns 46.2% of Sirius's stock, something Karmazin seems to have made possible by selling off large blocks of stock and driving down the share price. Liberty would need to get 51% of Sirius in order to take ownership of his licenses.
One remark by Karmazin does sound like good news for shareholders. From what he said, it sounds as if Karmazin will leave if Liberty takes over. If Liberty takes over Sirius, its stock should go up in value. Karmazin's exit alone would probably send share prices up even higher.
Liberty has not announced any official plans for Sirius yet. The Journal article claimed that Liberty CEO Gregory Maffei had said his company could totally acquire Sirius or operate it as a separate company. Unfortunately, the Journal did not say when or where Maffei made this statement or what media outlet it appeared in, so it cannot be verified.
Either way, Sirius stock holders could win because Liberty stock has been doing well lately. It currently has a P/E ratio of 6.37% and its share price rose to $84.28 on May 23. Having a sensible CEO that did not make erratic statements or tried to sabotage the company's stock value would certainly help Sirius. It is a good company that makes money, so its stock should go up if Liberty takes over and shows Karmazin the door.
Pandora Sold $70.6 Million Worth of Advertising in First Quarter
Selling advertising on internet radio seems to be paying off for Pandora (P). CEO and Chairman Joe Kennedy told Business Week that his company had sold $70.6 million worth of advertisements in the first quarter of 2012. That would seem to indicate that Pandora's advertising strategy is working.
Investors seemed to agree: Pandora's stock value rose by 20% on May 23 after news of the sales broke. This is also very good news for Pandora's competitors in the streaming radio business, including Sirius and Clear Channel Communications (CCMO), which broadcasts its stations over iHeartRadio. Both companies could definitely create a major new revenue stream through internet add sales. Clear Channel, which has a large nationwide force of experienced ad salespeople in place, would probably see the biggest gains from streaming radio advertising. The potential of additional revenue from internet advertising would definitely raise Sirius's stock value.
Kennedy was particularly excited about the percentage of advertising sold over mobile devices. He estimated that around 55% of the ad sales were on mobile devices, which are the fast growing segment of the computer market.
Pandora's total sales for the first quarter were $80.8 million, and that number beat analysts who had estimated $74.5 million in sales for the period, according to Business Week. The analysts have now turned bullish on Pandora, projecting that it will make revenues of $100.5 million in the second quarter.
The big losers from this news are bound to be traditional radio companies, such as Cumulus Media (CMLS) and CBS Radio (CBS). Kennedy's statements seem to indicate that business is switching its advertising to online radio. The revenue flowing into Pandora has to come from somewhere, probably from terrestrial radio operators, such as Cumulus, CBS, and Clear Channel.
Also hurt could be newspaper and TV station operators, such as Gannett Company (GCI), Media General (MEG), The New York Times Company (NYT), and Lee Enterprises (LEE). These companies are heavily dependent on advertising revenue, which online radio operators could siphon off.
It should be noted that Pandora will have to demonstrate that it can maintain or increase such advertising sales over a sustained period in order to keep its stock value up. If Pandora cannot maintain such advertising sales, its stock could fall as fast as Sirius's has in recent months.
Cumulus Taking Risk on Mike Huckabee as Limbaugh Alternative
Cumulus is taking an interesting risk by offering former Arkansas governor and Republican Presidential candidate Mike Huckabee as a kindler/gentler alternative to Rush Limbaugh. Huckabee is untested in national radio, and his long history of taking moderate and middle-of- the- road stances on some issues that may not endure him to radio fans that like fire-breathing hosts.
Yet Huckabee does have some interesting parallels to Limbaugh. Like Rush, Huckabee is a former DJ who got his start in small-town radio. Huckabee does have some radio experience, but he's been out of the business for many years and he has little talk radio experience.
A successful Huckabee show would definitely raise Cumulus's stock value and boost its advertising sales and revenues. If Huckabee could pull away a portion of Rush's audience, it could hurt Clear Channel's stock value because Rush is that company's biggest attraction and revenue generator.
A successful Huckabee show could also give Cumulus something to market to online radio operators like Pandora and create an additional stream of revenue. That would certainly make Cumulus more attractive to stock pickers.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.