The Past is Prologue

Today's guest blogger:  SCBA's Thom Callahan:

You need not have an advanced degree in investing or have Wall Street insider information to see a trend that is so obvious, if we would only spend 10 minutes to really look at it.

2013 was a great year for Radio stocks with most publicly traded Radio companies doubling and/or tripling their 12 month performance. These stunning Radio stock increases can only be attributed to 3 key factors; a greatly improving ad revenue environment, a higher dividend to shareholders, and the realization from trading houses and investors that the ad supported, local Radio model works very well after all.

Why did it take these “experts” so many years to come to the same conclusion all of us in Radio knew all the time? Perhaps we need to understand that it takes most businesses a very long time to become established, profitable, and worthy of the public’s trust, like Radio has.

If the past is prologue, as suggested by William Shakespeare, then perhaps we need to be more cautious on what the financial/media experts are calling the “next big thing”. It is very difficult for any new medium to compete against Radio in the long term which makes investing in companies looking to compete with Radio a very risky proposition.

Here are just three glaring examples of why betting against Radio is a very bad investment decision. 
Let’s go back a few years, specifically to Feb 2, 2000. On that date, the experts were predicting that Sirius/XM would “crush Radio” and just like sheep, investors rushed to buy the stock, which on that date, traded at an inexplicable $59.90 a share. As we begin 2014, the Sirius/XM market share for listeners is barely 11% nationwide and their stock opened this week at $3.49. That is a brutal 94% loss in stock value since its inception. Also, if Liberty Media buys up the rest of the company as reported this week (it owns 50% of the shares now) it is widely known that stockholders will take another unfortunate hit as Liberty Media is a cable company with no long term interest in the Satellite music business other than acquiring its cash flow at bargain basement prices. Think under $3.00 at least.

Strike one for the “experts”.

Now let’s look at another “internet darling” from the more recent past. While Groupon was never a direct threat to Radio, it was treated like the next “big thing” from the “experts”. Based on all of its outstanding press and the “experts” strong buying signals, Groupon was supposed to revolutionize the coupon business and redefine the shopper’s experience for bargains. In fact, some suggested that Groupon posed a threat to Radio as the ROI would be more attractive than Radio commercials.

Really?

Well, Groupon Stock traded at a robust $20.63 per share in 2011, and by the end of 2012; the stock plummeted to $4.86 a share, but to its credit, has rebounded somewhat in 2013 and closed the year at $11.77. This is due primarily to “an evolving business model” that has nothing to do with its original premise. This still represents a nasty stock decline of 43% for Groupon since its inception.

Strike two for the “experts”.

Feeling a bit apprehensive about “expert predictions”? Well, you should be.

Pandora’s widely overvalued stock price and its “darling status” among the “experts” and the media still can’t get this company to grow. In February 2013, its webcast metrics as reported by Triton Digital recorded 1,918,000 visitors as being logged in to its URL with the average time spent listening recorded at 36.6 minutes.

From February 1, 2013 through October 1, 2013, visitor levels are slightly down to 1,891,982 with a more ominous indicator of the time spent listening loss down to 35.4 minutes. That’s a .3% loss in average time spent listening yet no one is reporting that. Can you imagine the reaction from the “experts” if Radio lost .3% of its national listenership in less than 9 months?

Once again, we must look to Pandora’s stock prices as the past is indeed prologue, at least as far as stock value is concerned. The Pandora investor has had a bumpy road to say the least. Pandora stock debuted in June 2011 at $18.91 and remained at that mediocre level for the next 2 years and 3 months. Finally, the stock started to move up on September 3, 2013 to $25.13, and began to show some financial life. It then went back and forth for the next 3 months and opened this week at $33.40. It has taken Pandora two and half years for its stock to rise by only $14.49 a share and only by $6.96 since October 3, 2013. How come?

Well…maybe everyone is starting to understand that this unprofitable business model cannot sustain itself over the long term, no matter how many Radio sales people they hire to prop up short term revenue gains. Remember Google’s attempt to hire Radio sales people for their misguided attempt in Radio “remnant” inventory?

If this is the next “digital darling” to watch, why has it taken 27 months for its stock to make any appreciable climb? And why has Pandora lost .3% of its average time spent listening in less than 9 months? Could it be that just playing music, with no local or human connection, is just not enough for the average listener?

Strike three for the “experts”.

If you are looking for a safe investment with decades of sustainable growth and value, I suggest you avoid all the “experts” and return to making money on your investments.

The stock we are recommending for the short and long term is called Radio and it has withstood and ultimately conquered every supposed audio replacement for the past 70 years.

If the past is prologue, history readily proves that Radio will be a great investment for many decades to come.

How many shares would you like?