Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.
This week, the duel is between two major radio broadcasters: Cumulus Media Inc. CMLS and Sirius XM Holdings Inc. SIRI.
The Case For Cumulus Media: This company came about thanks to the Telecommunications Act of 1996, which changed the law to enable single ownership of multiple radio stations within a specific market and on a nationwide basis. Lewis Dickey Jr., a consultant to the radio industry, teamed with private equity firm owner Richard Weening on acquiring radio stations in midsized markets. The pair began operations in May 1997 and within a year owned more than 100 stations in 31 markets. The company went public in June 1998.
Today, the Atlanta-headquartered Cumulus owns and operates 406 stations in 86 markets, along with approximately 9,500 affiliated stations through Westwood One. Last month, a consortium led by Jeff Warshaw, CEO of Connoisseur Media, offered to acquire the company for approximately $1.2 billion, including debt, with the goal of taking it private at $15 to $17 per share. Cumulus President and CEO Mary Berner rejected the offer, stating the company’s board of directors considered that it “significantly undervalues the company and is not in the best interests of its shareholders.”
In other recent corporate developments, Cumulus announced the extension and expansion of Westwood One’s partnership with the National Football League, as well as the introduction of political news and analysis podcasts from The Bulwark on its Cumulus Podcast Network, which is distributed on multiple platforms.
In its most recent earnings data, the first quarter numbers published on May 4, Cumulus reported net revenue of $232 million, up from $201 million one year earlier. The company also reported a net loss of $905,000, down from the $21.9 million net loss from the previous year. Cumulus reported adjusted EBITDA of $31 million compared to $8.9 million one year earlier, and both the basic and diluted loss per share was 4 cents, versus the $1.07 loss from Q1 2021.
Looking ahead, the company reiterated a full-year EBITDA guidance range of $175 million to $200 million.
“Given our best-among-peers balance sheet, strong financial momentum and the company’s positive 2022 outlook, we expect ongoing cash flow generation that will support a meaningful return of capital to shareholders now and in the future,” said Berner, who added the company would commence on “a $50 million share repurchase program with a plan to commence share repurchases in the near-term. This capital return program is underpinned by our continued belief that the company is significantly undervalued.”
Cumulus shares opened for trading on Wednesday at $13.16, sandwiched in between its 52-week trading range of $9.42 to $15.67.
See Also: Benzinga's complete Stock Wars series
The Case For Sirius XM: This New York City-based company was created with the July 2008 merger of Sirius Satellite Radio Inc. and XM Satellite Radio. Both companies were publicly traded at the time of their merger: Sirius Satellite held its IPO in 1994 while XM Satellite went public five years later.
Sirius XM’s subsidiaries include the Pandora, Stitcher, Simplecast and AdWizz platforms, and it offers music channels on the DISH Network Corp DISH. The company stated that it reaches approximately 150 million listeners through its platforms, making it the largest digital audio audience across paid and free tiers in North America.
In recent corporate developments, Sirius XM announced a multi-year extension to its relationship with Formula One which will continue to deliver coverage of every F1 race through 2024. The company’s Pandora platform launched “Prom Night,” a 28-station offering “songs from the big dance for the classes of 1995 through 2022.” And the Stitcher platform debuted “Podcrushed,” a new podcast series created and hosted by Penn Badgley (“You,” “Gossip Girl”), Nava Kavelin and Sophie Ansari that explores “the awkwardness, anxiety, heartbreak, and self-discovery that defines adolescence.”
In its most recent earnings data, the first-quarter numbers published on April 28, Sirius XM reported total revenue of $2.1 billion, up from $2 billion one year earlier, and a net income of $309 million compared with $219 million in the previous year. The company saw adjusted EBIDTA of $690 million versus $682 million one year before and its basic and diluted earnings per share of 8 cents was up from first-quarter 2021’s 5 cents.
Looking ahead, the company projected 2022 total revenue of approximately $9 billion and an adjusted EBITDA of approximately $2.8 billion.
“Following nearly $1.1 billion paid in special and recurring dividends in February, and approximately $200 million in first-quarter common stock repurchases, we ended the quarter with net debt to adjusted EBITDA of 3.5 times, flat from year-end 2021 on a pro forma basis after giving effect to the approximately $1.0 billion special dividend,” said Chief Financial Officer Sean Sullivan. “Our balance sheet remains well-positioned, and earlier this month we opportunistically executed a $500 million two-year term loan, the proceeds of which we used to refinance a portion of our revolving credit facility balance at a more favorable interest rate. We retain significant flexibility to continue investing to grow our business, pursue external opportunities, and continue returning capital to stockholders.”
Sirius XM shares opened for trading on Wednesday at $6.21, sandwiched between its 52-week trading range of $5.76 to $7.29.
The Verdict: Cumulus Media’s shares jumped 39% with the unsolicited acquisition offer, even if it wasn’t at the $54.20 per share made by a certain electric vehicle maker to a controversy-prone social media platform. Whether Connoisseur Media will try to go the hostile takeover route remains to be seen, but it certainly gave the company’s stock a much-needed shock to its system. As a result, Cumulus’ shares are trading at a higher level than Sirius XM’s, even though the latter is the larger of the two.
But size doesn’t necessarily translate into strength at Sirius XM, which had some issues in its first-quarter earnings. There were 50.6 million monthly active users at the end of the first quarter, down from 55.9 million one year before, and advertising-supported listener hours were down 6.6% year-over-year to 2.68 billion. On the plus side, subscriber revenues inched up 1% year-over-year to $131 million while the first -quarter's $47 million in advertising revenues were up 12% year-over-year.
The verdict in this radio-based Stock Wars is a wait-and-see for both companies. Unless Connoisseur Media tries to force a hostile takeover of Cumulus Media, the Cumulus stock will either remain stagnant or drop — it is unlikely this company will spark a media industry bidding frenzy. And Sirius XM’s stock is in need of some serious reanimation. A company of this size and scope should not have shares at bargain-basement prices. Investors and traders will do well to return in a quarter or two and see what progress (if any) these companies have made.
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