One of the biggest issues I come across when talking with people about specific stocks is that while we can have a good discussion of bottom-line numbers like earnings – the discussion of items higher in the income statement is not so good. Andrew and I did a podcast about this recently. It’s the one where we discussed gross profits. But, it’s not just an issue of gross profits. It’s also an issue of what are the customer economics like, what are the store economics like, what are the “unit” economics like. A lot of times, this information is given out by the company – if at all – in ways that don’t guarantee an easy comparison between two companies. The bottom line figure is probably comparable (though not always – note, for example, that different companies in the same industry sometimes depreciate at different rates and so on). However, the way companies discuss their projections for store level EBITDA of a “model” store or customer level economics are going to be different. Does this make them less useful? It makes them more susceptible to fudging. You have to rely more on whether management is being candid, realistic, etc. Is management promotional? Are they always too optimistic? Are they always too pessimistic? Do the numbers they give you as projections of how their business model should work line up nicely with reported results? If not, why not?
These numbers are often more important for the long-term investor than the current earnings results. Current earnings – and whether they miss or beat analyst estimates and market expectations – are very important in determining short-term results in the stock. But, they are less important in determining long-run results. This is because just knowing the bottom line result is less helpful in projecting the future of the business than in having more detailed trend information.
The same stuff I’ve been saying about the “bottom line” also applies to the “top line”. For example, OTCMarkets (OTCM) reported results recently. Both bottom line and top line numbers were right in line with what I might expect. But, the mix of what areas of the business were up a lot and what areas of the business were flat or down was different than I’d expect. So, it could’ve looked like a typical quarter if you look only at: revenue, gross profit, operating profit, etc. But, it looked atypical if you focused in on what specific product lines were up by what percentage amounts over last year. They had a very bad showing – no growth, actually a bit of shrinkage (which is unusual for this company) – in the actual number of companies that pay for “corporate services” (sort of like being listed on OTCM – although, technically, OTCM is not an actual stock exchange). Meanwhile, revenue that is driven by trading activity grew way more than you’d normally expect. Now, none of this should’ve come as a huge surprise to me given the level of …
This is a follow-up article on Libsyn (LSYN). In my initial interest post on the company I talked a little about the fact that company’s CEO was named in an SEC complaint. That complaint was directed at the former CFO of the company and the current CEO of the company. I can now say “former CEO” of the company. Libsyn announced that this CEO was resigning from his position as CEO and also from the board. This was – to me – a very big deal. To the market, it wasn’t. Libsyn stock barely moved on the news. That makes this stock a lot more interesting to me now.
However, the CEO was not the only issue I had with Libsyn. As discussed in my earlier article on Libsyn, I do have some concerns about the company’s level of technological sophistication versus some of its newer competitors. Libsyn has a business model that is probably – most of the other companies in this industry don’t really release any sort of financial info that can give me certainty on this – a lot more durable than competitors. Libsyn has two business segments. One is “Pair”. This hosts websites – especially WordPress websites. It also does domain registration. The other is the namesake Libsyn business. Libsyn’s business model consists almost entirely of collecting revenue in 3 forms: 1) Fees paid by podcast producers (people like me and Andrew), bandwidth fees (again paid by people like Andrew and me based on number and size of downloads of a podcast each month), and premium subscriptions (Libsyn takes a cut of the premium fee – for example the $7.95/month subscription service Andrew and I do – and the podcast producers take the remaining amount). These 3 things taken together account for virtually all of Libsyn’s revenue. It also has some ad revenue – but, this is small.
Competitors like Stitcher – which owns an ad company called Midroll – probably rely more heavily on a combination of ad revenue and premium subscription revenue. Libsyn also does not have a premium podcast network like some competitors. So, something like Stitcher – previously owned by E.W. Scripps, but recently announced to be sold to Sirius/XM – brings in revenue sort of like a hybrid TV broadcaster / cable channel. You pay a certain amount each month for a subscription to Disney Plus, HBO Max, etc. People pay for a “Stitcher Premium” subscription and get access to premium features (like behind a paywall episodes, etc.) of the various podcasts on the network. Libsyn’s tiny amount of “app” revenue (it’s like 3% of recent revenue, maybe as high as 5% in some quarters where ad revenue is real low) comes from specific show-by-show revenue. It comes from taking a cut of people who signed up just for the specific premium content of a podcast like Focused Compounding. So, it is single podcast specific revenue. There are reasons why I think that makes more sense than a paid network. Ad …
This is a complicated one. So, I’m going to do my best to boil it down to the things that really matter. That’s a judgment call. And it means I may be focusing on the wrong things. I may not be telling you enough about some things that do matter a lot and fixating instead on some stuff that turns out not to matter as much as I think.
Libsyn is one of the biggest and oldest companies in podcasting. It has been there since the beginning of podcasting basically. And unlike almost every other company in the industry – it’s profitable. It’s been profitable for a while. And it’s likely to continue to stay profitable. This company (Liberated Syndication – ticker LSYN) also owns another Pittsburgh, PA company called “Pair”. Pair is a website host (and domain registrar) that is also very old and also profitable. Pair has been around since the mid-1990s. Libsyn has been around since the mid-2000s. Both have basically been there since the start of their respective industries. As I write this, Libsyn (the podcasting company) accounts for maybe 60% of the gross profit, EBITDA, etc. of the combined company and Pair for the other 40%. However, I’d personally appraise Libsyn as much more than 60% of the combined company’s intrinsic value, because I think it’s likely to be a fast grower.
Podcasting is a very, very fast growing industry. It’s hard for you to realize just how fast growing it is. As investors, we’re used to thinking in dollar terms. We look at revenue and gross profit and so on in terms of dollars. We aren’t managers and often don’t see the underlying unit growth. Unit growth is the physical – of course, in this case it’s actually intangible – growth in the industry. The number of podcasts, podcast episodes, monthly audience figures, etc. is the “unit growth” in this industry. It’s the growth independent of pricing. Most industries in the U.S. – if they are growing at about the same rate as the overall economy – only grow at a rate equal to population growth plus output per person. So, before inflation, an industry that’s growing at a healthy rate might be doing 3% unit growth a year. This means it will double in real size about every 25 years. A fast growing industry – something more like electric vehicles and hybrids and so on – might be growing at like 7% a year. This means it will double in real size about every 10 years. Podcasting is growing much, much faster than that. In recent years, most of the key metrics that Libsyn tracks have been growing at about 20% a year. This means it doubles in real terms about every 4 years. To put that in perspective, at the rate podcasting is growing in terms of number of shows, number of episodes, number of monthly listenership, etc. we are talking about something that will double in size by 2024, quadruple …