It appears Cumulus Media is in store for some rough weather. At least it's not as bad as iHeart Media.
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Storm Clouds on the Horizon
- Thread starter Rusty Bridges
- Start date
About 5 months ago they were trading at about 32 cents a share. To make the stock look a bit more attractive and to lift it above $1 to avoid being delisted, they did a reverse split of 1-8. Meaning, for every 8 shares you have, they'll give you ONE.
The point of course is to ideally change the share price from say, 32 cents to $2.56 per share. Problem is that when you make that move, it sends a bad signal to shareholders. In the case of CMLS, they did the reverse split and the share price continued dropping.
It now sits at about 59 cents a share...and that's AFTER the 1-8 reverse split!
So in a nutshell, this great company with all those stellar sticks, since the reverse split to look good to investors, has lost more than 75% of it's value.
The fact that CMLS and iheart don't declare bankruptcy, freeing up many of those sticks is incredible. What a ridiculous game.
There is no reason to believe that even if they declared bankruptcy that it would, as you put it, free up those sticks. Look what happened when Citadel when bankrupt. Did it free up those sticks? No. Here's the main fact to know: The founders of Cumulus are gone. The main debtors of the company are currently in charge. The investment firm that owns the biggest share of the debt has installed its own person as the CEO. They are not going to let their own person lose their money.
Share price indicates the value the stock market puts on a company, not the underlying value of a companies assets and potential future profits.
In the case of traditional media companies, the market tends to overly discount the no-growth nature of the business.
Just as a point of reference, there is this guy out in Omaha who specializes in picking up large positions in under-valued companies where he can acquire valuable brands and potential profits at below their real value. He's been doing it successfully for decades, so the idea that companies that are undervalued by the market are done for is absurd.
Even if Cumulus as it currently stands is "terminated", the greatest value it has is as an ongoing concern. Before interest expense and taxes, Cumulus had an operating income of approximately $200,000,000 in 2016 (based on guidance as the full audited year figures are not available to me right now
). Any debt holder with an ounce of sense would want to preserve the operations and thus the revenue flow, not break the company up into under performing pieces that would have much lower values.How can you say it's undervalued?
Investors clearly are taking into consideration the BILLIONS in debt that goes along with all those properties.
Not sure Buffet would want that company even for ZERO dollars if he had to assume such unsustainable debt.
Someone had to approve these loans. If they were "unsustainable," they would not get approved. So the structure of the loan was designed to be paid back in some way at some point. This debt has existed for several years, during which time the stock price was much higher. They haven't added to the debt during that time, and in fact have identified several properties (tower properties in LA and DC) that could bring $250 million towards that debt.
In my view, this particular stock price isn't as much influenced by the debt as it is about the lack of growth. When the stock was higher, the company was growing. Two years ago, that growth stopped. Then the stock price fell.
Not what you'd call an exemplary chart.https://www.google.com/search?q=cmls+market+cap&ie=utf-8&oe=utf-8 Market cap in particular. The local guys have been through this before. They'll endure.
If the debt-holders want an exit strategy, they are going to have to take a haircut. That is when someone who recognizes the underlying value of the assets and buys them at a sustainable price that allows servicing and paying down any debt.
It is unlikely that the company would be liquidated; the debt-holders would take a far worse beating there as the process of selling off in bits and pieces would cause huge attrition of staff, clients and even listeners.
A lot of thanks go to the Dickey regime that followed the Clear Channel / iHeart model of "cutting your way to prosperity". They actually started to move in the right direction in 2016 after a rocky start. Unfortunately, the market is unforgiving, and time is running out. The Dickey "systems" cost them way too much talent in both programming and sales, and ugly stock prices are not going to help them attract good sales talent.
As I said, the stock price doesn't appear to be related to talent or sales. There are only so many spots they can run per hour, and they can only charge so much for those spots. This is not a problem that will be solved by hiring talent or selling more spots. They have been on a hiring spree despite the bad stock price. The market wants to see growth, and that means multiple new revenue streams. Other radio companies are expanding into areas where Cumulus hasn't gone.
They will announce their 4th quarter numbers next Thursday, and I'm expecting another loss. Spending more money on talent while not growing revenue streams adds up to continued losses. They are convinced that improved ratings will lead to better sales, and the fact is improved ratings won't be enough to resolve the doubts that linger.
Knoxville, TN is one market where the Cumulus cluster is chopping heads right and left. Are other smaller markets following suit?
Knoxville is an interesting case study. The Cumulus cluster owns the top 3 spots in the winter book. WIVK remains #1. WIVK was one of the few stations that was allowed to keep their local branding and morning show, instead of forcing the NASH syndication. So they're doing well. Despite all of that, revenues for the cluster aren't growing. Why? Because they can't increase inventory without cannibalizing the audience. And they can't raise the rates without losing advertisers. That's the big problem in on air radio today. How to capitalize on increased ratings without causing tune-out. Investors know that, which explains the current stock price.
Better sales talent can get more per unit for commercial inventory. Radio in general has been killing itself by selling inventory too cheaply - in part because iHeart and Cumulus kept reducing prices in order to get buys. A recent study shows that radio has been increasing units per hour, but decreasing cost per unit, for as long as five years. Organizations that are either desperate for dollars, or who are dropping commissions and establishing automated buying systems are killing the revenue stream. iHeart and Dickey-led Cumulus were at the front of that line. Owners who refused to lower their pants - like CBS and Entercom - did much better at keeping inventory levels manageable while keeping revenue stable or slightly up. When your "industry leaders" are heading into oblivion, the whole industry is dragged down.
Once again, when Dickey left Cumulus, the stock price was at about $2 a share. Today it was 51 cents. That's even after a major reverse split. One of the first goals of the new CEO was to "change the culture" in the company, and stop the talent drain. All laudable goals. If Dickey was the cause for the stock price to fall, why has it continued to fall after he was replaced? As I said, this is not about talent or sales.
Or, perhaps, he set the wheels in motion that led to the downward spiral. Lou Dickey was fired for a reason. As has been stated before - stock price and performance are not so directly linked. Cumulus is also suffering from comparisons to iHeart thanks to Lou. What would iHeart be worth on the open market these days? Likely less than Cumulus because their debt load is even higher, and they've been even less successful at producing profit - let alone value.
Regardless, the new management has been in place for a year and a half. Lew Dickey is ancient history. Since he left, they've been hiring on air, sales, and marketing talent. Spending lots of money to support towers and transmitters. No investment in new media or live entertainment, while iHeart, CBS, and Townsquare have all been devoting a lot of energy into diversifying their operations. Ask any investor what's the key to their portfolio, and they'll tell you: Diversify. Unfortunately, Cumulus isn't a diversified radio company. They put all their eggs in one basket. If there's a turndown in the ad market, as there was last year, they're in trouble. As I said, this is not about talent or sales.
Where does the vast majority of income come from for radio companies? Let me clue you in - it ain't on-line or NTR. iHeart has been investing big in things other than radio. How's their bottom line? How have their profits been?
CBS and Entercom are not companies in trouble, and have profits to invest in diversity. Cumulus needed to refocus the core product to stop the bleeding that got Dickey fired in the first place. A lot of sales talent left, and same-station results suffered thanks to the "systems" he put in place. That's what Cumulus has been trying to do - replace that talent and focus on their core business. It's hard to branch out when your tree is rotting.
Pittman has been throwing shiny objects at investors since he came on board. The bottom line is a nightmare, and his attempts to kick the can down the road are running in a monster roadblock. iHeart is big enough to devalue an entire industry - and it has. Does he care? Hmmm. Are they still paying him millions - including bonuses - and paying for his jet so he can go to Cannes and other jet-set confabs to "spread the word"? Is any of that going to save iHeart? Only if the guys on the hook for billions decide that letting them continue on as they are is worth more to them than some kind of fire sale. Considering how iHeart has reduced the value of the radio properties, a fire sale is unlikely. A change in ownership is more likely.
CBS and Entercom are not companies in trouble, and have profits to invest in diversity. Cumulus needed to refocus the core product to stop the bleeding that got Dickey fired in the first place. A lot of sales talent left, and same-station results suffered thanks to the "systems" he put in place. That's what Cumulus has been trying to do - replace that talent and focus on their core business. It's hard to branch out when your tree is rotting.
Pittman has been throwing shiny objects at investors since he came on board. The bottom line is a nightmare, and his attempts to kick the can down the road are running in a monster roadblock. iHeart is big enough to devalue an entire industry - and it has. Does he care? Hmmm. Are they still paying him millions - including bonuses - and paying for his jet so he can go to Cannes and other jet-set confabs to "spread the word"? Is any of that going to save iHeart? Only if the guys on the hook for billions decide that letting them continue on as they are is worth more to them than some kind of fire sale. Considering how iHeart has reduced the value of the radio properties, a fire sale is unlikely. A change in ownership is more likely.
But it's not growing. That's a problem for investors. They want growth. This is why CBS sold radio: Lots of cash flow but no growth. The only way to growth in radio is either buy a lot more stations or diversify. Which would you choose?
The thing holding back iHeart from profitability is the large number of boat-anchor AM radio stations that are losing money, and would lose money regardless of ownership. That's a fact. Their online business has added over $2 billion of value to the company. That's value that would not be there if they only focused on towers and transmitters. It was a very smart move, and the main attraction for any potential buyer of iHeart isn't the towers & transmitters.
Instead of wasting time talking about a company that doesn't own any radio stations in Buffalo, you should instead focus on Townsquare. Sure they have the top 2 radio stations in town, but they're also diversified in other areas. That diversification is what is the difference between them and Cumulus.
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In the Buffalo market, Entercom is beating both Townsquare and Cumulus in spite of having lesser FM signals. Talent makes a difference - and they've collected the best sales talent in Buffalo thanks to corporate policies from both Townsquare and Cumulus.
Like I said, it's hard to diversify if you don't have enough cash to keep your main business running. It's really difficult to compare Townsquare and Cumulus considering vast differences in market size and debt load. iHeart is a closer match, and they're crashing and burning. The Cumulus attempts at diversification - like the Nash branding complete with magazine, Westwood One, the dance with Rdio, and plenty of other forays did not exactly enhance the revenue of the company. In some cases, they reduced revenue. Diversification only works if you've got a product that people want. If you don't have the talent to create it, or the sales people to promote and sell it, it won't help your bottom line.
Like I said, it's hard to diversify if you don't have enough cash to keep your main business running. It's really difficult to compare Townsquare and Cumulus considering vast differences in market size and debt load. iHeart is a closer match, and they're crashing and burning. The Cumulus attempts at diversification - like the Nash branding complete with magazine, Westwood One, the dance with Rdio, and plenty of other forays did not exactly enhance the revenue of the company. In some cases, they reduced revenue. Diversification only works if you've got a product that people want. If you don't have the talent to create it, or the sales people to promote and sell it, it won't help your bottom line.
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