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Partial Sale - LSYN

I've sold a good chunk of LSYN over the past month (most just above $3) and much of it has to do with the management team and future prospects of the business.

Liberated Syndication was/is a strong player in the podcasting industry. They made a decent acquisition with Pair because it was beneficial to earnings but the competition in this space is heating up and it seems that Liberated Syndication and their management team aren't up for the challenge.

A preface, I purchased the stock in early 2018 around $1.60. I liked the story, the space, and was willing to give the management team a fresh start. They initially had some serious issues with a prior company that I won't get into but Libsyn was performing well and I thought it was enough for a clean start.

Growth seemed solid, the acquisition of Pair seemed smooth, and I was fairly pleased with the financials and thought the company was trading at a cheap valuation in a hot space. Chris Spencer (CEO) continually promised an uplisting to the NASDAQ which would have been great for the stock - but that never happened - strike 1. The initial promise and timeline he gave was one of the catalysts for getting into the stock in the first place.

Strike 2 was the recent accounting issues. They changed their auditor a year or two ago and that was a little concerning to me but I let it slide (see the trend here?). They then delayed their March 30th full year earnings release and didn't release those earnings until May 18th. LSYN also had an audit and, in short, should have been paying income tax since 2018 because they overestimated their NOL by $12.5 million. Here is a link to that SEC filing.

These events also happened in fiscal year 2019 and so far in 2020:

  • September 2019: The SEC filed a complaint against Chris Spencer and John Busshaus with regards to the previous company they had issues with (FAB). The complaint stated that the two used a series of misrepresentations about the capabilities and growth of FAB. They were charged with violations of antifraud provisions. They both settled with the SEC without admitting or denying the allegations.

  • October 2019: LSYN accepted the resignation of CFO John Busshaus.

  • April 2020: John Busshaus filed a complaint against LSYN for wages and benefits claiming unlawful discharge and termination.

The growth is slowing for them but they have nice cash flow and are profitable. They claim this is an advantage in a space where some of their competitors are not running profitable businesses and once they try and monetize LSYN will be there to steal their lunch. I don't know if I believe all that but I will say they do run a profitable business and not a freemium model.

Strike 3 is the competition in this space. Spotify is becoming a major player in this space. If you google "create podcast" Libsyn isn't even on the first page. is the top result and they are owned by Spotify. The UI looks incredible and if I were creating a podcast tomorrow I'd use Anchor. Even if you go directly to Liberated Syndication's website you'll be rather unimpressed.

A lot of investors in this name will say LSYN is ripe for a takeover but I don't know if that is true. Spotify would have been the prime candidate to buy them out but their position in is solid and they can steal users from LSYN. There is a chance a major player like Google or, less likely, Facebook could buy them out and rebuild the UI but I don't know if that's worth it or they should just start from scratch, especially when there are other small names like Podbean or Buzzsprout out there with more impressive interfaces. There was no doubt LSYN was succeeding for a long time but I think the space is heating up and they haven't innovated nearly enough.

The lone bright spot here is their new activist investor Camac. They have done a great job so far of getting rid of do-nothing management and re-configuring the compensation structure for the greedy executives. If they can continue to push for change and innovation then maybe Libsyn can succeed going forward. It's for that reason and the off chance they are acquired that I haven't exited the position 100%. Make no mistake though, I've cut the position by 2/3 and if the stock goes to $0 I'll still be profitable. I just don't trust the management with my money anymore.

FWIW. I did sell a ton of this stock and there is a hungry buyer around $3. Now that I've sold a ton of shares this stock could easily press higher to $4 if no new seller shows up. Normally this wouldn't be an issue but because it was a decent size position for me in a micro cap name it took a month for me to exit the position. I wouldn't mind if it went higher because I'd still benefit but I had to cut the risk and book profits on this name. There were just too many red flags for me to stay fully vested.


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