I have recently increased client positions in Liberated Syndication (LSYN) on the back of various things including market volatility, an increased understanding of their competitive positioning and some recent corporate developments that I believe have a greater than zero chance of taking place within the next 12-18 months.
I wanted to provide an update on some of the above, as I believe the setup has become even more favorable since my first writeup and subsequent interview on Seeking Alpha.
Market Volatility
Pretty straightforward here as the shares have been subject to the various small and microcap sell-offs we’ve seen in Q1 of this year, following reaching a high of $5.40 toward the end of 2020. I was able to take advantage of the volatility over the course of a few weeks and was happy to purchase more shares on seemingly no news while the business continues to execute.
Update on Competitive Positioning
I recently attended a product demo for Libsyn 5, the new podcast hosting toolset that is in beta and being rolled out by LSYN in the coming months. I was blown away by the updates to the product from Libsyn 4, including the new and improved audio player, ease of use and improved interface. There were a large number of customers, users and podcast industry folks in attendance who all mostly shared the same view: Libsyn 5 looks like a great product. In addition to Libsyn 5, the company recently re-vamped their entire website and made it cleaner, easier to navigate and more modern looking. The signup process and menu which were previously complicated and annoying are now both simple and easy to do. While a new website might not seem like an important update, I believe it is, and will help align Libsyn with future podcast creators and customers (who crave simplicity) as well as help them better compete against other podcast hosting platforms.
In February 2021, Libsyn announced they acquired Auxbus, a podcast creation software platform designed to help take the less DIY-inclined podcast user through the entire podcast creation process. Auxbus provides users with tools to plan and create their content digitally, and makes show creation, recording and assembly processes easy and efficient. I’m working on getting the terms of the deal, but I believe the move was made in order to compete with Anchor and provide the serious and non-serious podcast creator with easy to use tools to get started.
I believe Libsyn is in the process of creating a one-stop-shop podcast hosting platform to help users create, distribute and monetize their shows. With accounting issues, poor management and proxy battles behind them, all resources will now be dedicated to the product, increasing the value proposition, and strategic growth. With over 80,000 podcasts and a great set of tools, I believe Libsyn can build out their product suite in a way that helps them continue to grow their market share and capture a large percentage of new podcast creators. While the above items are hard to quantify, I view it as hugely positive that for the first time in the company’s history they actually care about the product!
Shareholder Lawsuit
I covered some of the corporate history in my previous writeup so I won’t go over it again in too much detail, but it would be worth outlining the situation as it has unfolded.
Current and former shareholders will have without a doubt seen the name FAB Universal throughout the filings and proxy statements. Before becoming an independent public company, LSYN was a subsidiary of FAB Universal Corporation. FAB was public themselves, and to make a long story short, at one point in their history purchased a fraudulent digital media business called Digital Entertainment International or DEI. The selling party was issued over 10 million shares, and when the fraud was discovered, the involved parties (the sellers of DEI) went to prison. FAB’s share price plummeted to less than $0.02/share, and in order to isolate Libsyn (or try to save whatever was left of the old FAB business), they spun it out as a standalone business, with FAB shareholders receiving one share of Libsyn for every share they held of FAB. The above ties into the former management team (who were also a part of FAB), who had to settle with the SEC and forfeited some of their remaining shares as well. As noted, they are no longer part of the business.
Fast forward to the end of 2020, and Libsyn has now filed a lawsuit against the former DEI sellers who received the 10mm FAB shares (now slightly over 7 million shares of Libsyn following the spinoff) and are now in prison. At a high level, the lawsuit alleges that the fraudulent sellers of DEI who received Libsyn stock did so fraudulently. Which is true.
So why does this matter?
It matters because Libsyn, through the lawsuit, is attempting to have over 7 million shares cancelled. Meaning they no longer exist. Meaning based on the current outstanding share count of 26mm, nearly 30% more of the company would accrue to current shareholders, and given the same market cap minus divided by the new share count, share would trade close to $6.00!
While I don’t have the ability to predict the outcome or the timeline for the lawsuit, I would say there is a non-zero chance that something positive comes out of the suit. I am not a securities lawyer, and the information I’ve gathered from knowledgeable people in the space doesn’t point to much precedent, but in my view the above might help explain a number of things, including why a company like LSYN hasn’t found themselves the recipients of an attractive acquisition offer given current M&A activity in the space. The lawsuit, combined with the management changes, elevated costs rolling off the income statement, improved product platform and new CEO all indicate the business is being cleaned up in order for the initial activist groups to be able to monetize their investment. However, the best part about the above is that the investment thesis is not tied to a positive legal outcome. Cleaning up the business and improving the product have their own set of benefits including increased free cash flow generation. The lawsuit is truly a free option that could be worth an immediate 30% return.
It’s also worth noting, Libsyn also recently amended their bylaws to change the quorum for a special meetings of shareholders. The old bylaws used to require majority voting power, and now only require 1/3rd of total voting power. With over 7 million shares still held by FAB, I’d view this change as a positive and way to sort of ‘box out’ the remaining FAB shareholders from being able to vote on future strategic actions.
Other Developments
I believe a CEO hire is imminent, and believe they will be able to hire a combination of former public company CEO, but also a product person who has experience in ad-tech. A large opportunity for the entire podcast ecosystem moving forward consists of finding scalable advertising solutions outside of host-read ads, and something to which Spotify has dedicated a ton of resources, but has not yet fully figured out. I believe the new CEO will help drive this part of Libsyn’s business forward, and should be incentivized well and held accountable by the Board. No more directing shareholder dollars to egregious compensation and stock benefits.
It’s also possible that we will see the company uplist from OTC to an Exchange over the next 12 months, helping to increase awareness and providing an opportunity for larger funds to own. There is no set timeline for this, but most likely something the company wants to get done.
I like the setup here and remain long LSYN as I believe the investment should ultimately work out well.
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