sirius XM 375-2019

A swift management shakeup at SiriusXM has raised questions about the next chapter in the company’s growth trajectory as it strives to navigate a fast-changing audio landscape.

During much of CEO Jim Meyer’s almost eight years at the helm and 17 total years with the company, priority No. 1 has been adding new satellite radio subscribers and keeping existing ones happy. But on the heels of back-to-back purchases of Pandora, Stitcher and SoundCloud, the company’s strategic direction is shifting and new CEO Jennifer Witz’s mandate will be to keep the subscription-based satellite radio business growing while tapping new ad-supported revenue streams made possible by the trio of acquisitions.

Meyer’s resignation wasn’t a surprise to analysts. His contract expires at the end of the year and he has been thinking about retirement. “I’ll be 66 years-old in a couple weeks and don’t believe in mandatory retirement. But I do believe when the day comes you are not ready to give 250%, you really should let somebody else move forward,” Meyer said Tuesday morning at the Goldman Sachs Communacopia Conference, less than two hours after the news broke. “I love this company. I love the people of this company. But I just want to slow down a little bit,” Meyer said, adding that he has been talking to SiriusXM Chairman Greg Maffei about this for a while.

But the immediate departure of CFO David Frear, a 17-year company vet, was not expected. Nor was the resignation of independent director George Bodenheimer. Frear was seen as a potential successor to Meyer and his exit came as a surprise to many.

The shake-up led to a five percent drop for SiriusXM’s stock price Tuesday.

Meyer addressed the situation at the Communacopia session, where Frear was originally scheduled to present. In a last minute shuffle following the bombshell announcements, Meyer took Frear’s place at the conference and used the occasion to clear the air. “There is nothing wrong with the company’s books and records,” Meyer said. “David is an individual with the highest integrity. And this isn’t about a disagreement of any of those kinds of things in the company.”

With Witz, currently President of Sales, Marketing and Operations, chosen to be his successor, Meyer said it “was a natural time for David to pursue other opportunities that he has talked about.”

Replacing Frear as CFO is Sean Sullivan, a newcomer to the company. Most recently CFO at AMC Networks, Sullivan earlier worked at Rainbow Media Holdings, the predecessor to AMC, and HiT Entertainment, a children’s media company.

Meyer called Sullivan “a seasoned CFO… of very high integrity” who comes from the media business. “I think he’ll bring a little fresh air into the building, not a hurricane, but a little bit of fresh air,” Meyer said. “And I always think fresh air is good.”

Strategic Shift Ahead

Fresh thinking and a new perspective are exactly what the company needs at this juncture, analysts say. “In our opinion, the change in management comes at an important point in the lifecycle of the company given that the operating template that was applicable over the last decade will need to shift going forward,” a trio of Barclays analysts wrote Tuesday in a note to clients. The satcaster’s deals with automakers have provided a “steady” flow of new customer opportunities, “with the company’s excellent conversion and churn management providing a highly visible growth story over the last few years,” Barclays said.

But during the last year, SirusXM has entered “a more mature phase of growth” with subscriber additions slowing – even before COVID-19 wreaked havoc with new car sales. Now competition for talent is heating up, with deep-pocketed companies writing fat checks for podcast talent and Howard Stern’s contract with the satcaster expiring at the end of the year.

In addition, SiriusXM’s acquisitions of Pandora, SoundCloud and Stitcher came “without much of an articulation about the longer-term strategic intent of these acquisitions,” the analysts contend. And with parent Liberty Media’s ownership stake continuing to creep higher, SiriusXM’s “strategic priorities will also need to square with Liberty’s portfolio priorities, which may skew capital allocation more towards M&A in the coming years.”

All of this, in tandem with the management shakeup, creates more uncertainty around the company’s future strategy. At this point in its lifecycle, SiriusXM could benefit from a change in perspective, the Barclays analysts say. The executive changes also create “some medium-term uncertainty as the company readjusts its strategic priorities to align with the goals of the new team.” Barclays says the change could also mean Liberty has more sway in strategic decisions in the future, after having a mostly hands-off approach in the past.