SFX Stock Price Rebounds After Wild Ride Following Bankruptcy Rumors
SFX Entertainment's stock price rebounded Thursday after an anonymous online article led to a sharp decline Wednesday morning.
SFX Entertainment’s stock price rebounded Thursday after an anonymous online article led to a sharp decline Wednesday morning. At 10:05am ET, shares of the EDM-focused concert promoter were up 9.8 percent to $4.77 and had gained 33.8 percent from Wednesday’s low of $3.52.
The stock’s wild ride started with an anonymous article at financial website Seeking Alpha. Titled “SFX Entertainment: Playing Music in a House of Cards,” claimed the company was misrepresenting itself to shareholders and will go bankrupt.
Much of the article focused on an announced stock purchase plan by Chairman and CEO Bob Sillerman that had yet to take place. The author raised red flags about the lack of stock purchases by Sillerman — and other executives — and his purchase of $10 million of debt. Since debt is senior to equity, the article surmised, Sillerman chose not to align himself with the interests of shareholders. The article appeared to have an impact on investors as SFX shares fell to $3.52 after opening at $4.27.
The article prompted a note to investors by Albert Fried & Co. analyst Rich Tullo, who called the Seeking Alpha article a “hit job” and defended SFX’s fundamentals. Calling SFX “the fastest-growing company in [the firm’s] coverage universe, Tullo, who has a $11 price target on SFX, insisted the young company’s business model shows evidence of “significant” operating leverage. Put another way, Tullo believes SFX’s bottom line will improve as the company grows and implements its business plan. After Tullo’s note, SFX shares rebounded and ended the day at $4.34, a 23.3-percent increase from Wednesday morning’s low of $3.52.
Sillerman would answer the criticism by the end of the day. After the market’s close Wednesday, SFX took the unusual step of referencing the Seeking Alpha article when announcing Sillerman’s acquisition of 575,000 shares of SFX stock in two transactions at an average weighted price of $4.91. In addition, the press release states Sillerman has filed a stock purchase plan with the SEC for up to an additional 3 million shares following the company’s third-quarter earnings results next month.
Even prior to Wednesday’s roller-coaster ride, investors had lost some of their initial enthusiasm for SFX. The stock started the year at $12, a dollar under the $13 offering price in last October’s initial public offering. The share price fell under $8 in mid-February and fell below $8 for good at the end of June. Year to date, its shares are down 61.1 percent.
Fluctuations aren’t unexpected. SFX has, in a short period of time, been assembled with parts ranging from concert promoters to online properties to ticketing companies. The young company’s income statement is proof of its immaturity: in the first half of 2014, SFX posted a net loss of $107 million on revenues of $115 million. EDM appears to be stronger than ever, but Sillerman’s EDM roll-up is a work in progress.