Note To Brandon Matthews: This Is How You Make Babies

It's one thing to have strong convictions. To feel like this is better than that and want to tell the world about it. To use your way with words and/or your determination to persuade people over to your side. It's a completely different story to misrepresent a situation when you're credible enough in the first place to not have to do such a thing.

Brandon Mattews runs a very successful website that focses on covering Sirius XM (SIRI). Despite the various controversies that surround him and his detractors, he's good at what he does. In fact, he's really good. Maybe he's not always perfect or right. Maybe he gets things wrong from to time. But we all do. Bottom line - the guy knows his stuff and he knows this company like the back of his hand. While we differ fundamentally on the concept and execution of satellite radio, as Sirius XM does it, as a long-term proposition, I would never question Brandon on day-to-day, more micro-level details about the company. That's his thing. It's what he does. And, again, he's awesome at it. 

That said, I subscribe to the Springsteen belief that "Nobody Wins Unless Everybody Wins." Therefore, I root for Brandon to do well, but I also root for other people who cover SIRI, ranging from Spencer Osborne to Demian Russian to do well. If they do well, it only helps the rest of us do well. Based on their squabbles, however, and the tendency for them to go toe-to-toe, I guess love is not all around us.

I do not want to rip Brandon in this post -- that's not my intent -- but I just cannot let something he wrote slide. In a recent post, he highlighted insider sales by Pandora (P) executives. He took these transactions and made the assertion that if Pandora insiders are selling stock, you probably should not be buying it . I'm not sure if Brandon's parents ever gave him the speech about the birds and the bees, but they certainly did not let him in on the purpose of an IPO.

Yes, of course, the purpose of an IPO is to generate funds to, broadly speaking, help execute a company's business plan. But, really, and we all know this -- Brandon is saying as much -- an equally as primary purpose is to make people rich. Founders, board members, top executives tend to be the ones who get rich (or richer) fattest, fastest and first. Often, that's how they get paid. Brandon's correct. Retail rarely gets in on the action. The allure of an IPO is that it makes people rich, usually people who were already rich to begin with. That's why c-level employees at companies who go public clamor for equity (and sell the second they're allowed to) and retail investors waste time filling out forms on e-Trade for a ration of shares in this or that new issue. 

IPOs are designed for insiders to sell shares -- sometimes once or all at once, sometimes over time -- so that they can get paid. It happens in a vareity of different ways. It happens like it did at Pandora. It happens like it does at Netflix (NFLX) with top executives cashing out options on a regular basis. Go way back and review the history of Amazon.com's (AMZN) insider sales. Pick a ticker, particularly an IPO from the last 20 years, and review the insider transactions. 

It's public information.

Go to SEC.gov. Click your way to this page . Make your way to the list of insider transactions for an issuer. Here's Amazon's . And you can see for yourself that insider selling, particularly of IPOs in recent decades is not only commonplace, it's the expected way of doing business. 

Because Pandora insiders exercise options and/or sell direct stock does not mean the company is a losing proposition. It's of no greater magnitude than Mel Karmazin getting richer on the backs of SIRI shareholders . That's one way he gets paid. That's how a vast majority of modern day executives get a significant chunk of their loot. Some "deserve" it, others do not. But that's not the point. It's like arguing over whether or not Scott Gomez deserves $6 million a year from the Montreal Canadiens. Bottom line, for better or worse, he gets it and people like him will continue to get it until some sort of profound change happens, if ever. 

Just as I argue in relation to Sirius XM in my latest Seeking Alpha article on the company , the issues with that stock (outstanding shares, etc.) and company (i.e., my long-term bearish concerns) will take care of themselves if the company executes. The same goes for Pandora. If you believe for a second that somebody like Tim Westergren founded this thing 10-15 years ago, only to cash out a few shares of stock 10-15 years later (when he's probably already loaded anyway) and proceed to drive his company into the ground, you're either plain wrong, reckless or just being disingenuous.