Skullcandy Up on the Auction Block

This pisses me right off.

Yes, I understand that Skullcandy doesn't hold much interest for headphone enthusiasts...and Skullcandy probably doesn't care. Well, they did for a little while...when they introduced the Mix Master I was told they were trying to move upscale and beat Beats at their own game. That didn't end well—problems with cracking headbands queered the introduction—so they backed away and focussed on the 15-28yo demographic and knuckled down to make inexpensive headphones.

I think they got it right—product-wize, anyway—their Aviators, Grind, and even the weird Crusher with built in sub-woofer were pretty cool. Not for us, but for the kids. I really think, given their target audience, they do a terrific job building product with a solid value proposition. Moreover, ask any 22 year old, they know the name Skullcandy. Pulling that off is not easy.

The problem, it seems to me, is when they had their IPO in 2011, the purchase price was inflated by guys in suits who thought headphones were on the verge of going through the roof. Someone was going to make a bajillion dollars...Skullcandy might be just the one. They had a winning strategy: focus hard on the urban youth, particularly the action sports kids, reach out strongly with grass roots efforts (like sponsoring skateboarders and contests), and become actually cool—instead of fake cool like those other celebrity bling cans. They made headway...serious headway...they moved some iron.

Going public in the midst of all that with an inflated investor expectation is dangerous stuff, however. Sennheiser gets to do its thing as a private company. One year may be better or worse than the next, but it remains "focus, focus, focus" for them. They're in it for the long haul and their market position is hard and well earned. They're strong...and they got that way because they were answering to their own vision and mission—not answering to investors who want their quarterly bump.

160705_Blog_SkullcandyOnTheBlock_StockChart

On the other hand, once investors paid $20/share and subsequently began to feel like Skullcandy wasn't going to live up to the (unrealistic) expectations, confidence floundered...and the stock did too. Retail, boots-on-the-ground, campaigns aren't cheap. I've got to think a lot of that stuff got the budget axe trying to recoup the losses. Once that happens, the plot gets lost in the shuffle for profit. Hell meet handbasket.

If they hadn't gone public, I think they would have been way better off.

Evidently, Rick Alden, Skullcandy's founder and Executive Director may feel the same way. Last month he announced the intention to take the company private, triggering offers first from mobile device case maker Incipio for $177M ($5.75/share), and then from buyout firm Mill Road Capital at $6.05/share.

Incipio? Really? A cell-phone case maker? Sure, they may have a good distribution system, but I bet they don't have point of purchase displays in skateboard/snowboard shops. I'd hate to see the Skullcandy brand stamped blithely on cheap plastic crap.

Mill Road? Who knows? Maybe they'll see the value of the brand and how they built it on real relationships and solid product. Some analysts think Skullcandy is a pretty good buy right now. At that price maybe Mill Road will give them a little leash to get back on their mission.

At any rate, it saddens and angers me that Skullcandy's been beaten up by the market even though they've done such a dandy job of making headphones for the sk8ers. I wish them luck.

So note: If you ever take a company public, don't try to get too much for the stock. Every dollar comes with the expectation of serious return. If the investors don't get that right quick, they get all pissy and that's all it takes to deflate your company.

On second thought: If you're ever thinking of taking a company public, maybe the best starting position is "Don't!"

COMMENTS
tony's picture

That equates to about 30:1 price to earnings ratio.
It'll take 30 years to get your investment returned. Hmm, I'll pass, can we forecast two years in the headphone world? I suspect that even $12 Million would be too high a risk. Arn't there about 150 similar ear bud Brands? Is the Skullcandy brand great?, they've been selling at the $7 price point on Amazon.

The Skullcandy Brand creators took it public and made all the dinero they're gonna make from hopeful risk-takers, they'll move-on and create another Brand to take public.

Tony in Michigan

ps. these are the kind of clever guys buying Red Italian Sports cars, they know when to sell and get-out.

Jim Tavegia's picture

Investors never learn do they. $20 to $5.50. I hope there are no pension funds involved in this as that is a market that can ill afford another major hit.

Thorsten Mühler's picture

Incipio already owns several brands, and its strategy has always been quite hands off. Case in point: Braven, that Bluetooth speaker company? Incipio's owned it since 2013. Could you tell?

Tyll Hertsens's picture
After listening to them and returning each one to the PR department unreviewed...yes, I can tell.
Thorsten Mühler's picture

You got me there.

ScaryFatKidGT's picture

Do the newer ones sense 2013 sound worse or have they just always been bad?

I liked the 850

evan75's picture

"queered"? Really?

Visigoth's picture

...and your point is? It's the correct word for what Tyll is trying to convey:

- queer
Spoil or ruin (an agreement, event, or situation).

LytleSound's picture

Unless the plan is to build something and go public and then get out quickly from the start, it is the worse thing a small company can do. Skullcandy had a vision someplace along the line that involved making headphones. It's investors' vision was something to the effect of making money, and quickly at that. That is an impossible situation. Products such as these don't do such things. Even BEATS, that have a sound I abhore, has had its share of owners along the way: Monster, HPD, HTC, and now Apple. It's a brand name now, not a headphone manufacturer in the sense that Grado, Shure, or Sennheiser are. Of course, both of those companies have many products, not just headphones, but their efforts toward continuous product improvement have kept them in the game for years. And, they are all private.

LytleSound's picture

It is "Its" not "It's" and the holding company was NPD, not HPD. One day I am going to remember to write these posts in Word first.

veermaharaj's picture

Actually, of all the major case brands out there, Incipio has a particular niche when it comes to high end design materials and excellent quality.

If anything, I'd say Skullcandy moved up in the world...

Oscar Norani's picture

I wouldn't dare to say that music is an inherently social medium, it is the opinion of some essaywriter really guys!