Radio broadcast .. (1922-30)

THE INVESTOR LOOKS AT RADIO By BERKELEY A. CATER Chief Statistician, Bhimenthal Brothers Members, New York Stock Exchange The First of a Series of Articles Considering the Speculative and Investment Values of Radio Stocks. This Installment Considers Conditions in General; The Next Article Will Analyse the Position of R.C.A. IT is PROBABLE that more money has been made and possible that more has been lost in radio than in any other development in this generation. Surely, any industry which has so profoundly affected so many people is worthy of our brief attention. The growth of the industry has been truly fantastic and has naturally aroused public interest not only in actual receiving apparatus, but also in securities of radio manufacturers. In many cases large profits were realized, both because of the growth of the industry and the rapidly rising stock market, but in almost as many cases losses were equally great. The unknown element of mystery in radio was indirectly responsible for successful pool operations in many radio stocks, for it is well- known that such operations are seldom successful in stocks lacking an air of mys- tery, as pool operators work on public fancy rather than facts. Investor vs. Speculator If we were to attempt to survey the situation in radio strictly from the in- vestor's point of view we could not pro- ceed much further, for few, if any, of the common stocks of radio companies are entitled to true investment ratings. Admit- ting that in many cases the difference be- tween investment and speculation is not clearly definable, we believe that to enjoy an investment rating a common stock must (a) participate in the earnings of a stable and necessary industry, (b) pay a reasonable dividend in relation to earnings and market value, and (c) have paid that dividend for a number of years, in de- pression and prosperity, thus indicating a substantial reserve. A few radio stocks will undoubtedly attain investment rating within a few years; and a few are now reasonably attractive as a speculation for long-term holding. A modification of our title to "The Speculator Looks at Radio" would thus seem necessary. As we are not interested at the moment in any particular company or the advantages of owning a particular set, we shall limit the discussion to the financial condition of the industry as a whole and its prospects for the future. Although the development of radio in this country has been phenomenal, it has been typical of the extremes of American commercial enterprise, both enjoying the advantages and suffering the disadvan- tages of our aggressive manufacturing and sales policies. The industry has grown so rapidly that it has suffered from lack of balance and at the moment cannot be said to be in a thoroughly healthy con- dition. This is in spite of the fact that radio broadcasting and receiving have reached a very high state of perfection in this coun- try and are being improved to fulfill the best artistic and commercial requirements. Of the 24,000,000 homes in the United States, 12,000,000 or more are believed to be equipped with radio receiving sets. Of the remaining 12,000,000, several mil- lion will never be able to afford sets and a small portion will never want them. As the sale of radios in 1929 was estimated at from 3,000,000 to 3,500,000 sets, it is obvious that at this rate of production every prospective purchaser could be sup- plied within a few years. This growth in the manufacture of receiving apparatus has been far more rapid than was healthy and may be compared to an over-grown child that has not yet reached its strength. Frequently we are told that without the drastic decline in the stock market, radio sales would have continued to advance as rapidly as in the past, but if we consider the facts as they are, we shall arrive at a less favorable conclusion. It is true that the break in the market did seriously affect sales in November, as compared with Octo- ber. However, recovery was noticeable in December, largely because of the holiday trade, but it was still not sufficient to dis- pose of stocks on hand. It is estimated that more than 1,000,000 sets are being carried over which must before long be thrown on the market. [Sale of these sets is felt to be proceeding at a steady and satisfactory rate— Ed.] The beginning of this liqui- dation has already become apparent in some of the larger centers, where radio prices have been cut materially. Although the break in the market with its conse- quent loss of buying power to the average investor had some affect on radio sales, it may more truthfully be said that it re- vealed an unsound condition in the indus- try which would inevitably have become known at a later date, and probably with more unfortunate results. Industry Problems The problems facing the industry are therefore (a) to dispose of stocks on hand without a price war, and (b) to improve receiving apparatus so materially either in reception or appearance that the re- placement demand will take care of pro- duction. That this task will not be easy may be realized when we consider that the combined manufacturing facilities of all companies in the field could produce annually over 15,000,000 sets. It is possible that the answer to the question lies in sales overseas, especially in countries where the average per capita wealth is high, but there are definite reasons why such sales cannot increase as rapidly as was the case in the domestic market. These reasons are briefly that (a) wavelengths in many countries are dis- similar to our own, necessitating a differ- ent type of apparatus, (b) delivery cannot be made quickly, (c) American manu- facturers are loath to extend credit facili- ties to overseas dealers, and (d) the landed cost of American sets is much higher than sets made by European manufacturers. Although exports of radio apparatus in 1929 reached a total of $23,122,141, a gain of $11,060,662 over 1928, the greater part of our exports went to Canada, Aus- tralia, and the more prosperous South American countries where merchandise of quality can be sold because of relatively high average wealth. In Europe the prospects are much less hopeful, for the quality of our merchan- dise is not as a rule sufficiently better to warrant the extra cost. A Comparison The radio industry may be compared in a number of respects with the auto- mobile industry in its early stages. Of the many early manufacturers, only a few of the strongest have survived. Automobiles have apparently nearly reached a state of perfection, changes being of a non-essential nature, such as color or body design, but automobiles of necessity will wear out and must be replaced. The contrary is true of radio apparatus for, with the exception of tubes, and in some cases, batteries, there is little deterioration. Offsetting the fact that radios are much cheaper than automobiles and may reach the saturation point sooner for that reason, is the possi- bility of further perfection making existing apparatus practically obsolete. In this field lies the hope for the industry. Which tendency will be stronger can be answered only by the course of future events. Other Weaknesses Not all the ills of the industry should be attributed to over-production for some companies have lacked one or more of the requisites for success, such as skilled re- search engineers, good advertising and merchandising policies, and strong financial backing. The market value of the stocks of some companies has been made still weaker by pool operations which in some cases appear to have received the support of the managements, and it is doubtful if any radio stocks have escaped some ma- nipulation. The recent receiverships, of Earl (Continued on page 345) • RADIO BROADCAST FOR APRIL • 329