I am bullish on the satellite radio company. My friend Tim is bearish. Enjoy these two articles today. Come back Monday, when we'll face off again with our rebuttals.
You go, satellite radio
Why does Sirius XM get
such a bad rap? It's mortal, obviously. The company has made some silly
decisions that have resulted in losses, major shareholder dilution,
gobs of debt, and a miniscule share price. I'm sure Tim will have a
field day in that sandbox. However, take the moment to dust yourself
off, take two steps back, and take another look at the company.
Sirius closed out 2008 with more than 19 million subscribers. How
many premium services do you know with larger membership rolls? There's
Comcast (Nasdaq: CMCSA). There's Research In Motion 's (Nasdaq: RIMM) BlackBerry. I'm hearing mostly cricket chirps after that.
When the company's debt repayments got so burdensome that Chapter 11 bankruptcy loomed, at least two suitors -- EchoStar (Nasdaq: SATS) and Liberty Media
(Nasdaq: LINTA) -- went public with their desire to bail out Sirius in
exchange for a piece of the action. The collection basket has come up
empty when other household names like Lehman Brothers, Circuit City,
and Bennigan's have had a cash crunch over the past year. Sirius is
clearly valuable to the media industry. It's no Lehman. It's no layman.
Sirius XM is also valuable to the music industry (with its deep play
lists whetting appetites for bands that normally don't receive
terrestrial radio airplay), the automotive industry (with its receivers
arriving as factory-installed options in more cars, and cash-strapped
automakers receiving royalties based on the subscribers they deliver),
and just about anyone who needs a little entertainment during routine
commutes.
Great concepts aren't always great stocks
Sirius XM was one of the few consumer-facing subscriber services to grow its net usage base during the final quarter of 2008,
closing out the period with 82,945 more subscribers than when it
started. Again, that places it in limited company, as many popular
entertainment providers like TiVo (Nasdaq: TIVO) and DISH Network (Nasdaq: DISH) actually shed accounts during the period.
Naturally, a business model can radiate with users but still fail on
Wall Street. Sirius XM is guilty as charged in that regard. There's an
ocean of red ink in its wake. Even when it does something right -- like
finding a sugar daddy in Liberty -- it comes at the expense of even
larger debt interest exposure down the line.
I refuse to call Sirius XM a fiscal failure, though. It is just way
too early to pass judgment. Now that Sirius and XM are one, we can
begin to appreciate the synergies that will improve with every passing
quarter.
Cash operating expenses were slashed by 22% during the company's
final quarter of 2008. Pro forma revenue inched 16% higher. This is
really just the beginning. Sure, debt payments alone will likely
consume the more than $300 million that Sirius XM is targeting in adjusted EBITDA this year. It should only get better from there, though.
Sirius XM will grow until there is a better mousetrap. Bears may
argue that streaming smartphones, Internet radio, and HD Radio will
bury Sirius XM, but where's the grave? These technologies have been
around for a few years yet Sirius XM continues to grow its subscriber
base.
Cynics underestimate the importance of satellite radio to the weary
car manufacturers. They also point to the future as problematic,
without realizing that many new revenue streams -- like digital video
delivery and e-commerce solutions -- will actually expand at Sirius XM
in the years to come.
The future will also provide Sirius XM with more attractive
opportunities to whack away at its hefty debt, and the flexibility to
build on top of its already magnetic offerings.
I am not naive. The dilution that is billions of shares deep that
Sirius XM was forced to surrender this year to stay solvent and alive
isn't pretty. It certainly lowers the ceiling of what Sirius XM may be
ultimately worth. This isn't going to be a $20 or even a $10 stock over
the next few years. However, at today's prices, it doesn't have to get
anywhere near its old highs to easily beat the market over the next
several years.
The catalysts are in place. They just need a little dusting. Step away from the sandbox and try it yourself.
Read Tim's bearish argument on Sirius XM, and come back on Monday for the rebuttal arguments.
More news than static on Sirius XM:
No Time For Sweet Nothings For Sirius XMKicking Sirius While XM Is DownSirius XM Radio in 2012
© 2009 UCLICK, L.L.C.
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