It used to be that Sirius and XM carried conference calls that were injected with oneupmanship. So much so that even an announcement of the date of the quarterly call was a cat and mouse game to behold. One counted subscribers one way, the other had differing metrics that went into SAC. One was dominating retail, the other OEM. One touted Gross subscriber numbers, the other net numbers. While the companies were in the same sector, there were always challenges in trying to compare metrics, and the street found itself wondering which SDARS company to put their dollars behind.
Those days are gone. Sirius XM Radio has been born, and from this point forward there will be one way to do things. As time passes this should be helpful to the sector, and should allow for a more stabilized investor base. People now only need to judge whether SDARS will be a success and if they want to be invested into the sector. They no longer need to consider which SDARS company, or even if there is enough room for both. This simplifies the investment decision when looking at satellite radio.
Instead of minutia comparisons of how SAC is counted, everyone will be on the same page. Analysts that favored one company over the other (for whatever reason) can no longer point to the metrics that shine the best light on their sector favorite, while casting aspersions at the other company. Now, analysts will either be for or against the concept of satellite radio.
The merger allows Sirius XM Radio to be viewed as a media company, because those are really the only companies to compare to. Getting to the point where Sirius XM Radio is considered a media company rather than a "tech" play is an important step for satellite radio, and one that is perhaps being underestimated by the street. Media companies are measured on Cash flow, and tend to carry multiples that make valuing them a bit more simplistic.
Understandably, satellite radio is not yet profitable, so using multiples is still not a viable way to determine valuation, but that point is coming, and now is the time that investors, institutions, and the street need to try their best to determine whether SDARS is a sector they want to invest in.
With the stock trading at about $1.50, and Sirius announcing their conference call on Thursday, August 7th, we can rest assured that Mel Karmazin will be addressing the guidance of the merged company in no uncertain terms, and the street perception of SDARS as a long term investment will begin to take shape.
The $1.50 price point has delivered a cover position for shorts, and a foundation for longs. In my opinion, the stock simply can not stay at this point very long, and time will be even more short with the conference call that will represent the birth of a media company.
Thursday, it is not the quarters numbers that will be the focus as much as the outlook going forward. Comparisons to XM Satellite Radio will have exited stage left, and Mel will speak of comparisons to radio giants, and subscription based businesses that deliver content. This will have everyone looking at SDARS from a new perspective, and drawing comparisons that have not really been addressed before.
Mel Karmazin is no longer under "radio silence". Those that follow Mel will understand that he is going to set goals, and he will obtain them. Mel will reiterate the $400,000,000 in synergies, and give some detail on how it happens. He will give cash flow guidance, and get there. He will begin to draw the comparisons that the street will grab hold of. This Thursday is the end of quarterly cat and mouse, and the beginnings of Mel Karmazin's effort to make Sirius XM Radio the largest media company in the country.
Position - Long SIRI