JP Morgan Neutral On Sirius XM
JP Morgan analyst Lev Polinsky published a report August 4th, and remains neutral on Sirius XM. The analyst sees positives in the debt refinancing, the company collecting additional fees for royalties, and the iPhone app, but offsets those positives with negatives of the level of debt and the uncertainty of the automobile channel.
Polinsky is modeling for a subscriber loss of roughly 400k flat revenue and $102 million in Q2 EBITDA. In a few ways, Polinsky’s take on the quarter is similar to my expectations outlined in the SiriusBuzz Q2 preview. Polinsky is actually expecting a bigger subscriber loss than I am and being a bit more generous than me on revenue.
As many have surmised, the debt offering in June is widely seen as a positive for the company. The bond offering served to make the company debt more manageable over the next couple of years. In theory, this gives the company time to turn the corner on their financials.
Polinsky, like me, does not see the iPhone app as being a big driver in the quarter. The analyst is bearish on the app in the short and medium term and calls the OEM channel the bread and butter for the company. My take is that the iPhone app will become more relevant with the introduction of docking units capable of turning an iPhone or iPod touch into both a satellite and Internet delivery system. Look for the company to announce such units in Q3.
Investors should be a bit conservative in their take on analyst coverage so far this quarter. Most have not modeled one time charges into their EPS estimates and the whisper number will likely not be met for this reason. The quarter is likely to bring a mixed bag of short term negatives and longer term positives. Watch for statements like:
‘Car sales are bad now, but cash for clunkers is showing promise.’
‘iPhone app downloads were off to a fast start and we are working on making the app better and the service more appealing for consumers going into the holiday season’
‘Debt is manageable and we are working on cost cutting. We feel that all debt obligations can be met without further dilution’
‘We are strongly marketing in the used car channel now with certified pre-owned programs. These programs will allow us to take advantage of ever increasing numbers of satellite radio equipped cars in the oem channel’
‘We have accepted delivery of our newest satellite and it is fully operational.’
‘Self pay churn has improved from last quarter enabling us to show stability with self paid subscribers.’
‘We are reiterating positive EBITDA of $350 million’
The main thing investors need to consider is how the street an mainstream media will react to another quarter of mixed news.
Tyler Savery Position – Long Sirius XM
JP Morgan does business with Sirius XM
Tyler-
I find it hard to believe that you have not been buying shares and you still only hold whatever shares you claim you have for years.
Just buy more shares before they really take off !
Nobody will hold it against you.
sxminvestor……
Because I made the choice to write about this equity, I took it upon myself to avoid trading it. Integrity is important to me, and I do not even want to have a perception out there that I am writing in order to better my position, get an entry point, or sell my position.
Some out there trade the stock while writing about it. That is their choice, but when they do this they leave themselves open to people questioning their motives (right or wrong).
I trade in other equities that have been far more profitable, and less stressful. I simply don’t write about them
sxminvestor, how many times is a person going to hit themselves in the head with a hammer before they figure out it hurts? Analogy #2: How many times is a person going to throw money into the furnace before they figure out it is not profitable? No matter what happens, Karmazin and Malone will make hundreds of millions of dollars and in the long run, probably billions. The same can not be said for the shareholders.
Karmazin and Malone are obviously not concerned about the shareholders and the way I see it, it would be more profitable for them if the company fails over the next three years so Liberty Media can take complete control of the company.
Here is my predition. Karmazin will simply keep burning the cash and pissing off subscribers until the company is on the brink of bankruptcy…again. Liberty Media will then be able to take a majority stake in the company, taking it private, just like Karmazin said he would love to do. Karmazin will then state that subscription based radio alone is not a workable business model. Liberty Media will then begin broadcasting ad-based radio to all those OEM radios that the shareholders paid for with the option to pay a subscription fee to avoid listening to the commericials. Liberty Media will essentially have hundreds of radio stations in every inch of the United States paid for by the shareholders of the now defunct Sirius XM. What protection do the shareholders have against this future?
Your prediction is founded on no evidence or proof. No past examples of Liberty doing this. Libertys common holding is worth more to them than any profits on taking them private. Follow the money. Insiders are all in to make huge gains on the common. More to be made there now. Perception is an excellent asset to sell off to pay debt.
Liberty Media, thanks to Mel, has already been gifted 40% of our 13 billion dollar company essentially for FREE! Liberty Media LOANED Sirius XM 530 million dollars and in exchange they now own 40% of the company. How much is the next 10.1% going to cost? What happens if Sirius XM is unable to payback this loan?
Also, Mel sure did luck out with the share price being so low when the board REISSUED his mid-four dollar stock options back to him for 43 cents. Too bad for him the shares still weren’t a nickel.
Yes, Mel is doing a great job…for Mel and Malone, but I fail to see how this benefits the shareholders.
Per investor relations, (Should anyone contact them and believe what they are saying) SiriusXm wont lose nearly as many subs as they did q1, Revenue will be up but only slighty , roughly 13 percent of people who downloaded the app either bought or upgraded service to get siriusXm on the iphone.
This is what they have been saying. SiriusXm has to be close to turning profit at this point. Once they are cash positive the street will have to take notice.
Tristan28,you make some interesting points, some I hope you are wrong on. Of course the idea of taking the oem idle radios and making them commercial based is what I think holds water. Even one of Liberty’s top execs. has talked about exactly this point of taking these radios and putting them to work. The radios are already paid for so how much could it cost to turn them on and use them as a form of marketing to get people educated to some degree on Sirius Xm and what is all about and what is has to offer to entice them with a format to want to get a better content by being a paying sub. This limited format would be sponsore based. This common sense approach can’t be too far off the mark of a positive for Sirius Xm. This is not even thinking outside the box!
I don’t buy it…………….Watch the stock-rock…….Gonna make money……………….lot’s of it,
Sorry ‘Trist’
Let’s call a Spade a Spade……….
SIRI increases, and will still increase DESPITE a ‘neg. earnings’ report BECAUSE and only BECAUSE……………….Illicit short trading is, forestalled at present………………
Tyler please explain to these people what Libertys number 1 assett in regards to siriusXM is. And its not a cheap common buyout,and taking them private.
Although I would not use his exact words . . Tristan expresses a legitimate contrarian concern in the long term . . Liberty does hold what amounts to an exclusive 6 month negotiating period beginning sometime in February 2011 and running through Aug 2011 . . a time period during which Liberty is permitted to make a cash tender offer for all outstanding shares not beneficially owned by them; the poison pill effectively blocks any competing offers in the interim . . there are enough incentives, however, already baked-into the cake that argue against the current management regime attempting to keep a lid on share price between now and then
One also has to consider what impact, if any, Liberty’s ability to short their preferred shares after 1/1/10 could have on future share price, if any . .
Relmor, short term I am very bullish, very bullish . . bullish enough to think that the need for a R/S will be moot but I do see the “Investment Agreement” as an issue that gives me pause longer term . . all depends what your time horizon and exit strategy is.
All should DYODD on the Investment Agreement . . this is just my interpretation.
I’m not an accountant in real life or on TV, but I thought a debt reduction though the sale of stock would be a one time gain. Like Ford and Citicorp reported.
‘We are reiterating positive EBITDA of $350 million’
Tyler . . I thought mgmt already guided-up to “more than $350mm?”
I will predict they guide-up to $375mm-$400mm . . which of course the media will ignore
I think the iPhone may be underestimated. I just bought one. The main reason was to get Sirius. I bought an Altec Lansing rechargable battery docking unit/FM radio on sale at Radio Shack for $69 that has an excellent speaker. I connect it thru the headphone outlet on the iPhone. That is how the Radio Shack guys had their Sirius connected. IT’s like a boombox without an antenna. It gives me more options.
GO CLUNKERS. I am trading one that I would have driven several more years. Going from 16 MPG to 50, with SATRAD.
Thanks, Tyler. You just took the suspense out of the conference call, because I agree that what you stated above is pretty much what we’re going to here…give or take a small percentage in either direction. And I doubt we’ll hear any surprises. Sooooooo, how the share price react is the million dollar question.
Quick question: Why would JP Morgan come out with a report two days BEFORE the conference call? You think they would have just waited to gain a bit more clarity and report from there. Bizarre.
To Lev Polinsky -the American College of Gastroenteology suggests that if you are stuck in “neutral”-two dulcolax and a high fiber diet will usually help
Sounds like you need to pass this helpful info around JP Morgan as well.
?Lev
As an aside . . I find it perplexing that analysts continue to provide coverage of companies with which their employers do more than just casual business . . It is really just the Arthur Andersen accounting model all over again (we do your auditing, you send us consulting contracts)
The associations representing the standards & ethics policies of the “analysts” need to tighten-up the “perceived conflict-of-interest” rules here . . JP Morgan does so much business with Sirius XM that they are practically our business partners . . which leads me to dismiss any coverage they provide on this company without wondering about the motives . . good or bad.
Anybody remember if Sirius announced before or after the trading session for the Q1 Conference Call? Does it mean anything?
Brad….
They always announce before the session