Moritz Get “Snarky” On Sirius XM
In a piece published here yesterday, I politely, but firmly rebuffed an article written by TheStreet.com’s Scott Moritz. The reason for my article was not to question the thought that Sirius XM could have troubles in a continued downturn of the economy, but rather the reasoning by which Mr. Moritz came to his conclusion. In my opinion Mr. Moritz’s reasons lacked a solid foundation, and brought up several issues that carry little weight when compared to facts.
In fairness to Mr. Moritz, perhaps he has not taken the time to delve more deeply into the gears that make up the satellite radio machine. Whether we like it or not, some metrics of Sirius XM can be very confusing, and can make projections difficult to say the least. Understanding the workings of the company takes time, and for one reason or another, many (analysts included) take short cuts to arrive at what could be a very flawed conclusion. On the flip side, the conclusion could be right, but the method to arrive there is fraught with error.
Today Mr. Moritz decided to respond to many questions posed to him about the original article. Ironically, he did not deal with any of the REAL issues that were bringing all of the questions, but instead dealt with some selective emails on issues that seem to dodge the intent of the initial article altogether.
Let’s break down the intent and reasoning of the initial piece. Moritz felt that Sirius XM would have problems surviving another economic downturn. To support his stance he offered up accumulated losses, annualized subscriber counts, the debt load held by Liberty. Those were his reasons plain and simple. When it was pointed out that the logic behind those reasons had flaws, he seems to have taken a left turn on the discussion, and now wants to focus on issues that are not related to the initial theory that the company would fall on hard times in an economic downturn.
The Latest From Moritz with my responses bolded
“Sirius, as the story pointed out, turned another corner this year by extending its losses not just in dollars, but now in hundreds of thousands of subscribers. The pay radio player is on track to lose 1.6 million customers as car sales slump in 2009. This doesn’t bode well for the stock. Tech’s hottest cash fire, we wrote, had finally reduced its stock to embers.”
“Michele G. from Wisconsin wrote that we had failed as journalists. “Your role should be to provide information from all perspectives to allow the reader to come to their own conclusion. If you don’t do this you have an ulterior motive and have violated ethical standards.”
Michele’s feedback is a somewhat high-minded version of the usual evil-intent accusations.
One might argue that creating the illusion of balance in a story listing stocks to avoid is somewhat similar to selling luxury services like pay radio during frugal times.
So to be fair, yes, Sirius could sidestep the collapsing auto industry, it could dodge the ad spending slowdown, it could stem some of its subscriber losses, and the company could even lower the flames in its cash furnace.
But the point is, Sirius has serious financial challenges that would be extraordinarily difficult to overcome if the economy continues to tank”
In my opinion, Mr. Moritz starts out by simply insulting Michelle, and writing her off as some conspiracy theorist. There are many things in the market that point to people with ulterior motives. That is a fact of life. However, Michelle was making a point in that Mr. Moritz was offering up some very one sided statements. Something like mentioning the debt to Liberty without mentioning Liberty’s stake in the company is a fact that was very connected to the issue.
Mr. Moritz then goes on to say that balanced reporting would simply be an illusion. In many ways, this is true, but it is far better to have more facts to consider than to leave them out altogether, especially when some of these facts left out are very important if you are looking at whether or not a company can survive a prolonged downturn.
Mr. Moritz then attempts to placate Michelle by saying that the company could work around all of these issues. However, he follows it with, ” Sirius has serious financial challenges that would be extraordinarily difficult to overcome if the economy continues to tank.” Funny how Mr. Moritz can simply dump that statement out without anything to lay the foundation for it. Mr. Moritz, what are the serious issues? The company has already stated that they have the debt picture under control with the latest bond offering. They have debt that matures in December, and a bit more in 2010, but then the rest is 2011 and beyond. Are you saying that the economy will be in the crapper until 2012? Have you run an analysis to see cash flows, liquidity, and the debt picture? On small part of the recent refinancing did away with amortization payments that were draining $25 million per quarter. That is $100 million in improved liquidity during 2009 alone. Consider that one simple factor against the debt due this year, add the $150 million from Malone, and then tell me how you see the debt picture as some albatross that will deal a death blow to the company. The fact of the matter is that the debt picture is far more manageable now than it has been in quite some time. Your rebuttal to Michelle seems to reek of sarcasm, and carry little weight on facts or research.
“Another reader, John, location unknown, raises a fair question: How can you project a negative subscriber number for the whole year based on one quarter’s numbers.
The simple, snarky answer is multiply by four. But to John’s point, right or wrong, a quarter’s numbers can help project a yearly run rate. The key assumption is whether the conditions in the first quarter will continue to the next quarters. With more than half of Sirius’ new subscribers coming from car sales and new cars delivered to dealer lots, it’s not easy to believe customer growth is all that healthy. Sirius lost 404,422 customers in the first quarter as the auto industry shrank. In the second quarter, when GM followed Chrysler into bankruptcy, it’s conceivable that Sirius did even worse on the subscriber front.
Sirius argues that fewer car customers mean lower subscriber acquisition costs, but that’s sort of like saying you are saving money on your commuting costs after you lost your job.”
I almost do not know where to begin on this one. The subscribers from one quarter can help determine the annual run rate? Did he actually say that? Where has Mr. Moritz been over the past several years? Has he not seen a seasonality to the satellite radio business? There is seasonality to subscribers, cash flow, churn, ARPU, SAC, and revenue. If you are going to write about an equity, you should at least comprehend whether or not there is a seasonality to the business. Let’s be real here. Did Moritz even bother to look at last year? Did he look at any year over year subscriber metrics? The answer is no. If you are going to annualize something does it not make sense to understand last years data? Instead he decided on the short cut of looking at one quarter. Did he consider that churn is traditionally higher in Q1 than other quarters? I don’t think the thought ever entered his mind. That would require a bit more research. Why is Q1 churn higher? Because most annual plans expire in December and are up for renewal. The company gives a thirty day grace period while they try to contact subscribers to resign them. That would fall into Q1 of the next quarter. Churn was at 2.2% in Q1, and most likely that will be the high water mark for the year. If Moritz understood this, he would have accounted for it and understood that being snarky and multiplying by 4 is not a reasonable methodology, nor a sound assumption.
Yes, the auto industry shrank in Q2. However, the churn rate likely did as well for the reason listed above. To say that it is conceivable that Sirius XM’s will loose more subscribers in Q2 than in Q1 demonstrates a lack of understanding of the metrics of the company. Will there be subscriber losses in Q2? YES. Will it be worse than Q1? Not likely. The numbers and metrics simply do not match the conclusions arrived at by Mr. Moritz. The fact of the matter is that it appears that Mr. Moritz does not understand the subscriber picture and how it is made up. There are promotional subscribers, self paying subscribers, deacvtivations, and self paying churn. I am beginning to wonder whether Mr. Moritz even realized these metrics existed, because clearly he has not run a REAL subscriber model. Instead, the elementary “multiply by 4” method was used to arrive at his conclusion.
Moritz then takes a shot at Sirius XM by comparing saving Subscriber acquisition costs because of lower auto sales to saving money on your commute because you lost your job. Mr. Moritz, do you understand residual income? The company HAS a subscriber base that provides revenue on an ongoing basis. These subscription payments come in month after month after month. Sirius XM did not lose their job. Bad analogy. A better example would have been to say that they are telecommuting 3 times a week and saving money. The OEM channel is a growth vehicle, but it is also an expensive path to subscribers. The OEM channel is front loaded with costs, and the return for the company can take a year to bear fruit. The OEM channel is not gone, it is simply slowed. The dynamic at play is that the company is investing less money into the channel because fewer cars are being produced. They have not slowed penetration, but rather slowed production. Money that is not being spent can be used elsewhere. This is where an understanding of self pay subscribers vs. promotional subscribers becomes very important. The company lost 1% of their self pay subscribers in Q1. While that is not a good thing, it is a far cry from imminent doom and gloom. The fact of the matter is that if you want to model subscribers, I would suggest a spreadsheet with historical data, and realistic assumptions. Calling for failure based on a formula a third grader would use does not cut it.
“And finally, getting his two-cents in, Mike F wrote that we had already reported the tough year ahead for Sirius’ subscriber losses in June when the stock was at 35 cents. The stock, he points out, is now at 43 cents.
Obviously there’s still some heat in those embers, just try not to get burned.”
Sound advise here. Many people can get burned. Especially when they do not have all of the facts to work with.
What I would like to see is Mr. Moritz back up his original article with sound and researched reasoning. Like I stated, his statement that Sirius XM could face hard times if the economy does not improve is a realistic concern. After all, the perception by many is that satellite radio is not a necessity. A reasonable conclusion could well be that subscriber roles may suffer. However, deeper understanding of metrics, dynamics, cash flow and liquidity are needed to support that conclusion, and that is what I would like to see Mr. Moritz lay out. If the company is able to get a better ARPU, offset costs, make debt manageable, and improve financial metrics, then much of the concerns Moritz has may be for naught. I can tell you this, accumulated deficit is meaningless as far as the theory of Mr. Moritz’s original piece. The lack of understanding of Liberty’s role is also telling.
Position – Long Sirius XM
Please read more about Scott Moritz at:
https://siriusbuzz.com/forum/showthread.php?p=43709#post43709
My posts may not represent the opinions of Tyler Savery or Sirius Buzz . .
This site just keeps getting better and better.
I would think that Q1 subs were also hampered by the threat of bankruptcy, thus inflating the lack of new subs that would have replaced the ones on their way out.
I also believe that many ‘journalist analysts’ write about subjects they don’t fully understand. This can be very dangerous. Mr. Moritz seems to be glossing out the details. Is he just wrong or a liar? Great choice, hmmm?
Excellent due diligence Tyler. Thanks for the hard work. I agree with you. I would have been a bit meaner about it, but I think your readers get the point.
They keep pushing the same article, but spin it with new titles. Top 5 companies to fail, Top 10 articles on thestreet, and now… the response to what? reader comments?
Give me a break! I can’t understand the attack on SiriusXM by theStreet?? It just smells of corruption. I mean really? You are going to pick SiriusXM to fail on the next downturn, really?? Like all the OTC companies won’t go first? What about The auto companies? more banks?
The interesting thing here is, it’s based on Fantasy and attacking a penny stock?? Look at almost every Radio stock! They are almost all going to fail anyday now… There are companies going bankrupt now, like almost daily. So why pick on SiriusXM?
Because it gets clicks. That’s the only reason.
Thank you for pointing out what I was trying to explain to Mr. Moritz. The fact that neither of my emails to Mr. Moritz even made reference to Sirius as there were 4 other stocks confirms his motive. The only way he could have known I was referring to Sirius would be through the Yahoo Message board which is where I posted his response to me. He responded to my second email via the article. In my opinion, he just showed his hand.
I enjoy tyler savery’s articles. they are always filled with facts,research,data, and knowledge that comes from someone doing their homework. I am long, filled with hope, and would like to see sirius rise from the ashes, so its great to hear from well imformed seasoned individuals like Tyler Savery!
I was at my local Ford Dealership last night and the salesman told me that sales are through the roof. 3 months ago he was looking for a part time job, now, thanks to the Cash for Clunkers he barely gets a break.
A friend of mine just bought 2 new cars with the deal also.
Scott Moritz is working for the people shorting the stock. Why else would he spend his high dollar time at thestreet.com to write about a dollar stock? Seems funny to me. It’s a shame that the people who read his junk are actually Sirius subscribers or are share holders who don’t buy his baloney
Thanks for putting that putz in his place. However, are any of us ardent Sirius supporters really surprised by the bull crap moritz spewed?
Well…it’s Thursday. Another day…and yet ANOTHER negative article from Street dot com.
Today’s article lumps Sirius in with Terrestrial radio now and says how they are both dying….while Pandora is thriving!
Let me get this straight. Just because Pandora which is free and being downloaded more than Sirius right now on the itunes store….THAT is their reason?
Of course they fail to mention the fact that Pandora now uses an advertising based model with commercial interruptions. One of the main reasons terrestrial is failing. And of course the article fails to mention that commercial interruptions on Pandora will only increase in the future since unlike Sirius, they do not have a real revenue generating business model.
Make no mistake, the computer savy, iphone carrying crowd is downloading Pandora more right now…because it is free. And free is easy. But as time goes on…I am sure many of those people will grow tired of the increased commercials, the lack of soul and original content. People are downloading Pandora right now mainly for it’s CONVENIENCE!
All Sirius has to do is ADD a free “Pandora-like” feature on it’s own iphone app….and it’d be game over. People would begin downloading the FREE Sirius app just as much.
And when people got tired of the limitations of that kind of service, they could easily upgrade to the full service with all the original content and ability to listen in the car…not to mention gps, and future video features.
Yes, Pandora is “winning” the downloading game right now. But the writer ignorantly doesn’t look any deeper. He fails to see the big picture or acknowledge the limitations of Pandora. He lumps Sirius in with Terrestrial radio when he should be lumping Pandora in with it.
Yes, it is COOL to be able to listen to an ENTIRE song that you want at any moment. I think this is an IMPORTANT feature, and one that Sirius should DEFINITELY add to their service. People seem to like that freedom.
But it is NOT the future of radio. Just as having the ability of loading your ipod up with 10,000 songs and being able to listen without repeating a song for 4 months straight 24 hrs a day….didn’t stop people from listening to radio in their car or at home. People want to discover music without having to spend time loading or programing a device. And although Pandora gives you freedom, it has no soul. It has limits. And it doesn’t have ANY live original content. No sports. No personalities. Lets face it, it’s BORING.
All it has right now is a feature that Sirius could EASILY mimic. Once people get bored of that and want more….they have nowhere to go with Pandora. People want content. And Sirius is the only one with unique content that no one else can match.
All Sirius has to do is add the “Pandora Feature” and they’d truly have it ALL.
Sirius also has PAYING SUBS. This is HUGE and something the article fails to mention. Look around. Newspapers and terrestrial radio…not to mention the free internet services are ALL struggling as they try to figure out HOW to monetize FREE. Because lets face it, ADVERTISING is NOT WORKING.
Just look at Youtube or Facebook or any of those other FREE services….they are LOSING TONS OF MONEY. But Google and other HUGE companies keep them because they are popular. But something eventually has to give.
Meanwhile….over in the other corner is little ol’ Sirius. Nobody is saying it, but HELLO! Sirius is a media company that is actually MONETIZING it’s product EFFECTIVELY. MILLIONS of people are actually PAYING for it’s service.
Going forward, as Sirius continues to pay down their debt, and as the car industry and economy keep improving and synergies increase….WHO do you think is going to fare better? Sirius or Pandora? Hmm? Huh?
Pandora, like the dying terrestrial radio is DEPENDENT on Advertising! Duh. Ya think Pandora is gonna be facing the same issues that terrestrial is now? You Betcha.
Sirius on the other hand has millions of paying subs, with nearly every new car coming off the lot installed with Sat radio. Sirius and NOT Pandora has the working business model going forward. Pandora has ONE feature going for it right now….one that Sirius could easily add to it’s own service.
We all know that the Street dot com has an agenda against Sirius. It is almost laughable how dishonest and biased they are. They can’t even hide it. It is absolutely absurd.
Anyway….it should be a fun rest of the year.
The tide is turning.
I agree with you that SiriusXM and Pandora have differnet revenue models and different services, however there is no doubt in my mind that without Pandora, Sirius XM would be doing better that they are today. With that said, I would like to see a more agressive Sirius XM. I’d actually like to see them partner, or even buyout Pandora, and incorporate their services. Sirius XM get the radio business and has sat delivery down pat! Pandora get online music delivery and has a huge user base, that could be heavily leveraged. I know its not a good time for SiriusXM to be spending money, but this would be a investment that could yeild immediate fruit. Think about it, Sirius Pandora!
James…I like your thinking, but please do not say “Buy out Pandora”…that would take probably at least 15 to 20 years to get approved by the FCC….
vaporgold
Absolutely right..
Going by their ‘reasoning’, Both Coke and Pepsi and dying because people are drinking more water than soda..
Who pays for soda when water is free…Jokers!
….. except water isn’t free. Unless you mean nasty tap water. A bottle of water costs more than a soda.
I know its not a good time for SiriusXM to be spending money, but this would be a investment that could yeild immediate fruit.
Come come now…..they can’t cover expenses and don’t have any cash to lower or payoff debt and you think they are going to start buying other companies? Don’t hold your breath.
I hear ya James…but i disagree with you about Sirius needing to either partner or buy Pandora.
Why? Sirius could check mate them simply by creating their OWN free internet service where you can create your own station.
Pandora isn’t the ONLY internet radio competition out there. Personally I think Slacker is better. So Sirius is going to have to address this feature that people seem to want.
For me, it is much better for Sirius just to create their own. Period.
Doing so would bring those same people over to Sirius’s free app. Sirius could keep it free and run advertising just like Pandora. But UNLIKE Pandora, Sirius also has it’s PAY revenue stream…plus it could run ads on this free service that promote it’s pay service. For instance. Lets say someone creates a station for a certain artist…..Sirius could then run an ad promoting that artist’s LIVE upcoming concert on Sirius.
Sirius has the better working model. They just need to address this new technology and fill that niche. I don’t think they should just be content that they are better because they have original content…which they are….but they can’t REST on that fact. Even if Pandora may have major struggles down the road….Sirius can’t wait it out.
Technology is moving fast, and instead of ignoring it, Sirius should EMBRACE it.
Right now people seem to like the FREE Create your own feature. So….Sirius should create their own. They have the music catalogue. They have the talent. They could do it so much better than ANY of the other online radio companies.
We are a bit off topic now, but from a cut throat business sense, its easier to buy Pandora, and eliminate them as competition moving forward, that it would be to convert their existing members, and continue to compete with them moving forward. I’ve always believed that Sirius’ biggest competitor was radio (clear channel, etc). a right out purchase would give them a huge immediate bounce. Have no idea that it would take to buy them though. They have big problems too, and the two together would be a force to recon with!
Well, in theory yes. But remember, Sirius is just barely recovering from acquiring XM. The last thing it needs, or what it’s already battered shareholders will endure….is yet another costly takeover.
They should simply roll out a this feature in their next iphone app update.
I still don’t look at Pandora as real competition. To me it just offers something that people seem to download alot because its free. It is a limited service and not a real substitute to radio in my mind….but it is a service that people are curious about.
Limited on it’s own….but if Sirius rolled such a feature into it’s iphone app, it’d give Sirius a really well rounded of offering that few if any others could come close to matching.
Hey, I’m just talking tho. And you’re right, we are off topic now. But if Sirius did this, the Street dot com would HAVE to acknowledge Sirius in a positive light….although I am SURE they’d find a way to spin it into a negative. LOL. Proof positive of their biased agenda.
The guy at TheStreet.com can’t be that ignorant of the facts regarding Sirius XM, nor so ignorant regarding how to properly do research and come up with metrics based on facts. If he is really that ignorant (I’m stretching a point here), then is there no oversight at TheStreet.com? Of course there is.
hurmph….
The more words written about any topic, the guiltier the situation and person(s) involved become.
This guy at the street should not have backrealed nor made futher comment on his article with Jim Creamer smelling up the site.
Freedom of speech is ok but anything to do with jim creamer advertisements on the web site is dilusional and carries a great deal of dilution with the meat of the article.
Not saying it is probably boardering on a conflict of interest.
The fact that so much has been written in response by this guy doesnt allow him to freely pull his hand out of the cookie jar without recourse.
If its such a lousy company why write about it in the first place, unless to discredit and allow others peripherally to make more money off their shorts.
It would be interesting to see how this guy is connected with JC and CNBC- I am almost sure that you will find a significant trend with other issues he has spoken of positively or negatively, and JC’s likes or dislikes.
That was me (aka John) that had those emails with him.
I didn’t ask HOW I asked WHY he was so confident projecting those numbers.
“Message:
Why would you be so confident project a negative sub number based only
on one quarter of
data, especially when it is the only quarter with a negative number? I
think this shows how
unintelligent you are or how you are being led like a pawn.
Project some cash flow based mrq. Project earning for SIRI given all
the proforma data.
You might notice that a graph of SIRIXM’s loses has been going down
every quarter. If you
do a regression you find that SIRI would be expected to have positive
earnings in the 4th
quarter of 2009.
Any intelligent thoughts?”
Reply
“Thanks John,
I think it’s fair to assume that the pressure on the car market didn’t
improve in the second quarter. So we shall see.
I hope for your sake you are right about the swing to profits. But I’m
not holding my breath.”
Then I replied:
Thank you,
“I agree times are tough, my point is that I don’t think you are being intellectually honest with yourself. I won’t be holding my breath for actual positive earnings by year end given the economic times, but the thing is, we are all in this economy and I find it a little hard to believe the motives behind your articles are ethical. Just my opinion I wish you all the best in your journalism career.
Ps.
Do you have any projects for cash flow given ttm proforma.
And the shares I hold probably won’t make me rich or poor. So for the sake of the American investing community that has their 401k invested in the stock market, I honestly hope those in the media and market that manipulate and steal money from investors are brought to justice.”
He responded:
“I understand your hostility toward market manipulators, but it is misguided in this case.
While I am in this economy, I don’t think I’d be serving it well by rooting for stocks to go up. That wouldn’t be ethical. Stocks will rise and fall.
With this story in particular, I’m trying to show that some stocks are booby traps to be avoided.
Good luck”
Moritz is a FOOL.
Tyler..Good Article..
It just goes to prove that anyone can say anything and not be questioned about the truth of what they are putting out in print for readers.
You called him on it!! Bravo!! We need a lot more of that!!
imho
vaporgold
tyler back on track!
tearing the moritz a new @$$hole.
this is why I started reading tyler, but recently tyler got soft.
this, and the last article, are directly on point.
keep up the good work!
Thought this would be very interesting to all concerned. This is from “TRADING FLOOR BLOG”.
Traders Snap Up December-Dated Calls on Sirius XM Radio Inc.
7/30/2009 3:31 PM
permanent link
Keywords: SIRI
Sirius XM Radio Inc. (SIRI) was targeted by a wave of call volume on Wednesday. During the course of the session, the International Securities Exchange (ISE) reports that traders bought to open 1,462 calls on SIRI, compared to just 1 put.
Most of the day’s action was concentrated around the December 1 call, where 2,993 contracts crossed the tape on open interest of 32,192 contracts. Trades occurred between the bid and ask prices throughout the day — although, with the bid wavering between zero and $0.05, it’s tough to glean very much information from this fact alone.
Instead, it’s probably more relevant to observe that implied volatility on the December 1 call jumped 69.3% yesterday, pointing to growing demand for this back-month bet. Additionally, open interest at this strike rose overnight by 1,635 contracts, suggesting that traders were most likely adding new long calls here on Wednesday.
This rush of upbeat speculation comes just one week ahead of SIRI’s second-quarter earnings report, which is due to hit the Street next Thursday, Aug. 6. Analysts are expecting a loss of 1 penny per share, a notable improvement from the satellite radio issue’s year-ago loss of 6 cents per share.
On the charts, SIRI is faring reasonably well, considering it’s been docked south of the $1 marker since September 2008. The shares are trending higher along their 10-week and 20-week moving averages, which have provided support since mid-March.
-posted by Elizabeth Harrow
7/30/2009 3:31 PM
uld be of interest to all.