One of the positive aspects of bringing on another writer to the site is that additional opinions can be published, a dynamic between writers can develop, and readers can see additional perspectives. Brandon Matthews recently published a piece titled, "SiriusXM Show Me, Don't Tell Me" in which he expressed opinions that Sirius XM Radio needs to show results not simply speak of them. Brandon expressed an opinion that he would like to see a stock buyback program in the near term. I disagree.
While a stock buyback program would be nice, now is not the time to implement it. Yes, $400,000,000 in synergies in the first year will go a long way, but that money needs to be reinvested into the company. There is a satellite being launched in 2009, that needs to be paid for. There is debt that needs to either be paid down or refinanced at better rates when the financial markets improve. Sirius XM Radio needs synergies to improve the financials to a point where they can negotiate better deals throughout their business, and buying back $200,000,000 in stock would be a short term sizzle in the company, but longer term would not be material. One quarter later, the financials would have $200,000,000 less dollars, and an outstanding share count that is still very substantial.
A stock buyback program needs to come from positive free cash flow. It needs to come from a company that is making money. Until Sirius XM Radio gets to that point they need to conserve their capital, and invest it into programs that deliver better cash flow metrics.
Mel Karmazin has outlined that he wants to be free cash flow positive in 2009. He has outlined a goal of $400,000,000 in synergies in the first year of the merger. Each and every move by this company needs to be weighed against these goals. Sure, these will take longer to get to a "Show Me" stage, but additional clarity will come with each passing quarter, and investors who follow closely will be able to see whether the company is on the right track.
Yes, I agree that a share buyback program would be beneficial, but I think now is too early. The program would be far more powerful if the monies to buy back shares were coming from a company in a profitable position.
In my opinion, the near term "Show Me" needs to come on the financial metrics and from demonstrating synergies of the merger. I think that Brandon and I have similar long term outlooks on SDARS, but have differing opinions on the near term objectives and strategies. The debate however is healthy.
Position - Long Sirius XM