Sirius XM Gives A Taste Of The Old Days
I can't say enough about what happened in Sirius XM's Q2 conference call today. I was very impressed with the numbers, the presentation, but most of all the vigor that seemed to return to satellite radio fans and investors alike with the speculation of Satellite Radio 2.0.
Years back, prior to the merger, conference calls always contained some speculation about new hardware as Sirius and XM always tried to upstage each other with a great new radio, the signing of new talent, or an announcement about an OEM deal. This type of news drove the stock, as well as the fans. It fueled discussions on websites and message boards, and in essence helped consumers and investors find something to be passionate about.
Ever since the merger, the passion had seemed to dissipate. Sure, there was stuff to discuss, but there seemed to be an absence of that passion we used to see in years gone by. Mel Karmazin's announcement of Satellite Radio 2.0 does not only deliver new hardware, but the promise of more content as well. Analysts, investors and consumers now have something to discuss and talk about that will evolve throughout the next year.
What we are now seeing is that satellite radio is coming into it's own on the financial end. The company and business model are maturing and people are expecting results rather than betting on potential. The metrics are now improved, and as a result, sometimes good news is accepted with a "ho-hum" attitude. What was needed was a bit of excitement and anticipation. Mel delivered just that with his teaser about Satellite Radio 2.0.
Satellite Radio 2.0 has people buzzing again. It has people eager to learn more, and it has people stepping up and becoming involved again. While the news on Free Cash Flow growth is great, sometimes people need something more imaginative to believe it will continue. Even though we know nothing about Satellite Radio 2.0, people can picture a new radio and imagine capabilities they want in a satellite radio.
I am very pleased with this development because it has brought back an excitement factor that is more than numbers, it is fun!
Position - Long Sirius XM
Bring back “On the Rocks”!
“The company and business model are maturing”
You are 100% wrong Spencer. They just produced positive EBITDA and positive free cash flow for the FIRST TIME last year. This is the very first year of growth after turning profitable on a cash flow basis.
I am sorry but you just don’t understand the media model. Viacom Clear Channel and Disney are mature media companies. Sirius is still nascent and it’s hyper growth cash flow is still ahead.
You are wrong Spencer and the next 5 years of numbers will prove you wrong.
Muscle….
I did not say they were mature. I said they are maturing. There is a substantial difference.
Sirius XM used to be driven by pure hype and the speculation of potential. They are now maturing beyond that and ever since the merger it has been about performance. That is part of the maturation process.
By the way, they are using ADJUSTED EBITDA, not EBITDA. There is a substantial difference there as well.
Just as you were wrong about this quarter’s EBITDA. You predicted zero growth year over year for Q2. Incorrect. EBITDA was up 17%.
Mel is predicting 25%+ EBITDA growth this year. My opinion – He is being conservative. You are going to see that type of growth for the next 5 years. You don’t see it because you haven’t followed Mel’s companies over the years. You will be proven incorrect. This is not a mature media business. Learn the radio business.
Muscle…..
I pretty much pegged metrics across the board in my preview. I do see growth. I do see adjusted EBITDA growth. I projected $100 to $135 million in adjusted EBITDA. It came in at $154 million. That was above last year, but down from last quarter. There is a lot that can happen to swing that by the $19 million, especially when you are using an ADJUSTED metric.
Mature business? I have really had enough. How can anybody call this a mature business?
Again…..I did not call it a “Mature” business. I called it a “Maturing” business. You are really nit picking here.
What is satellite radio 2.0? Can it be likened to when television went from black and white to color or terrestrial radio going from AM to FM and then stereo FM? I hope that there is real meaning to this proposed announcement and not a bunch of marketing hype, aka BS, along the lines of high compression hubcaps, etc. I enjoy my music every day on my XM receiver, but anything that points to better quality of broadcast would be nice addition. The aim should be to make satrad an absolute must have item and then everything else will follow.
Oh I think I see what is happening here after rereading the article. You are just looking for things to write about.
Same thing happened with Infinity when it turned profitable. It just became a numbers game as it entered its hyper-growth period. Same thing happening here. The numbers talk and become the most important aspect. Tough to write about day after day between earnings calls.
You are going to have to wait over a year for Sat Radio 2.0. Hate to tell you this but when a media company turns cash flow positive and begins its growth it becomes all about numbers. Infinity averaged as few as a couple posts a week on the message boards as it grew from 17 bucks a share to 170 bucks a share. The EBITDA numbers were the story, just like they will be here. Not very exciting for blogs.
I get it now. You are thinking about the blog.
I could care less about the blog. I put out several articles yesterday. If I was looking for something to write about I would have waited until today to publish this piece.
It is about numbers, backed up by what drives those numbers. Growth and expansion happened with Viacom through expansion, etc. Viacom benefited from a different state of the economy.
This is a process, and it will continue. There will be plenty to write about.
Heres my predictions thru end next year–
Sirius continues to improve all aspects of its balance sheet and has a few real good financial surprises in its earnings announcements—Howards re-ups for less time/money—During middle of next year as Sirius continues to roll and starts to see some major stock price apppreciation, they announce split to lower outstanding shares–Then 2.0 is brought out to the public with hopefully some major innovations, including partnering with Google(?)–with all the announced products, services, there is a price hike too–all for good benefit for the company but more choppy seas ahead for the PPS until after the split
Sirius XM Radio Raised To Buy From Hold By Wunderlich Securities >SIRI
Was this not the ‘wonderdik’ guy that caused soooooooo many people to bail-out cause we were only worth 25-cents ??
Now they ask you to buy THREE times that price ??
Is it any ‘wunder’why the little guy is always losing $$$$?
Good thing I’m such a stupid investor that I went against the grain and have been BUYING AND HOLDING !!! For OVER 5-years now…….!!!
BTW: When are we gonna see that ‘short-squeeze’ everyone ALWAYS talks about !!!
I can understand why muscle wants to use history to predict the future. All the different balance sheet metrics are very important especially, the ones for media stocks. The only thing I believe/hope is that Mel is smart enough to know that siri/xm is not just media. Apple is no longer just tec. but also fashion. When you can get your customer to feel smarter for buying your product, your product wins.
Sirius valuation is based on EBITDA and free cash flow. That’s it. Just like every media stock.
You can talk all you want about tech, innovation, whatever.
At the end of the day the stock is based on an EV/EBITDA multiple. That’s how it rolls. Believe me. I have seen this a million times before. There will be very little to talk about between earnings calls and that’s a good thing. The hype is over. This is a hyper growth EBITDA story now.
What is below is a welcome to a discussion about EBIDTA and FCF projecttions limite only to 2011.
A few weeks ago you and Spencer had a great exchange on factual growth projection numbers from 2009 through 2013. The only growth metric siri is missing today is sub growth. According to Mel’s projections siri is supposed to be at 22.1M sub count at the end of 2010, whic is obviously not achievable no mater how rosy out estimate could be.
It appears siri will end 2010 with EBIDTA somewhat better than predicted at actual $600M+ vs. $600M as predicted; and will most likely under run FCF significantly at actual $200M + vs. $400M as predicted for 2010.
It is my understanding that you drive EBIDTA via major mechanisms such as subscription and ad growth, higher pricing and savings. At this stage, savings and price increases appear to me as more critical factors for EBIDTA and FCF growth than subscription growth although long-term the latter naturally becomes more criticial because no matter how innovative and thrifty you are you can save as much and increase prices to a point the market can bear it.
If we look at 2011, the only way siri can raise its revenue to projected $3.4B from $2.8B+ in 2010 (600M deficit vs. projected) while still missing the projected 24M sub target (it is hard to imagine that they will grow subs by 4M from 20M+ in 2010 to 24M in 2011 as projected) by a price increase across the board in the middle of next year, which they should and will undoubtedly implement. They may still not get to $3.4B revenue number but may be pretty darn close. Projected EBIDTA growth to $0.9B in 2011 from $600M+ in 2010, however, is quite a different story. This number is easily achievable due to a combination of (1) continued savings between Howard Stern and NFL that are coming up for renegotiation at the end of 2010 and other smaller contracts that I am not aware of AND (2) the same price increase I spoke about earlier. FCF target is a function of EBIDTA growth. It can be met due to the same conditions as EBIDTA. So, $0.9B EBIDTA and $0.6B FCF in 2011 appear as achievable targets in view of the above.
Another question would be what kind of multiple we are going to apply for siri valuation in 2011. Is it going to be 12, 14, 16, 18 or 20. At 12, the company will be valued at $10.8B ($0.9B x 12) whereas at 20 at $18B ($0.9B x 20). This naturally will determine the share price. Does the selection of a certain multiple also depend in any way on the company potential and market perception or is this just strict math accepted in the industry? In my opinion, 2011 may turn out to be a crucial year for the company to meet its targets through at least 2013 and pay off its debt. 2011 will provide us most of the answers about siri future and its share price. If they do what they project, and we have no reason to beleive so far otherwise, their following years will be phenomenal. I learnt to take Mel’s statements at face value because unlike many others he always means what he says. The company treats his projections as “the law of the land” and I have never seen Mel over promise.
Excellent post. I mean really excellent.
I just would like to say that if Mel grows the EBITDA at 20% per year for 5 years the price valuation will grow to 20 times EV/EBITDA. That’s how it works going back to 1990 in the media world.
Spencer and the market don’t believe Mel can grow it at that 20% rate for 5 years. I believe Mel will exceed and come in with close to 30% annual growth for 5 years.
So the market and Spencer’s thinking will have to adjust after it happens. Simple. There is an advantage to following Mel for so long. I understand that he grows nascent companies. He wouldn’t have taken the job if this wan’t going to be a huge EBITDA growth engine and he has said that many times in the press. He has done this type of growth so many times before.
Could you show what you would expect in numbers for 2011 through 2013 for EBIDTA, FCF and share price. I am under the impression that Mel’s projection are higher than 30% EBIDTA growth. My analysis shows that he can maintain or even beat his numbers shown below:
EBIDTA FCF
2010 $0.6B $0.4B (most likely will underrun this number)
2011 $0.9B $0.6B (he needs a price hike of about $2.00)
2012 $1.3B $1.0B (easy after the price increase in 2011)
2013 $1.5B $1.4B (may do even better due to auto return)
Do you think he will maintain that or will even do better?
I will get back to you on the numbers. Usually I am on the AOL Sirius boards, not here.
Mel had 4 year numbers projected in 2008 before SAAR for cars crashed in 2009 to 10.4 million. Nobody expected that. I believe those numbers worked out to annual 50% average EBITDA growth for the 4 years 2009-2012 which is basically Infinity Broadcasting growth from the early 90s. Astronomical.
My thinking is around 25-30% for 5 years but I will get back to you on it.