Sirius XM Shows Stability
The company is in a stronger position than ever. That is great news, but for those looking for a big spike, it did not come to fruition. The reason is that Sirius XM pre-announced many numbers in January, and a good quarterly report was virtually baked into the current stock price levels. While some investors may be frustrated by this, it is perhaps a blessing in disguise. What Sirius XM needs is stability. The whiplash effect that this company often goes through frustrates investors, and adds fuel to the speculation fire.
Sirius XM demonstrated cost controls, the ability to leverage and that they will generate free cash flow. The big news of the call was in guidance offered by the company. They anticipate adding 500,000 subscribers in 2010, but more importantly are expecting cash from operations to be up to $550 million.
The company is in a good position in 2010 to fill the cash coffers in anticipation of expenses that will begin to come to fruition in 2011 and beyond. Building cash allows the company to better negotiate long term debt, and this can and should build investor confidence.
On the subject of NASDAQ compliance and a possible reverse split, the company outlined their full intentions. Sirius XM needs to remain above $1.00 until Tuesday, March 2, 2010 to gain compliance with the minimum price requirement of NASDAQ. Should that happen, the threat of a reverse split will be removed. Should it not happen, the company still has time before March 15th to try to get above $1.00 and remain there for 10 consecutive trading days. If March 15th arrives and the company is not in compliance they will file for a six month extension, thus buying more time to meet the requirements to remain listed. Shareholder approval for a reverse split expires in June (If the company has to file an extension, a new shareholder vote would have to be conducted to extend the timing possibility for a reverse split) . I am of the opinion that the stability demonstrated in today’s call will be enough for the company to put this issue behind them, and the the price per share will indeed remain above $1.00 through Tuesday.
One high point of the call was the OEM channel. The company reported that they saw 60% OEM penetration. This was slightly higher than expected, and will lead to long term growth. The pre-owned car channel is still young, and over the next two years will become a contributing factor. Some felt that pre-owned cars were already beginning to make a dent in the subscriber numbers. The contribution is still minimal, but this growth area will pay off slight each quarter for several quarters to come. When will we know how much of a contribution the pre-owned sector is making? When the numbers are big enough to be material the company will give a statistic on it. At this point, the company remains silent on this segment, which given their past reporting behavior, means that the the numbers are not a big driver at this point.
The company also delivered some “cautions” in the call. They expressed that with a car sale build-up, the line item for associated costs will move upward. They explained it well, by stating, “the full cost is absorbed at the time a subscriber is signed. The revenue trails the cost. These costs are an investment into future revenue.”
The Howard Stern subject and other programming issues were also discussed. Karmazin indicated that the company is talking to Stern. They expressed that this is the last year of the NFL deal, and that the NASCAR deal is also winding down. Look for the company to negotiate hard on these deals.
In my mind this quarter represents a stability and strong foundation for Sirius XM Radio. This is what this company needed. They have demonstrated an ability to make money on the current subscriber base. While they did say that most merger synergies have been realized, they still have room for more. Cost savings will continue, and the debt load/structure are manageable. If they can produce this type of quarter in the current economic environment, they can build far better numbers when the recovery takes effect.
Position – Long Sirius XM Radio
Still waiting for your “I was VERY wrong” article!
You were wrong about the split and the valuation. Let me know when you man up and admit it.
Not one mention of EBITDA in your article Spencer? As you know every single media company trades on EBITDA multiples. Don’t turn into Brandon and throw EPS nonsense at me please!
Muscle….
LOL…..I will address EBITDA in a future piece. Just wanted to get the boiler plate stuff out there.
Your link does not work, but let’s elaborate:
1. The Reverse Split. The article I wrote was about the reverse split and the POSSIBILITIES surrounding it. It was about things the company SHOULD CONSIDER. I even stated in the article that I felt the company would STAY above $1.00 to regain compliance. Re-read the article, and do so slowly.
2. Valuation. The market cap is not at $10 Billion. It sits at about $7 Billion with full consideration of the Liberty investment. Enterprise vale is $10 Billion. I stated that it was my opinion that at this point the company is FAIRLY valued. Did you not COMPREHEND that? Perhaps YOU can man up and state EXACTLY where you feel I am wrong about the valuation?
Now, you can be a constructive person, or someone who chooses to sit the sidelines and take pot shots without fully understanding the issues. So far you are the naive pot shot taker.
oops just saw you mentioned EBITDA at 550 mil for this year. Was worried about you for a sec there. Sorry about that
Now I see you mentioned fairlrlt valued. For an EV/EBIDTA with a 20 multiple on 2011 EBITDA assuming 20% growth rate, I get $1.57. What do you get Spencer?
Muscle…..
The issue that is most perplexing for anyone is what multiple to apply and use. I think it is a bit early to apply a multiple of 20 just yet, but that is just my opinion.
My opinion is that the equity is fairly valued at this point. Going forward, that value can increase on the company potential. I would lean towards a multiple of 15 at this point just to be more conservative.
I put 20 because Mel always grows his companies at 20% annual EBITDA growth. Sometimes much higher. It’s gotta be based on EBITDA growth rate. Not on anybody’s elses rate. Thats where the market is wrong. Sirius is unique in its media growth.
What do you think about Tuna Amobi increasing his price target today to 1.50, when analysts tend to be conservative ?
Hey you gonna do a radio show Spencer? I would really like to hear your take. You have much more grounded analysis. Hope you do one soon. Announce it in advance please.
Radio shows will perhaps come back at some point, and I will announce it prior to starting them again.
Everyone who wants to see the reverse split off the table needs to pony up as much as they can and buy some shares on Monday and Tuesday this coming week. Keep that stock above the dollar mark. Honestly this stock is still a bargain at the price it’s at today. Liberty won’t convert their preferred shares to common and dilute. Why would they?