The Year Of The Speculator
As the new year came, many people took the time to reflect on all that transpired during 2008. High gas prices, banks failing, and investment portfolios taking a beating like many have never seen before. For satellite radio investors, 2008 meant a united front against the NAB, and endless waiting on the FCC for a decision on the merger. The merger process during 2008 took a toll on this equity that it has yet to recover from, and many still are betting against a recovery.
What will 2009 bring the satellite radio investor? Most of what anyone will say is based on speculation and opinion. Car sales, which have been down to record lows need to recover at some point. This could happen in 2009, but it will not be early in the year unless something extraordinary happens. This means that OEM installations of satellite radios will be slow as new year begins.
Sirius XM has some refinancing to do as well. The first order of business is the February converts. While I see no real problem for the company to deal with the just under $200 million, there is still another $800 million to deal with throughout the year. If the company is unable to wrap up all 2009 financing in one neat package, then the equity could well tread water until all of the hurdles are cleared. This could mean investor frustration for some time to come. On the flip side, should the company announce that they are able to get the financing needed, the equity could recover on that news. The debt issues seem to be a major overhang, and any progress that handles all of the debt would be a positive for the company as well as investors.
The merger synergies should begin to bear substantial fruit in 2009. Savings on many line items will help the bottom line, and may make the balance sheet more attractive to investors. Combine good news on synergies with positive financing, and the end to the auto crisis, and the viability of peoples confidence in the business model may be revived.
All of this boils down to speculation. Sirius XM stock is highly speculative at this point. Perhaps more-so now than in several years. What makes things more difficult now is that investors are a lot less willing to speculate in the current environment. Some investors have even gone so far as to cease investing altogether in favor of holding cash and waiting. I can’t say I blame these people. Looking at my portfolio over the past few months has been frustrating to say the least.
At this point investing in Sirius XM means a series of questions that each investor must ask themselves. Do I believe in the product? Do I feel that others will believe in the product? Do I believe that the financing will get settled… in one fell swoop, or piece meal? Do I believe that the OEM channel will turn around? Do I believe that the retail channel will revive? Do I believe that the “push” marketing of the OEM channel will deliver enough subscribers? Do I believe that “pull” marketing of retail can maintain and grow? Will media companies once again become Wall Street darlings, or will they continue to be treated as yesterday’s news? Can the company make the necessary steps without eroding shareholder value? Do I have extra money that I want to speculate with, and if so, is satellite radio what I want to hitch a portion of my portfolio to?
If all of these questions seem overwhelming, consider the vast difference of opinion to those that invest in this equity. People that bought at $5 have a much different opinion than those that bought at $1, and the opinion changes even more starkly for those that bought at 15 cents. Now throw all of the shorts into the mix, and you will find that Sirius XM Radio has a very “bi-polar” group of investors. This equity is riddled an investment base that is not in unison. The only way, in my opinion, that this equity will see any near term stability is for the majority of investors to be of a like minded opinion on the business, and have the confidence that a longer term hold on the company is the way to go. Until this happens, this is an equity adrift. The only real solution is positive numbers from Sirius XM on a consistent basis combined with good cash flow, merger synergies, and news that leads to the demonstration of these things.
It has been said that fortunes can be made from the ashes of a bear market. While others stand buy scratching their heads and wondering what happened, those that will make fortunes are doing their homework across many investment sectors looking for a few diamonds in the rough. They seek out companies that took a beating like all others, but will be able to rise up the fastest. Right now Sirius XM is a speculative equity that needs to rely on outside factors to see them through the storm. Reliance on outside factors adds additional risk. Betting on an equity such as this means betting on banks to deliver financing, cars to begin to sell, and a product that consumers want. This is a major reason that we have a stock like this at the level we see it at currently.
Are you a speculator?
Position – Long Sirius XM
Well-written assessment, Tyler. Nice work. I’ve got a lot in this speculative stock, which obviously I regret, but I speculate that 2009 will be our turnaround year.
It’s a lot less risky speculating at .12 than it is at 1.00 and higher and that’s why I have been loading up with SIRI at this level…
I have to disagree Demian. The fact that it is at .12/share shows that it is a super risky investment. How people are able to concoct such an analysis is beyond me.
I respect your bullishness on the stock as I am a long holder of Sirius shares but to say that it is less risky is complete cockamamie. Sorry.
Good read Mr. Savery. Yea I guess I would have to admit that I am a speculator as well as a gambler st this point.
In summing up on your three points:
Q. “banks to deliver financing” A. Well now it is time for Mel Karmazin to shine and see what kind of juice the old media-business legend still has. If he’s as good as his reputation says he is, then the banks should have confidence in him.
Q. A “product that consumers want.” A. Well I wanted it and have had it for two years, now I am concerned about a corporate trend toward just another repetitive and unimaginative playlist that might get old and tired too fast. Thus drifting back to boring terrestrial radio garbage. They have to stay creative and fresh to keep my attention.
Q. “Cars begin to sell” A. Obviously we can’t rely on that as the staple of a business model going forward. Now is the time to push into other platforms as aggressively as possible whilst we are waiting for the auto industry to re-invent their wheels.
Let’s hope Mel and Howard Stern value their reputations and integrity to the populace who championed what they do. And they make good on their statements post-merger that this will be their “legacy”. ”
It’s all about being popular. Who needs a “monopoly” of dookie.
Good luck to everyone. Good luck to America!
Tyler,
Good piece……..
I continue with the thoughts of the last posting. Being a shareholder and now a speculator more than ever my greatest fears include SXM going bankrupt and a reverse split. Had I had any indication that it would come to this I would have never……but there is no going back, the loses are real and the everyday pain of what the future holds for this stock is just here every day. I often make believe that things will get better for this company. Frankly I like the model and the offering. I have it and its tough to listen to anything else. But, the daily wash of this stock is really getting to all of us investors. First it was Goldmans pointing this stock down to .25 cents and I had a hard time believing it would ever go that far. Once it passed that I simply felt helpless. Now at .12 cents day after day, and investors patience running thin, the words posted on the message board are often sounds of gang type investors with nothing good to say and often carrying threats. SXM is awash and there is little to see postive until Mel and company get the financing taken care of. I am an investor who has little choice but to wait it out and see.
David Rushing – you are absolutely right on; Stern and Karmazin’s reputations will take a fatal hit if this thing fails. These two guys both have gigantic egos, and all the money in the world will not erase the stigma they will forever feel if this thing tanks. Guys like this are attention whores, and I have to believe that neither one wants their legacy to be most associated with the failure of satellite radio.
I also fear that they will start to resemble unimaginative, vapid terrestrial radio. I sometimes wonder if they have any idea just how serious and sensitive the listeners are about mnaintaining the quality and integrity of the content. Isn’t that what the whole idea was in the first place – to rise above the mediocrity and monotony of AM/FM?
Excellent post – I agree on all counts!
Cheers, Let’s hope Mel K. is still low-balling subscriber projections. And let’s hope that his plan for synergies-cost-savings is on target. let’s hope that there is a better overall business plan period that will come to fruition in the next two months. Due-diligence plus hope does a healthy speculator make.
P.s. Let’s hope Obama’s campaign of”Hope and Change” doesn’t turn into “I hope I can bum some spare change?!”
GLTA.
I have been researching this stock since June. Never thought it would get to $.12. When I compare it to the Priceline.com’s reverse split, it seems analogous with the exception of the huge debt (Priceline was in a similar “devalued stock” situation back in 2003 when the dotcom bust occurred) and maybe Siri’s poor management is much worse than Priceline’s management. My research shows that anyone who purchased Priceline when Priceline offered the 1:6 RS has made 147% profit as of two days ago (in this horrible market mind you). So, RS work, but SIRI has this incredible debt that scares everyone, and depends on car sales. But Priceline depended on airline sales, so it is similar. But, Siri needs bank financing to pay its huge debt, and I hope that bank financing starts to loosen up more when the next session of Congress passes a economic stimulus bill that Obama will sign.
I have my stockbroker sitting on the button to buy as soon as the RS is announced (probably 1:10 I would imagine, even though 1:50 was approved). I will buy about 20,000 shares if the price stays near $.10/share. SIRI’s product is great, and I am hoping the worst case scenario is that a bigger company like DirecTV may purchase this company instead of letting it go into bankruptcy.
But, then again, who knows? If you have $2,000 – $4,000 to spend and Mel announces good debt refinancing news, it seems like a no brainer.
the reason it is such a bi-polar difference in opinion on this stock is if ya bought this stock recently, you figure what the heck .15 apps it is worth the gamble. if you bought in the $5- $8 level then you have seen the total destruction of this equity. caused mainly by complete and total mismanagement brought on by karmazin
Good summary. Assuming the economy and auto sales stabilize, SIRI stock will need a catalyst other than fixing the financing. I still maintain that SIRI needs either a Whale investor or a partner to buy +25% of the company.
Yesterday investor groups got together and are buying IndyMac. That shows that there is money available, as well as risk takers. 2008 proved that even the rich are not that smart.
Icahn, Pickens and captain Kirk blew billions. Even Buffett was early to the banks, way early, and we knew Allen at Charter wasn’t so bright for years. Any of those taking a stake would flip the stock to the moon, relatively that is from here.
An investment from News Corp who appears to have cash to burn, as well as even broadcaster CBS would be a profound move on their part.
Why exactly does SIRI need another satellite? Video anyone?
i think sirius needs a young, bright,ambitious ceo. with an eye towards the future, and an eye towards the youth in this country. old radio hacks are a thing of the past
Sirius backseat video gaming system?
I am speculating now that the RS will never happen. I suppose if all the dilutive shares are used quickly to handle debt then its possible to raise the stock over $1 by end of 09 as needed with good sub #s and synergies.
I think its possible that the “oh shit, siri is in good shape and im about to miss the boat after listening to all these nonsense bash articles” frenzy could drive up the price, quickly and permanently.
I wonder however if there are outstanding dilutive shares, late into 09 if it could ever move up.
IMO, i hope all those shares voted on get used up quickly, from a small investor.
sirius xm rules! and my new years music was f’in unbeleivable with xm bumpin the crowd!!!
Sirius says the plan is to take care of all 2009 debt obligations by March 1. We will find out relatively soon if they can pull it off. If they can, 12 cents probably will make you money, a little or a lot depending how much money you are willing to put at risk.
In March 2003, at the time of the recap the stock went to 40 cents. Those willing to take a chance then were rewarded with a $2 stock by June of that year — from a company that had little revenue, but promise.
There’s different but similar market dynamics now — then we had Lehman selling newly acquired stock from the March recap debt equity swaps, all the way down to that 40 cents, but we knew what the dilution was. This time we have Feb convert holders shorting the stock, then doing the debt equity swap at no risk to them – but this action has put pressure on the stock and makes it impossible to go up until its over.
Of course we don’t yet know what the full dilution will be once they finish the refinancing, but worst case is effectively double shares outstanding. If the company, without the risk of BK, was worth $1-$2 pre-dilution, its worth 50 cents $1 once the financing is complete. With the dilution coming, its not going back to $2 anytime soon, but a similiar 5X apprection isn’t unreasonable, from 12 cents. Different times and the risks are probably higher given the uncertainty of the economy, even though they are much closer to CFBE now.
The question remains — can they get that refinancing done by March 1?
Tyler… Great overall view of the investor mix and the current position of SiriusXM.
Since you did such a great job on reflecting the past year, Would you be so kind as to write an article on the future of SiriusxM from 2009 to 2015. That is assuming of course we are all still here at the end of this year.
From what I can tell looking at SiriusXM’s forward projections, There will not be any huge profit years after servicing future debt until 2015.
I would like to read your thoughts on that time period. If you write the article, I know it will bring up other views from all our other posters that will also be interesting to read.
vaporgold
Tyler,
A balanced, well-written article. Nice job. Recently, I have been feeling increasingly negative toward both the common and the company. Your piece helped me “re-calibrate” and remain patiently on hold until the upcoming converts get handled.
December auto sales were up in the last week, equal to the rest of the month. With gas prices down they should rebound in 09. Aren’t the debt holders in somewhat of a bind? Isn’t their best hope to let the company continue to grow and redce costs? There isn’t much value in a breakup. Since many investors are also subscribers, wouldn’t they abandon ship if terms were too harsh? It seems to me that this product is a perfect fit for a vehicle, so much so that the car companies will not want to let it die. Just the opposite of so many articles recently. They ignore the growth, although I am sure it is slowing somewhat lately, and dwell only on anything negative they can find or invent.
Tyler, Great article. It looks as if GMAC is starting to ramp up leasing again. But it will take some time to get the car sales up. NY TIMES has a good article (on line) about Rick Wagoner & the progress that GM has made in the last 5 or so years. When things are down frustration seems to dominate and I think we’ve hit bottom. Once the new admin. gets in I believe the psyche of the nation will be on the up swing. This is huge! That will be the start of the banks lending & markets starting to recover. IF Sirius Xm can get its’ financing in good order the begining of a strong sustainable company with a very bright future will have emerged. The only things I wish Sirius Xm would due asap is to ramp up marketing to go after dormant radios in the used car market,go stronger @ the after market installs and most of all go after the younger consumers(16-35 yr. olds) with a fresh cooler image. Their products’ image is too much a reflection of the Boomer & Older crowd, but they offer so much to all ages. Everyday is a wasted day of opportunity. T.S. How about an article on your thoughts on Sirius Xms’ product image & current marketing or lack of? Keep up the great work!
One more thing. Why not sell Sirius Xm radios like cell phones are sold? Little or no money up front w/ a 2 year subcription. The monthly fee will have to reflect the cost for the radio, but your getting subs. So for example a basic $6.95 sub. plus another say $6.00 for the radio = $12.95 per month. Why couldn’t this work? Again this is gearing toward the younger crowd.
Check this out….XM or Sirius on your Mac without a browser
by Mel Martin on Jan 3rd 2009
Rogue Amoeba has just released a public preview of their new desktop player for XM and Sirius called Pulsar.
Its Time… SiriusXM has started on its rise to Success…Keep it up Mel…I am a Believer….Long on Sirius and ALL YOU BASHERS can find somewhere esle to do your Voodoo!
Sworn
Do you have a link to this article.
http://www.tuaw.com/2009/01/03.....a-browser/
I noticed a couple of you guys posted the url (links get held in moderation for spam checking) so I simply approved one of the links and wrote an article since I figured it was definitely news worthy.
No problem Charles, usually if I find something it gets deleted them Tyler will post an article on it.And I understand, I don’t want to bogart/under mind you guys, and your efforts.
Keep up the good reads!!!
Good read Tyler, also the previous article on the new vendor.
I would have to say, everyone is a speculator, its just human nature.
In the condition the market is in right now, it just brings it out even more. When things are going well, we get complacent, then when everything takes a dump, we want answers.
Everyone, get your pitch forks sharpened and torches ready!!!
Now thats speculation!! 🙂
Tyler,
As always your articles are appreciated and very informative. I have lost the bulk of my investment in Sirius-XM, so losing the rest of it won’t be catasrophic, but as an eternal optimist, I wait for the day that this equity begins to recover, so I may hopefully regain some of my losses. One thing I don’t understand though is that at the last share holder meeting, shareholders voted for a reverse split and also gave the board approval to issue more shares. This seems like a contradiction. Good luck to all Sirius XM investors in 2009.
omantom
omantom….
The reverse split and additional shares are tools that may well be needed for the company to obtain the financing they need. I agree, that the moves are not typically popular, but the company, as well as shareholders, are between a rock and a hard place. The RS may not be needed if NASDAQ continues to extend the delisting period for companies under $1 per share.