Five Positive Points on Sirius: Is the Street Listening? 116 comments
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With the economy being what it is, a feel-good economic story is hard to digest. It is a challenge faced by many companies, as they try to hold the line, maintain a positive outlook, and guide the street to be understanding of numbers that are better than should be expected, but not as good as years past.
Sirius XM (SIRI) CEO Mel Karmazin spoke with Reuters Wednesday, and much of what he outlined should be seen as a positive for the company. However, the street needs more than good intentions and words, and even when a company delivers on their guidance, as Sirius XM did in Q3, people still look at anything with a jaded eye.
Karmazin made several statements, which in normal economic conditions would be enough to get some traction in the equity. Wednesday, this news was simply absorbed with a shrug of the shoulders, and a show-me mentality.
POSITIVE POINT #1
Karmazin sees double digit revenue growth on a percentage basis in Q4. Wonderful news that seems to have fallen on deaf ears. In a time when other media companies are seeing double digit declines, Sirius XM Radio is still growing, yet no one seems to care that Sirius XM’s revenue is a polar opposite to all of the bad news out there. Perhaps it is too difficult to grasp that there are still companies that are in a growth trend at this point in time.
POSITIVE POINT #2
Karmazin is confident the company can refinance debt due in 2009. Perhaps this issue is the overshadow that simply refuses to go away. Karmazin has been expressing confidence with this subject for a while, and this issue is where a “show-me” attitude is likely warranted. That being said, I have always felt that the company will indeed be able to get the debt issue resolved. I would have hoped that it would have been done by now, but still, it should get done. For the equity to see improvement, an answer on the debt needs resolution.
POSITIVE POINT #3
Karmazin has no immediate plans to cut its subscription prices, even in the midst of the economic recession. At a time when prices are being slashed left and right, you would think news that they will be able to hold the line would be news that is well received. Instead, the street barely reacts. This is substantial news. This means that churn is stable. It means that new subscriber numbers are satisfying the business model. It means that revenue can continue to grow. Perhaps the lack of a profit from Sirius XM tempers this news a bit, but with the continued positive trend, shouldn’t the street give this a bit more weight?
POSITIVE POINT #4
“We did exactly what we wanted to do for Black Friday, which is not great news because we didn’t have high expectations,” Karmazin said, referring to the Friday after Thanksgiving, which kicks off the holiday shopping season.
While humble sales are not a positive point, the fact that the company was able to meet their expectations is stable. Had sales been shy of low expectations, the worry lines would rightfully appear. With the news being that holiday shoppers are being cautious, meeting your expectations is a small victory unto itself. On a side note, meeting those expectations did not come without an expense. Many retail radios came with free service for three months. Thus, you have a new subscriber, but no revenue just yet.
POSITIVE POINT #5
Perhaps the biggest bit of news from the Reuters Media Summit was Karmazin’s statement that Sirius XM Radio is not for sale. “We don’t feel that we need to be acquired,” he said. “You should assume the company is not for sale.”
With stock prices at low levels, one distinct worry many may have is that the company sells itself. Investors who believe in the long term outlook of the concept of satellite radio would potentially be looking at a situation where they would not participate in the success of the company in the years ahead. Of course, there is no guarantee that the company will be an overwhelming printing press of cash, given that it has at times been a printing press of shares. However, those that have maintained faith in the concept should be able to reap the reward should it come.
In the end, it boils down to what transpires over the next few months. Will Karmazin’s outlook be realized? Will the street finally be able to digest good news? Will satellite radio be successful in refinancing their debt? There are a few questions that seem to be keeping many hesitant.
[Reuters]
Position: Long Sirius XM
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Bill R.
As profit and loss statements show a balance sheet that APPEARS to be in the red, it's the it's the billion dollar debt load that throws the numbers out of whack. For the prospect of future lenders to restructure SiriusXM, underwriters will take a hard look at SiriusXM's ability to repay loans. It's like a homeloan: Mortgage bankers look at the future earnings of potential borrowers (well, at least they're supposed to based on this current housing crisis where underwriters did not do their job).
Anyways, here again is Scotty's Slant: With SiriusXM's healthy monthly revenue stream, and management team building a powerhouse of a business model, their current and future earnings potential should far outweigh the billion dollar debt issue....
And by the way, there is one more thing: My opinion might be just as constipated as that "Up the Tailpipe Again" person. I think he forgot to read the "tailpipe" instruction manual where it says: "Caution, to avoid serious intestional blockage, cut crimped end off tailpipe before inserting up rectal orifice....
Scot's Slant
thanks for all the wonderful knowledge and insight guys, and may we all share a cyber bottle of champaign some day
Just a question on your position at this point in time and I am being completely serious. Do you see any level of dilution or any need for a Reverse Split for this company in the future? Given its current realities and not its history.
Now as for the RS, I dont even think they know right know what it may need to be, except for what they believe would be the maximum that they would need to do, if at all. What would you want them to do, ask for a 1 for 10 split, then have to come back and say sorry we were wrong the first time we now need a 1 for 40 split. That just is not what is going to happen. Lets not forget that they are asking for this possibility all the way out to Dec of next year. Dayworker, do you even know exactly how much you will spend on Chrismas next year? Are you getting it yet? The best you can do is estimate depending on the situation that you are in at that time.
Now I dont know how much clearer I can be. Mel said the delution would be done for on going cost like they have done for the last 4 years and maybe for if needed, refinancing of debt. That right now they just dont really have any shares avalible to do any of it. As for the when or how much the same gos for that as the RS they most likely dont know what kind of financing they can get. Now when I say that, I will give you a example, so you can understand: Mel may have all the financing he needs except it is at 20 something %, How good is that percentage rate? it sucks, right. I would rather it be taken out using delution, I am sure that Mel would say the same thing. Now lets say its not all at 20 % but some is at 7%, some is at 10%, some is at 14%, and some is at 20%. Then there is a good chance that there is a combination of deals, for instance he can get some at 7% but also needs to take some at 20% to get that deal. Then there is the different kinds and different dates which may have combinations in it. I think you get the point it maybe impossible to know exactly the amount that needs to be taken out using delution. I dont think it is any quintessence that the time frame they have given is the same time frame that the financing has to be done in. First debt issue is Feb. the last one is Dec. The meeting is Dec 18th and the time frame that is being asked for it to be eligible is Dec. What that does is it gives them every way they may need to take out the debt without being hamstrung into any specific way. For instance, Mel may have a deal right now that would take all the debt out but the interest rate is not great or even good it is barely exceptible, or he also has a deal that takes some of the 2009 debt out and is better and the best he can get in these times but if he takes it then the other deal is off the table and he then has to get the other debt done another way, in another deal. I think anyone who reads this can get the point. That there is alot going on, it involves alot of money and time (2 months to a year). things are not black and white, right and wrong. There are gray areas and if you think you are going to get specifics your nuts. If you are a exceptional CEO you would be planning for every possibility. That is exactly the kind of man Mel is. If you remember in that interview on MSNBC he said that " I have 2 or 3 plans for the plan that may fail or has not even been put into motion yet." So in the end Mel has given you everything you need to know which is what he may need for the worse case, to make sure he does not get stuck with the worst financing.
When I said this:
I want to know where they said that as well....... but I don't hold 163888 accountable for the location of that information. As a matter of fact can I get that for every company that I invest in??? LOL
My point to dayworker in response to his post is that no one has ever given the kind of exact guidance and numbers that he was asking you for. That is just not done. That's why I said I wanted it for all companies that I invest in.... If you read his next post he got my sarcasm .......
- - - - - - - - - - - - - - - - - - -Rodney King
LOL
They wont need a tool booth .. Technology today could read a transponder in yout car and gather all the info it needs. NUmber of mlles above spped limit (Local Ca Ching), Number of City miles Driven(Local Ca Ching), Number of Hiway miles driven (Federal and State Double Ca Ching). Toll booths are to expensive. The Government will just make you bring in your vehicle under the guise of emissions testing.
It's been too long since we had a conspirency topic on these blogs.
LOL
gurgle gurgle blurp blurp...
Ah yes...resting comfortably on the bottom with the occasional air bubble glurping toward the surface...something's 'bout to break.
Very insightful scenarios regarding the debt and how Mel may be taking it out. At least he is giving himself options, which is a sign he is working very diligently on the debt issue. When he pulls this off many will change their tune on his management abilities.
I do have a question for you on this. Is it possible that dilution and reverse split can be avoided even after they are approved at the Dec 18 meeting? I would be interested in your opinion on this.
Long Sirius
As for the delution I do think some is going to be done they have been doing it for some time, just by not that much. It is no secret that many contracts they have include shares as part of the pay package. Now as for the delution to refinance some or all the debt that is possible that they wont have to, I just would not bet on it. I believe there is at least some (maybe all) that will need to be done. I do think when the 4th quarter FCF comes in many will be surprised at how large it is. I am expecting that number to be at least 200 million, I also think that is being conservative. There is one good thing about the OEMs not delivering, it means that each one they dont, is one that SIRIXM does not have to pay a 100 dollar subsidy on. They also have been saving on advertising. Not to mention all the savings from the merger will start to show them selves alot more in the 4th quarter. Those will all add to the 4th quarter FCF and something I did not add in whern considering the 200 million number. I get that by estrapulating the 4th quarters FCF from the last 3 years and seeing the increase from year to year. For example 2005 they were both at about even FCF. In 2006 SIRI and XMSR both had just over 30 million and just under 30 million. in 2007 SIRI went from just over 30 million to just over 80 million. While XMSR had none they also had just paid off the last satellite (CAPEX) they had at a cost of about 85 mllion. (In the conference call, they gave that as the main reason for not have a good FCF number and said that would improve greatly because they will not have to deal with that cost for a long time.) Now while there was only about hhalf as many subscribers add from 2007 to 2008, that still means that if you just go by the sub number you cut the 2006 to 2007 jump in FCF positive in half, that is still over 25 million more for the SIRI side and just under 25 million for the XMSR side of business. Add that to the 82 million SIRI had in FCF you get 107 million. By the way, the rest of it has to do with how much cost cutting Mel did in 2008 compared to 2007, while up to the merger the difference was a little less for 2008 then it was for 2007. I think that all changed after the merger happened, and those cuts will be way more then 2007. This is just my opinion, you can take it or leave it. Because I actually believe SIRIXM is in the best position then they have ever been in. The financing is the only thing left to take care of and I think Mel will take care of it.
Thanks for the professional post to my question. Facts are stubborn things, and you have outlined many facts which support a positive direction for Sirius going forward. I agree with your perspective and appreciate your in depth accounting of SiriusXM regarding the dilution and reverse split. It just may not be as bad as some are predicting. Thanks again!
Long Sirius
Thanks for the professional post to my question. Facts are stubborn things, and you have outlined many facts which support a positive direction for Sirius going forward. I agree with your perspective and appreciate your in depth accounting of SiriusXM regarding the dilution and reverse split. It just may not be as bad as some are predicting. Thanks again!
Long Sirius