Is Sirius on the Road to Profits?

By Brandon Matthews

Could Sirius XM Radio (SIRI) be on its way to posting a profit this quarter? The answer just may be a resounding YES! Let’s take a look at some interesting facts. Allow me to first direct your attention to the recent research note issued by Tuna Amobi of Standard & Poor's which included a target price upgrade to $1.00 per share. As I reported Wednesday, Mr. Amobi reduced his 2009 loss estimate for Sirius XM RADIO to (.08). As a matter of fact, as of the second quarter, Sirius XM Radio had already lost .08 this year, which by default means that Mr. Amobi sees the company running at cash flow breakeven for the remainder of the year. More likely, a scenario of a .01 profit per share in Q3 will be offset by a loss of a penny in Q4.

Critics of the Satellite Radio provider look to increased subscriber acquisition costs (SAC) due to increased chip subsidies that will be paid out with increased auto production. I disagree. SAC costs will be higher due to increased satellite radio installations, yet become a problem only when radios sit on shelves in some cases or on dealer car lots in others. The fact is that dealer lots are empty as dealer inventories have been depleted on the heels of the Cash For Clunkers program. This means of course that revenues will offset most of the increased SAC costs.

Critics are having a hard time separating the past from the present when inventories were high and sales were low, versus today when the opposite is true. Gains from the sale of used cars will also help to offset SAC costs as Sirius XM Radio has made great strides this year in the automotive aftermarket. Used cars carry with them no chip subsidies, as the radios are already paid for in full.

These same critics point to Sirius XM’s new radio offerings, such as the XM Skydock as carrying chip costs. Critics however are failing to see that as of yet, these radios have not been approved by the FCC, and therefore mass production has yet to begin, and will no doubt be mass produced in the fourth quarter so that holiday sales will offset inventories much as we are witnessing with new car production.

Not allowing the facts to get in the way of a good story, critics are using one time charges associated with Sirius XM’s recent debt refinancing as a means to promote fear and doubt among retail investors. SEC filings clearly state the the recently refinanced debt deal with John Malone’s Liberty Capital (LCAPA) carry no charges associated with the retirement of that loan.

On August 24, 2009, we issued $257 million aggregate principal amount of 9.75% Senior Secured Notes due 2015 (the “Notes”). We used the net proceeds from the sale of the Notes and cash on hand to terminate and repay in full the Credit Agreement, dated as of February 17, 2009, among us, Liberty Media Corporation, as administrative agent and collateral agent, and Liberty Media, LLC, as lender (the “LM Credit Agreement”). We had a $250 million term loan outstanding under the LM Credit Agreement and an approximately $380,000 purchase money loan outstanding under the LM Credit Agreement. We did not incur any penalties upon the termination and repayment of the LM Credit Agreement. Liberty Media Corporation purchased $50 million aggregate principal amount of Notes in the offering.

Equally ignored is that the Sirius division of Sirius XM Radio made a 35 million dollar profit last quarter, which was only offset due to $191 million losses at the XM division, mostly attributable to other debt refinancing which resulted in the combined company reporting a loss of $157 million. This was accomplished on negative subscriber growth, which will not be the case this quarter. The road to profitability is now clear, despite the best efforts of Satellite Radio’s enemies.

Position: Long SIRI

Comments

[jmsithy:]

in two weeks this will be close to a 1.00 the resistance is at .60 and is climbing its way back up just thought I post before Siri-Doom gets here

Sep 04 06:51 AM

[R A F:]

SIRI is now trading from dominant technical strength and perfomance should be firm and steady over the near term. Markets are now anticipating a non compliance letter from Nasdaq - which has been so widely discussed and seen to be no real threat, as the company will have up to 12 months to then become compliant with the share price trading over 1.00) - that this Nasdaq letter should be proven to be a non event. However - until that has occurred - SIRI is likely to remain in a firmly based holding pattern around current levels (in the .60's). Following mid month - SIRI should again become more aggressive on the upside, anticipating better earnings and guidance to be released in November and February (3rd and 4th Qtr. releases). All this action fits well within a technically strong framework and upside potential is substantially greater than downside exposure over the intermediate to longer term. Near term pullbacks should continue to be viewed as buying opportunities.

Sep 04 08:03 AM

[TerryC:]

Siri-Doom must not be awake yet.

Sep 04 08:09 AM

[connorport:]

This is all true but it seems so far at times when everything should be in line the company makes a gesture that negatively impacts the stock price. Lets hope Mel and team have it all together in Q3. I would like to see some upgrades that fall onto the latest headlines boards like every other company out there. They are getting them and noone is seeing them unless you dig them out.

Sep 04 08:30 AM

[Jerrold Wil...:]

I am relatively new investing and by far no expert. I am very skeptical about these "upgrades" by "experts". It seems to me that when a stock has gone down they rate it as underperform...After the stock starts to go up, then the genius upgrades it. Any "expert" that all of a sudden says SIRI is now a good "buy" is useless to me. How many analyst said buy the stock when it was $.05 - $.30? They said avoid the stock and if you listened, you missed out on good profit. These "experts" goal is to make you about a 10-15% gain on your investment. So, they will wait until SIRI is about $.90 and then say that people should buy the stock...Then the "blind sheep" will say, great this stock is rated "outperform" and has increased 2000% in the last year...and then try to join the bandwagon....Isn't this type of thinking kind of backward? Do these experts do any better than a monkey picking stocks would? The great Jim Cramer on his site boasts of beating mutual funds with a gain of 18%!!! These mutual fund managers and Cramers of the world, don't really impress me. If you picked a basket of random stocks....you have a good chanceof beating or matching their success. When the market crashed, they didnt predict it...When it bottomed..they didnt predict it...They bash stocks that doubled or even get 500% gains...When one of thier picks crashes...all they say is....you should have been diversified...lol

Sep 04 08:49 AM

[Crankly09:]

Good article Brandon and it's simply time to accumulate from now until year's end, then watch the nest egg grow and grow for the next few years.

Once in a lifetime chance at these prices, to own a company that enjoys the privelege of being a monopoly, that is turning a profit for the first time and with 18 million + subs already on the payroll.

Cheers and LONG SIRI,
-Crankly

Sep 04 09:03 AM

[connorport:]

If you remember while the market was crashing Cramer came on and apologized to all his followers for not protecting them during the fall. Those were the months of no BOOOYAS! I bought a company called APWR at $3.51 when institutions were dumping them and analysts were telling me to avoid. They later wrote that this was the stock that got away when it ran to over $10 quickly. My point is that i am no broker or professional investor but i got it right when the experts didn't which would lead me to believe they are no experts. Anyone out here is as good as anyone else when it comes to picking a winner. My positions are LONG SIRI, LONG APWR, LONG SNRY, LONG XDSL, LONG GE, LONG RIMM, and LONG FTR. Before the recession i was only long SIRI. I did a lot of homework to pick these stocks but at the end of the day we are at the mercy of the markets. Its you're money. Listen to you because you are the only one that has something to lose.


On Sep 04 08:49 AM Jerrold Williams wrote:

> I am relatively new investing and by far no expert. I am very skeptical
> about these "upgrades" by "experts". It seems to me that when a
> stock has gone down they rate it as underperform...After the stock
> starts to go up, then the genius upgrades it. Any "expert" that
> all of a sudden says SIRI is now a good "buy" is useless to me.
> How many analyst said buy the stock when it was $.05 - $.30? They
> said avoid the stock and if you listened, you missed out on good
> profit. These "experts" goal is to make you about a 10-15% gain
> on your investment. So, they will wait until SIRI is about $.90
> and then say that people should buy the stock...Then the "blind
> sheep" will say, great this stock is rated "outperform" and has increased
> 2000% in the last year...and then try to join the bandwagon....Isn't
> this type of thinking kind of backward? Do these experts do any
> better than a monkey picking stocks would? The great Jim Cramer
> on his site boasts of beating mutual funds with a gain of 18%!!!
> These mutual fund managers and Cramers of the world, don't really
> impress me. If you picked a basket of random stocks....you have
> a good chanceof beating or matching their success. When the market
> crashed, they didnt predict it...When it bottomed..they didnt predict
> it...They bash stocks that doubled or even get 500% gains...When
> one of thier picks crashes...all they say is....you should have been
> diversified...lol

Sep 04 10:30 AM

[dead elvis:]

who is cramer?

the guy from seinfeld could probably pick better then that dufus

Sep 04 10:57 AM

[Scooterpod:]

Got that right. John Stewart was 110% right to skewer his ass on TV. And SIRI-shithead should be right along with his "delisting" and anti-Mel B.S.

Sep 04 11:01 AM

[Hawk180:]

Check this out. A good report about SIRI reporting quarterly profits, and not a peep from SIRI-Doom. I am sure that the company is growing and the profits will continue to increase over the foreseeable future. As I have said before. For any of you who want this stock for under a dollar, you had better get it soon.

I am holding long and don't feel at all uneasy about it. Sure we will see some roller coasters, but that is normal. It happens on every stock in my portfolio. Holding long is the best strategy. Short selling may make some small instant profits, but holding long is best overall IMHO.

SIRI-long

Sep 04 12:33 PM

[jswede:]

by "profit" I know you mean before adding in the $100mil they will pay in interest this quarter... thought so.

Sep 05 04:47 PM

[Yomama90210:]

Well....I downloaded xm radio to my blackberry...also downloaded pandora. The sound quality for pandora was excellent..thus by the time I got to listen to xm radio i was horrified. Actually the only words I can find to paint a picture of sound quality was this....It sounded like the artists on xm radios download actually were singing with socks in their mouths!! It was very muffled. I am long siri and have to hope for the best with the outside of the box thinking and the incredible potential the company has.

Sep 05 06:32 PM

[Jerrold Wil...:]

XM radio for the blackberry is a total waste of time. I think they charge like $7.99 for 20 channels or something, It doesnt matter if you are an existing subscriber or new. I can
t believe they havent just cancelled that or did a newer offering. Anyone who pays for that must be crazy....I love my XM but would never pay $7.99 for only 20 channels, no sports, Howard, etc...If the sound quality is bad, it is probably because only about 20 people signed up for it.....It must be a contract that they must keep, but don't really stand behind. lol...Iphone users gripe about $2.99 extra for over 100 channels.....Yet, Blackberry users get 20 channels for $7.99.....That offers is several years old...they should upgrade it or cancel it out...it is horrible.........I am long sirius xm...been a long time subscriber as well, but that blackberry plan is something that isnt promoted for good reason. Hopefully the will make an "ipone app" for all smart phones.....same $2.99...same channels...


On Sep 05 06:32 PM Yomama90210 wrote:

> Well....I downloaded xm radio to my blackberry...also downloaded
> pandora. The sound quality for pandora was excellent..thus by the
> time I got to listen to xm radio i was horrified. Actually the only
> words I can find to paint a picture of sound quality was this....It
> sounded like the artists on xm radios download actually were singing
> with socks in their mouths!! It was very muffled. I am long siri
> and have to hope for the best with the outside of the box thinking
> and the incredible potential the company has.

Sep 05 09:12 PM

[Pell:]

Lets make it simple. Sirius XM is a monopoly. Think about it. Buying stock in a monopoly at .60 a share? Wow! Maybe some people still think that paying for cable television will never work. That industry didn't do well did it? C'mon everybody wake up! We will not see many of these opportunities in our lifetime.

Sep 08 09:39 AM

[themaxx:]

I concur with what you said , experts dont have a crystal ball like you and i dont either.....reminds me of a weather forecaster who is wrong 30% of the time or more , they might as well go outside and look up at the sky then give a forecast


On Sep 04 08:49 AM Jerrold Williams wrote:

> I am relatively new investing and by far no expert. I am very skeptical
> about these "upgrades" by "experts". It seems to me that when a stock
> has gone down they rate it as underperform...After the stock starts
> to go up, then the genius upgrades it. Any "expert" that all of a
> sudden says SIRI is now a good "buy" is useless to me. How many analyst
> said buy the stock when it was $.05 - $.30? They said avoid the stock
> and if you listened, you missed out on good profit. These "experts"
> goal is to make you about a 10-15% gain on your investment. So, they
> will wait until SIRI is about $.90 and then say that people should
> buy the stock...Then the "blind sheep" will say, great this stock
> is rated "outperform" and has increased 2000% in the last year...and
> then try to join the bandwagon....Isn't this type of thinking kind
> of backward? Do these experts do any better than a monkey picking
> stocks would? The great Jim Cramer on his site boasts of beating
> mutual funds with a gain of 18%!!! These mutual fund managers and
> Cramers of the world, don't really impress me. If you picked a basket
> of random stocks....you have a good chanceof beating or matching
> their success. When the market crashed, they didnt predict it...When
> it bottomed..they didnt predict it...They bash stocks that doubled
> or even get 500% gains...When one of thier picks crashes...all they
> say is....you should have been diversified...lol

Sep 13 06:24 PM

[sully47:]

ARE YOU KIDDING? Sirius has been naked shorted by the BILLIONS! Who writes this crap? Watch the movie Stock Shock and then com back!

Sep 27 02:44 PM