Sirius XM: The Bull, the Bear and the Ludicrous

By Brandon Matthews

Typically I find that when I am at a loss for words it is because I am stuck on a particular thought, and I am unable to move on until I put that thought to paper. I recently issued a challenge to Rick M. of The Motley Fool following an article that he penned regarding Satwaves and myself. It seems Rick has a problem following instructions and communicating, as he took my idea and went off in an entirely different direction, leaving no room for rebuttal arguments to be written. It was, however my challenge, so I am forced to respond in kind by adopting his seemingly preferred method.

The Bull

Two years ago, Sirius Satellite Radio and XM Satellite Radio abandoned many revenue and subscription sources as they focused entirely on new car sales as the preferred method of growing their subscriber bases and revenue. A little more than one year ago, the two companies combined to form Sirius XM Radio (SIRI). As the economy began a a rapid decline, management focus turned to cost cutting and debt restructuring as it continued to rely solely on rapidly declining new car sales to grow revenue and earnings.

Arguments must be made on future prospects of any company rather than past results. Sirius XM has now positioned itself to excel in a period of economic recovery by increasing its means of growing its subscriber base and increasing revenue. These sources include:

• New Car Sales
• Used Car / Certified Preowned Programs
• Internet Radio (Global Opportunity)
• Exclusive Live Content Mobile Internet and Satellite Radio (iPhone, iPod Touch Devices)
• Advertising
• Incremental Revenue Increases
• Expansion To Puerto Rico

In an ironic twist, the economic downturn of last year will most likely translate into better numbers to be reported in the coming year as many of these sources did not exist in similar reporting periods in past years. Auto sales began declining sharply last year at this time. There will be a much smaller pool of promotional subscribers to lose which will result in lower subscriber losses going forward, as promotional subscriptions had peaked in the second quarter of 2008, falling to a record low in the first quarter of 2009.

As we move forward, year over year numbers will turn positive throughout the auto sector which will subsequently mean year over year increases for the Satellite Radio monopoly that is Sirius XM Radio, creating an outstanding cyclical buying opportunity of the equity.

The Bear

Sirius XM may face some short term challenges as subscriber acquisition costs begin to rise in this quarter. There is also the possibility that loan discount accounting charges relating to the recent repayment of the high interest loan under the Liberty Credit Agreement and charges relating to the the recent launch of Sirius XM’s newest satellite may come into play. These are short term risks, however, that the market seems to look past for the most part. I feel the main risk to owning Sirius XM shares lies in the condition of the general economy.

Despite the Obama administration’s assertion that the economy is recovering, I see it differently. I see job losses continuing to accumulate with over half a million new claims filed each week, unemployment at nearly 10% and RISING, consumer spending dwindling, home equity nonexistent and commercial real estate beginning its expected collapse. These factors do not help consumer discretionary stocks nor big ticket items such as car sales.

On top of that, the market is overextended with the NYSE Bullish percent coming in at a ridiculously high 81.15, which means the risk reward ratio does not support any new equity buying at this time. I’ll grant you that it has not reversed yet, but rest assured…it will. I’m personally recommending profit taking, cash positions and hedging of long positions through options strategies across the board to those close to me as I expect the delusions of the Obama administration will be revealed and force the markets back to reality before November. Better to be safe than sorry.

The Ludicrous

Perhaps the biggest risk to Sirius XM shares is the dissemination of misinformation by media sources either owned or controlled by media companies in direct competition to Sirius XM Radio. Despite all near term debt concerns having been completely removed from the risk reward equation until at least the year 2013, outfits like the Motley Fool continue to write about it as though it was a near term concern, completely discounting revenue growth and income relative to debt. Wednesday, Audit Integrity showed a lack of integrity when it published a report that claimed Sirius XM Radio has a 10% chance of filing bankruptcy within a year, as did Reuters who parroted the statements made without any real challenge, despite the realization that Sirius XM had already avoided bankruptcy.

Looking at their data, it is clear that the claim was not made on any debt or revenue concerns, but rather general accounting that would normally occur with any recently merged company such as goodwill and general restructuring following a merger. Another apparent strike as they see it has to do with the recently renegotiated contract of Mel Karmazin.

	AGR Impact (% of Total)	Cumulative Impact	Top Issue
Corporate Governance Events	52.5%	52.5%	Avg Ratio of Incentive to Annual Comp of CEO & CFO
High Risk Events	14.1%	66.6%	Restructuring
Revenue Recognition	0.0%	66.6%
Expense Recognition	0.0%	66.6%
Asset-Liability Valuation	33.4%	100.0%	Intangible Assets/Assets

One must question the validity of such a report when the most likely bankruptcy candidate in the media space at the current time is Clear Channel (CCO), which is blatantly missing from the list of likely media companies at risk in the coming year. Hmm..

Position: Long SIRI

Comments

[Siriusly Long:]

If you stand back objectively and look at all the negative articles written on Siri, especcially by MF, you have to really question the fact that there's not some sort of agenda on the other side of the ball. If a stock is so worthless and meaningless why mention it in every article you write. If you are a REAL investment blog/newsletter why wouldn't you have already written it off as trash and never mention it again?

Sep 18 04:08 PM

[halfy:]

The price took much less of a hit than I would have expected today. Who needs a reverse split?

Sep 18 04:16 PM

[1more4me:]

I believe it is time to call it;
Doomsday Sell off died today at 3:30. The overhyped and poorly spun news of the notice was received and had a minimal -.02 cent effect. This lull is over and recovery has already begun. The close today, down only -0.0099 (-1.44%) could be viewed as an exceptionally bullish signal. Buyers were opportunistic and sellers are not ready to cash in at this level seeing the upside potential. Even with a media blitz of long dead issues such as a prediction of bankruptcy and rehashing of debt issues that have existed since the merger- they failed to assist in any concerted downward pull.

The consistency of improvements to the debt situation, increasing revenue, and new product mix for the upcoming holiday season, improved car sales and other issues in the article above clearly highlight Bullish probability.

There may be a few negative days ahead, as with any equity in the markets, but I believe the steady climb toward the QTR 3 call will begin as early as the coming week.


.09 lot @ 655%----come on big K!!!
Thanks SIRI- We love you!

Sep 18 04:30 PM

[dead elvis:]

If the stock truely fell this am by 60cents in ten minutes/ it can go up as fast to 1.20

Sep 18 04:48 PM

[aclue2u:]

I might have a solution for you and your trading partners to look at. People in your position may very well appreciate what I have to offer. This venture could be very lucrative I promise. I have sold my shares of siri and haven't been back here to read your posts lately. You did on the other hand influence the decisions I made with handling my shares. I would like you to take a look at a business opportunity and see it as Donald Trump did. There is an opportunity tab on the site with three videos. View the opportunity video it is approximately 8 minutes long. You did me a favor and now I hope I can return one.


Sep 18 07:37 AM R A F wrote:

> An excellent review of the current backdrop, Brandon. As SIRI has
> continued to rally over the last few months, the pain to shorts has
> intensified and this, no doubt, has led to much of the increased
> negativity in certain segments of the media that typically have worked
> closely with institutions believed to be carrying these short positions.
> Short interest as of 8/31 remained exceptionally high at 124,769,729
> shares, indicating substantial losses have been accrued as SIRI has
> rallied from the mid .30's in recent months - and, moreover -
> substantial further exposure exists to these holders of short positions
> given the much improved fundamentals that have emerged for Sirius
> XM in the wake of resurgent auto production and the introduction
> of exciting new wireless devices and applications. With this in
> mind, it is no surprise that the "bashers" would try to make heavy
> gain from the types of news releases we saw emphasized yesterday
> - a focus on the non-compliance issue from Nasdaq and a heightened
> shreiking about the possibility of bankruptcy. Both of these issues
> have been responsibly covered extensively in commentary on Seeking
> Alpha in recent weeks and it is well known that the 1.00 price issue
> on Nasdaq can be properly addressed over the next six to twelve months
> and are, therefore, non events at this time. As Brandon points out
> in the article above, the threat of bankruptcy is 'ludicrous" at
> this time, as the company is now on a sustained path to profitability
> that will cover debt service properly into the future. With debt
> concerns having been moved out to 2013 at the earliest, the continued
> advisories from MF and others about the near term threat of bankruptcy
> is completely unwarranted and misleading, at best. So now - these
> holders of short positions have counted on these two stories to pressure
> the stock in a way that will permit them to cover on pullbacks over
> the near term before the markets begin once again to focus on the
> upcoming 3rd and 4th Qtr. releases (in November and February) which
> are expected to portray continuing improvements for the company.
> As some of these improvements (notably, the wireless devices such
> as SkyDock, etc.) are not expected to come on stream until later
> this year, the markets are likely to view the 4th Qtr. release as
> even more meaningful than the 3rd, and this should keep sentiment
> for SIRI positive through this entire time span into February. Put
> all of these considerations together and you get a framework that
> suggests short covering will be aggressive on any near term pullbacks
> and recoveries are likely to then ensue as this is observed. The
> concerted negative news releases of the last few days have been a
> punch to the chin of SIRI and the stock has hardly blinked. We all
> know what generally follows a scenario such as that.

Sep 18 05:29 PM

[R A F:]

Low trade today was .6520. You are referring to a misprint - trade never occurred below .6520.

Sep 18 05:37 PM

[dead elvis:]

Donald Trump- The ultimate combover-"Im not really hiding what I dont really have or who you think I am"-The darling of the Miss America contest? -Oh now there is honesty!

aclue to you two!- Eight minutes would be better spent with a good morning constitution friend.

Sep 19 10:16 AM

[dead elvis:]

it is what it is RAF- perhaps you would like to correct the trading graph published?


On Sep 18 04:48 PM dead elvis wrote:

> If the stock truely fell this am by 60cents in ten minutes/ it can
> go up as fast to 1.20

Sep 19 10:17 AM

[relmar2003:]

Exciting times are ahead for SiriusXM. The news media tried it best to take this stock down of R/S fears. Failed. No ones listening anymore. After street.com, Motely Fool, Barrons, WSJ, and a hundred other dishrags have now lost ALL credibility on coverage of this stock, and nothing they write should be considered usefull. They are hack rags. Shouldnt blindly listen to anymore. Just look at the charts. Look at there improving balance sheet, and look how many new MM's are buying shares right now. This stock held off a very critical .66 line yesterday, on the only piece of negative news they may ever get again. R/S is not a concern till March, and even not then, as an extention will more than likely be given to them for an additional time period of another 180 days I believe. Please check this, It may not be exactly that. And NASDAQ WILL NEVER DELIST SIRIUSXM REGARDLESS OF STOCK PRICE. Can they do a R/S anyway on strenght, when they want too? Sure. They could. Would it hurt the stock price? Probably only after an intital selling surge of extremely dumb investors. Then it will R/S and trade even stronger.

Sep 19 03:18 PM

[relmar2003:]

This stock will be well over $1 by March anyway. NON ISSUE. They might never R/S. And if the stock continues its trend, they shouldnt.

Sep 19 03:19 PM

[R A F:]

Markets always begin to discount "new news" after digesting "old news" and this dynamic should keep the framework positive for SIRI. As relmar2003 has pointed out above, the markets are now treating the two "old stories" (the non-compliance letter and ridiculous re-hashing of possible bankruptcy) as "old news" and have not even blinked over the last two days as this was digested. Attempted pullbacks immediately ran into strong underlying support for short covering purposes and firm backing and filling ensued all day Friday. We probably will get a few more days of this type action and then markets will begin to more aggressively test further upside in anticipation of the "new news" that is now being discounted: the expectation that resurgent auto production and exciting new wireless/internet applications and devices will substantially benefit Sirius XM into the future. With an ongoing short interest well in excess of 100 million shares, holders of these positions have every reason to remain nervous and anxious to cover on every near term pullback. The discounting of "new news" has already begun and this should continue through the releases of 3rd and 4th Qtr. information and guidance (due in November and February), sustaining a positive bias through this time span. Potential remains projected toward .90 to 1.00 by yearend; toward 1.25 to 1.50 over the next six months to one year; and toward 4.00 over the next two years (representing a 50% retracement of the declines from 12/05 through the lows this past February.

Sep 19 04:27 PM

[User 473272:]

Nice balanced article Brandon.

Long Siri ! ! !

Sep 19 06:46 PM

[aclue2u:]

Well, I guess I have found one that has no interest. Like I had said, I am looking for credible leaders to build an organization. This opportunity is ahead of the curve of this cutting edge technology. Three committed business partners is all I seek.


On Sep 19 10:16 AM dead elvis wrote:

> Donald Trump- The ultimate combover-"Im not really hiding what I
> dont really have or who you think I am"-The darling of the Miss
> America contest? -Oh now there is honesty!
>
> aclue to you two!- Eight minutes would be better spent with a good
> morning constitution friend.

Sep 20 01:18 PM

[User 486435:]

Good morning. Everyone must be sleeping in this morning.

Sep 21 10:23 AM

[jmsithy:]

nah nothing new to report stock is down because the market is down so that is always a good thing nothing is misleading and a pullback is good for more buying

Sep 21 10:48 AM

[R A F:]

SIRI is trading within all expectations outlined above (see my comments of 9/19 at 4:27). A few more days of this type of backing and filling fits well within the norm, particularly as the broader markets are pulling back slightly. This is all positive for SIRI, as support continues to build on pullbacks and recent "negative news" has caused virtually nothing more than a pause. While the "shorts" and "bashers" had pinned all their hopes on these hyped stories to pressure SIRI, in effect these were treated like punches to the chin that did not even cause a blink. Once these few days of backing and filling within lateral narrow ranges have completed, upside testing should resume. It's all about discounting the next stories and news, and these are expected to be positive for Sirius XM into the future.

Sep 21 11:59 AM

[between the...:]

One glanced over point in the article is that Sirius has moved into Puerto Rico. It may be a baby step, but it is starting to leak out into the international realm with the satellite technology. As properly pointed out, the internet, as opposed to satellite, provides a faster medium at international growth. I'd get in before this baby gets up and running.

Sep 21 12:05 PM

[between the...:]

What's that I hear? Maybe some sleigh bells on the horizon. Could it be a Christmas pop? Could Siri Doom aka the Grinch be foiled again? No "delisting drop"? Is this stock about to take off like Santa's sleigh? Cover them shorts Grinches!!!

Sep 21 12:30 PM

[between the...:]

Could some true innovation help as we approach Christmas? How about interactive radio channels. Maybe trivia channels where one could log onto Sirius website and listen via internet or radio to the trivia channels and use voting buttons to vote? Could there finally be a reality radio channel with Paula Abdul? I bet that she would like to take a shot at main stream media? Lets get on it Mel. Throw a few more bells and whistles on our radios.

Sep 21 12:40 PM

[Orlik:]

Chinese automaker Cherry, is talking about making Sirius XM a part of their package on new cars.
Cherry hit 1,000,000 cars per year in sales this year. Its fastest growing automaker in the world.
If SIRI and Cherry reach the deal, that could mean 1 million new subscribers per year!
SIRI officials say : "Indian TATA is their next target"
( thats 2,4 million cars per year in sales!)
SIRI is doing a very smart thing, expanding their business to China and India!

Sep 22 10:06 AM