The Importance of Positive EBITDA to Sirius XM Shareholders 65 comments
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By Brandon Matthews
For most of the past year, investors in Sirius XM Radio (SIRI) have been forced to become a bit more sophisticated. Until recently, Sirius XM was truly a speculative stock play. Battle lines were drawn between people who bought shares of the company out of a belief in the product and self proclaimed experts with no belief in the company’s long term viability. Satellite Radio has existed for years with its believers having one goal in mind: The goal that cash flow break-even would occur and growth would ensue. That goal was to be attained when the subscriber rolls surpassed 1 million. Then 2 million. Then 5 million. Always being pushed farther and farther away as round after round of equity dilution came and went. Many had given up.
Last week that goal was realized, as Sirius XM posted break-even earnings on a per share basis. It also reported positive free cash flow and a third consecutive quarter of operating profit. Suddenly, Sirius XM investors are becoming part-time accountants, as they familiarize themselves with terms that until now were never mentioned in Satellite Radio conversations. Another such term is EBITDA, which has been the mantra of Sirius XM’s CEO Mel Karmazin all year. It is likely to remain a headline issue now that the company has issued guidance of 20% EBITDA growth in 2010.
I’m not going to bore you with the details of calculating EBITDA. The reason it is important to Sirius XM investors is what those earnings will be used for. With liquidity issues put to rest, the company can now focus not on debt refinancing but on debt repayment and retirement. The credit crunch of 2009 exposed many corporations to the reality of carrying burdensome debt loads. Until now, Sirius XM Radio’s debt issues have only been refinanced, always replaced by other debt instruments.
This is about to change as Sirius XM Radio repays 82 M in December 1 2009 obligations with cash on hand. As debt is repaid, equity values will increase even if only the status quo is maintained. With no debt due in 2010, and only nominal debt due up until the year 2013 following, the company has many years ahead of it in which to retire much of its debt and by inverse relationship, raise its equity price. This is the benefit of positive EBITDA to the company.
Am I speculating? Mel Karmazin is known as a deal maker and he has recently made two comments that are telling as to his intent. The NY Post quotes Mr. Karmazin while referring to a potential deal with DISH Network as stating: “Charlie and I have had our battles, but I’d do a deal with him today if he offered the right price for the company.” Twice in the last month Mr. Karmazin has stated that he will do what is in the best interest of his shareholders. Offers and deals are made based on EBITDA projections and enterprise value which is calculated by adding the debt and equity of a company and subtracting non-operating cash.
In considering the track record of Mr. Karmazin, the next logical step towards the next deal is to increase the share price through debt reduction.
For the foreseeable future, Sirius XM Radio should be able to grow its subscriber base, increase revenue and continue to lower costs, all of which may lead to a higher future enterprise value. The winners of this will be the shareholders.
Position: Long SIRI
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I was getting a thumbs down for that comment. A sale to Liberty or Dish is a good thing for shareholders and the company. As partnering with liquid companies allows them to be taken to the next level of Brand Development.
By the way he is only mentioning Dish to light a fire under Liberty and Malone's butt. Liberty is currently making efforts to simplify their corporate structure hoping (speculative) to allow M&A to be more organized.
SiriLong
Long term catalyst: shorts fear of a bidding war for Sirius between Ergen of DISH and Malone of DIRECT TV. Dear Ergen and Malone, you better bid now before the stock price starts to go up due to the recently excellent quarter.
Again I was given thumbs down for that.
On Nov 10 09:49 AM between the hedges_ wrote:
> Two near term catalysts: 1. interview with Tuna Amobi set for tommorrow
> and 2. ad campaign about to be unleashed.
>
> Long term catalyst: shorts fear of a bidding war for Sirius between
> Ergen of DISH and Malone of DIRECT TV. Dear Ergen and Malone, you
> better bid now before the stock price starts to go up due to the
> recently excellent quarter.
In any case if this stock is to move forward and up everyone has to get past the victim stage. Merger talk could be very healthy for the share price.
"Despite the "bashing" and ongoing manipulation by institutional high speed computer trading - there is no holding back the truth - and the truth is that Sirius XM radio is infinitely better than terrestrial radio and will be the clear choice of listeners in years to come"
SiriLong
Or drinking himself into a stuper because he didn't take a chance to buy when the stock dipped to $ .51
On Nov 10 10:32 AM Spiderman4 wrote:
> Where is SIRI-DOOM..???
SIRIDoom and CRAMER are getting MARRIED!!!
They are SIRI IN LOVE!!!!
OHW ISINT'T THAT SPECIAL!!!
He should however be eating crow and making positive statements on any statement on SIRIXM now.
On Nov 10 10:12 AM CGP wrote:
> Where has Cramer been bashing SIRI? - theStreet.com? If so I haven't
> seen anything in passing recently. I vaguely recall him going negative
> on the stock when it hit its' lows but I more clearly remember him
> several times bashing the SEC (I think) for holding up merger approval.
>
>
> In any case if this stock is to move forward and up everyone has
> to get past the victim stage. Merger talk could be very healthy for
> the share price.
> Where is SIRI-DOOM..???
He is busy plagiarizing theStreet.com over on Motley Fool.
This means investors are betting on if the ....etc. happens. In addition there is now a growing new world of technology that is competing for a subscriber customer base. This also means there is speculation about where the consumer will spend his dollars. Even if the sat rad product is great, above all in this field, it is dependent on what grabs the consumer's imagination for must have tech toys. Potentials are one element of investing but the solid investor looks for a good foundation, ie. business model,financial structure, debt load, operating budget analysis, competence of
management, and product/content viability in it's field. There are some weakness in these areas for SIRI. Therefore, as an investment it has to be looked at a high end risk based on a realised potential of conversion, which may or may not happen.
Also, with the talk of a possible sale, SIRI now enters into the realm of what leveraging is all about. The reason being it may not be about the technology because obviously another satelite company can do what sat rad does, but about the value of the talent content and it's contracts. In this regard, another satelite company may be buying content to get access to the subsriber base, acquire the satelite hardware and not actually care about radio itself and eventually suck out the good stuff and jetison much at the expense of the rest of the company. This is how leveraging works. Which I have spoken of many times.