Sirius XM Radio (SIRI) has been on the hearts and minds of investors as they wait for it to mature into a profitable investment. But I am of the opinion that a takeover by Liberty will hurt investors who own Sirius stock. It seems like the stock will continue to lose value and eventually become worthless as Liberty uses tax breaks from the acquisition for its own profits.
To me, satellite radio is still a very cool thing. But as I write this article I am listening to smooth jazz on one of the many online stations I have saved. I am not so sure I should be all that impressed anymore with the way technology is moving so fast. Let me use Samsung as an example why I write this. The company will soon introduce a music avenue that is all internet and cloud based that may do away with satellite. It is called "Music Hub" and will first be offered for free through the customers of the new Galaxy phones. Music bought through the service will be stored on
the cloud and will then be able to appear on all devices owned by the costumer. It can be used for both online and offline listening. Eventually it will be available on all devices
If customers will be able to store their own music on the cloud so that it can be accessed from personal computers to smart phones, why would customers pay extra for 'one-way' satellite music service? Sirius XM Radio (SIRI) had 7 million cancellations in 2011 and 4 million the year before. But don't think customers are just falling off. In the third quarter of 2011 the company grew with subscription numbers hitting 21.3 million, so it is not like no one is using the service. Now, I do not claim to know all the reasons for its growth and cancels, but one wonders how a new service of the magnitude of Samsung will have on the company. With technology moving as quickly as it is, its hard to imagine anything without using the cloud service. If one does not have an IP platform and a cloud strategy, it seems like you are from the middle ages anymore.
Pandora (P) grows each quarter and appears to be able to monetize its listening audience by virtue of growing ad revenue. There are online radio stations such as AOL (AOL) and Yahoo (YHOO), all of which can easily be streamed to your smartphone by downloading a free app. But Sirius continues to drop in value.
The winner with the devaluation in Sirius stock is Liberty Media, which seems to care very little about Sirius' business and appears interested in acquiring the company solely for its assets, which include $8 billion in future tax benefits. Don't look now Sirius stock owners, but the company does not have a monopoly and there is plenty of competition out there making money.
It does not look like this stock will last.
Current Sirius shareholders are really in a tough situation in deciding what to do with their positions, but I don't see a scenario in which the small guy wins in this situation. In a few weeks many will look at the stock price -- now around $1.90 -- and kick themselves for not getting out when they could have. In the meantime, Liberty continues to capitalize on this great timing by benefiting from a bearish market, insider sales and feeble resolve of shareholders, some of whom are simply unable to withstand further disappointment. The smart thing to do here would be to sell the stock before it succumbs to more bearish pressure in a market poised to punish anything with questionable fundamentals. For that matter, it seems $1.65 is likely the next target.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
