Sirius Opportunity in Satellite Radio 80 comments
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The long awaited merger of Sirius (SIRI) and XM Satellite Radio (XMSR) is near FCC approval and investors would do well to jump in while the stock is down.
The deal was approved by the DOJ with no conditions attached and now awaits approval by the FCC. If BellSouth and AT&T (T) were allowed to merge back together after a painful divestiture, there is no way this deal can be blocked. It is going to happen. That is why both companies are putting off the Q1 stockholders meeting and have no intention of calling the deal off.
Yesterday, two senior House democrats sent a letter to the FCC reiterating that Sirius and XM be held to their already self imposed conditions of holding subscription costs at pre-merger levels and offering a la carte programming packages. They also want OEM radio makers to be able to manufacture Sirius and XM radios which are now only available through Sirius and XM.
These conditions will not be a problem as the two companies, like Microsoft (MSFT), would rather not be in the hardware business anyway because the manufacturing and distribution costs are high and the margins on the equipment are low. They would rather concentrate on subscription revenue and programming.
The true synergies of the merger have been underestimated in the stock price but will be well understood by the market after the merger is approved. The greatest benefit will be in the leverage over the programming suppliers of the two companies. Programming costs are their greatest expense, but when they become the only game in town they will have better leverage than those ruthless Wal-Mart (WMT) purchasing agents. This should make the combined company profitable by year-end. After that, the sky is the limit for profits.
The two companies have also not been sitting still when it comes to new product ideas. They will come forth with new, as yet unannounced, content offerings that will produce new revenue streams not being looked at by the FCC. Watch out, cable television providers, newspapers, Apple (AAPL) and Google (GOOG).
Finally, millions of potential customers have been waiting on the sidelines for the final ink on the deal before signing up and buying a receiver. Once that confusion is over, the subscriber base could rise by up to 40% in 2008 and that revenue will start rolling in. Then, anyone who has been worrying about the financial viability of satellite radio can worry about why they did not jump on the stock when they could have.
Disclosure: Author has a long position in SIRI
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This article has 80 comments:
Oracle, could you look into the future and tell us how many folks will pick up a subscriptions after they announce the merger? Please look into your ball and keep looking, see the crack? Time to get a new crystal ball.
The fixed costs in these operations are huge. That was the great attraction to them -- that you could serve a large number of customers without increasing fixed costs. What has happened, of course, is that the customers aren't showing up to buy the service, and at the same time, variable costs have also increased.
Satallite radio will be a standard option in almost every vehicle that will be made, much like a cd player. Right now Sirius has the rear entertainment with 4 cartoon channels for the kids. Right now XM has real-time navigation with traffic and weather! Add on the fact that you would be able to listen to every NFL & MLB game, not to mention NHL, NBA, NASCAR, and every major college football and basketball game!!! Do people not understand where this could go?
Yes I am a recent investor of both of these companies, but I've also been an XM subscriber for the last 5 years. Me and my friends (XM & Sirius subscribers) are excited for the merger as customers.
THE DEAL IS GOIGN THRU AND EXPECT TO SEE $5.00 SOON. GOOD MANAGEMENT WILL HAVE THIS STOCK $15.00 A SHARE IN 2-3 YEARS
I will also guess that, Oracle is (stackpointer, FrontMed, Hypocritical ass) and if you have followed Tyler Saverys articles in Sirus Buzz, know what a biased lunatic he is. Dont believe me just look at how many different names he has used, he actually changed his name so it looked like someone else agreed with him on a arguement.
Oracle: I think you're being a little overly pessimistic. I've lost almost half of my initial investment since I bought SIRI 2 years ago, but I'm still there and still buying. While I agree that the management of XM is inept, the same is not true for Sirius. Mel Karmazin is no fool, as evidenced by the fact that Sirius was the smaller fish for a long time, yet is now devouring the bigger fish.
Once the merger is complete and all the redundancies eliminated, those balance sheets will be displaying far different numbers from what they are now. Look at it this way: You make $55k/yr and your girlfriend makes $45k/yr. You're both struggling to make ends meet, but when you get married and move in to the same house, now you only have one household to support on $100k/yr. It's a bit oversimplified, I know, but that's the basic idea, and with Mel Karmazin running the show, I believe that those of us who weathered the storm will be well rewarded for our patience.
As far as Stan's article above I agree with most but not his time frames. 40% subscriber growth in 2008 is aggressive to say the least. I believe this might be achievable in retail sales but not in total subscriber growth. True growth in retail will be achieved with the release of new devices.
Profitable by the end of the year? I seriously doubt it. Even pent up retail growth, released by the new devices, are probably 6-12 months out from the merger date, which has yet to be decided. There may also be some conditions put on the devices by the FCC that could slow the new devices' release dates by some months.
Short term stock price will be impacted by all the excitement in the merged company's potential. I agree with Savage above that settling in at $4-4.50 even $5 by the end of the year is realistic, with a steady climb up from their as quarterly results show positive management execution in achieving cost reduction synergies and increased FCF to Profitability within a year of the merger, June 09.
Profitability will ultimately determine the price of this stock beyond a year. But $10-$15 a share in 2 years is not unrealistic provided the stock does not get further diluted in the refinancing of debt and recapitalization expenses beyond what is known.
Killerkaul, What I cant stand are unrealistic people that spout that kind of crap. As you have seen I do it for both sides. I am a realistic person and only ask for people to be reasonable when making comments. As an example; if Oracle is who I think he is, it took about 30 post from various people to convince him of nothing. Why will because he still thought after 30 comments that SIRI/XMSR compete STRONGLY for each others CURRENT subcribers. Now we all know the DOJ said they dont, and they had all the internal documents to prove this. But any reasonable person already knew this before the DOJ said it, except his dumb ass.
yours is the best post i've seen all day!
You can record live radio.
I don't use my ipod anymore.
I just record what I like.
Half the songs I recorded are songs I never would of remebered or would pay to have.
Wireless head phones are Kinda wack but it does come in handy at certain times.
This product is so underated.
I got the new Nas song when it played for the first time and have had it ever since.
It does not get any better then this but I heard that they are making a stilleto with TV capabilities. Money baby, Money.
The companies have lost a fortune, the shareholders have lost a fortune but it's not all doom and gloom. Management and certain on air presenters have made obscene amounts of money. But you can't stop the Sirius fan club. They just keep on pumping.
If you both would look at Siris revenue, you will notice that it has been increasing year after year. I gather that either one of you are no fans of Howard Stern?
One company sold in 1/1/94 for $8.19, 1/1/98 for $4.18,1/1/04 for $11.96 and no one thought this stock would ever pay off. In 1/1/08 it sold for $135/share. That Lead Balloon was Apple Computer. As I remember their inept management's mistake of the time was that they were too proprietary with their hardware and software compared to their major competitor of the time, which believed in a more open architecture. Guess which company that was?....another Lead Balloon for over ten to twelve years...Microsoft.
No one knows for sure when one of these new technology companies is going to get the "lead out" but it takes fans and believers (current investors) to help these companies change the way we do things. So F...Off with you BS and let us fans enjoy the ride.
Suggest letting the market speak---be aware of the popular talk -----but don't lose track of the stock/it's technical movements and fundamentals.
Cos1000, Here is another DISH. I have some personal experiences with that and Directv. I heard some of the same crap on those also. You know though I didn't see them posting after 2001 anymore. I wonder why? Answer = THEY WERE WRONG. They had thought that after the merger failed, that that was the end and they had got out. If only they would have stuck it out for another few years. Now if they did that, they would not care if they had over 90,000 tied up in SIRI/XMSR right now.
sr
:"Never fall in love with anything that can't love you back"..The diamond is nothing without a DeBeer's so siri needs a powerful cartel and lots of advertisements to make it attractive for subscribers to pay for something that has come through the airwaves for free,up to now.I wish them luck on their merger and please don't put more than 5% of your portfolio into any one stock,don't take wooden nickels,look both ways befor..............pca...
I like the company DRYS, I dont like George's "Take it or leave it" and "If you dont like it you dont have to be a share holder" attitude. It is like he has forgotten his company is now a publicly traded company now.
When the great advertising machine gets to them, they too will crumble. Even if it's just for another scorekeeper (money) for those running it.
1. both companies have Lots of debt
2. loads of Capex for Sirrus to replace their ageing satellites
3. no profits, despite years of operation.(siri)
4. both, grossly overspent for content
5. proposed synergies from the merger are grossly overstated and will take years to obtain
Do you have any answers to any of these points are are you going to start calling me names now?
Long GOOG - 908 shares
YEEEEHAW!
is still running in the red, but not as badly as in previous years. However, I think think things will improve dramatically for both these companies once have been approved by the FCC to merge.
1) This is a problem, thousands (dare I say all) of successful companies have delt with when they first started and is not news to any speculative investor that gets in for the low price of a stock when the company first starts. I have gone into this before, most of the cost that is happening at this point is due to the amount of growth they have gone after. Right now for instance it cost SIRI arround 100 in chip subsidy for about 65% of the cars that roll of the production line. 300 million in cost for people that dont sign up. Now there are some that say SIRI would have been better off not to have penitration rates so high and should basically, have mainly dealer instull to only get the people that request it. Those same people, 3 and 4 years ago were not projecting the growth that has happen. They had thought back then 100,000 and 200,000 a quarter was great, but still did not think SIRI/XMSR would be profitable till 1010, 2011, or 2012 (depending on which analyst you looked at).
2,3,4) This is the same for dish and Directv and if you think the content for radio is expensive, TV. cost for content is a multiple of radio (all be it so is their ARPU). The growth rate for radio has been by far better then TV. Is radio profitable yet no, but if we are counting the years from the time both started, then radio still has more then 3 years to get to that point before they fall behind TV.
5) Most people know the first year synergies will be eaten up by the cost of the merger. The second year synergies will mainly be in the savings in SAC, consolidation of labor (you dont need 2 boards, 2 sets of ceo's cfo's, ect., ect.) you cut the fat at the top and you would be suprised at how fast the millions start adding up, and merging of departments. As for beyond that, who knows how fast other things can take place. You say SIRI needs to replace its ageing satellites, those satellites still have a life span that takes them into 2015. Now as we know, they pushed back the 2008 launch to 2009 and if what XMSR says is correct, that their satellites are able to take on both spectrums. Who knows we may see them push back that launch date again, or maybe SIRI new satellite has some new capibilities that they want now (Thats why I think synergies a vary debatable and differ so much.).
The fact is these two were, 4 and 5 years ago a real gamble, Now they have become a more stable investment. Few would think these companies would go out of business today compared to back then. At this point, most in it are speculating on how high and fast the stock price will go. Me I think it is better to get in now at 2.7 then a year after the merger at 4.5 to 5.5, or two years after at 10 to 12, or four years after the merger at 40, 50, or maybe even 70. I know you think that is crazy right. Well I heard the same crap with DISH back in 98 and 99. I did not hear it anymore in 2000 and 2001. Was I lucky, yea, that doesn't mean it cant happen again. I will also say this, Satellite TV. and satellite radio are looking alot alike. I see the same kind things (radio is gowing at a much faster pace now) and even the same thing being said about both. But I guess in the end we will see. If I lose what I have in satellite radio thats still ok, because I made just over 30 times that because of DISH. You win some and you may lose some. It is my opinion I have another winner.
One point, satellite radio on an IPod would multiply the subscriber base immensely, and with 3G you could login immediately and listen. Also, the stock price in the short term will go up, hard to deny that fact, so long or short term there is much to said for owning the stock. I do. I also have XM and love it, so the product is sound and the merger a good one in my book. When the merger goes through the stock will hit $5-6 in month or two, so why not own it?
I don't see it. XM's ratio of cost of sales vs. revenues actually got worse in 2007 vs. 2006. So the whole 'economy of scale' argument doesn't seem to hold up. Sirius seems to be better run, but not by much. The point is, it seems size (subscriber base) isn't going to help all that much.
Frankly if I had to take a position it would be short, because a merger doesn't appear to be enough to bail these guys out. However those that are long are counting on it.
ahcema's request for response to #'s 1,2,3. Lot's of debt, Loads of Capex, no profits yet. These characteristics fit any company that needs to invest in the start up of a business. It takes money to develop the product: Satellites, Launches, Sophisticated plant and equipment, advertising, content, radio chip sets, etc. All before the first subscriber. That's why at this stage most investors are "fans" and "Believers". So far most agree they have a great product with a not so great stock. This is also true of all new businesses that ultimately succeed as we have already noted above.
#4. Over paid for content? Who knows? Maybe they have, but it's the investment in good content that develops what we all know as a good product, attracting subscribers. After the merger they will be in a better position to negotiate this line item. Where is Howard going after five years that will pay him more, Not XM after the merger? Content costs to this point have been a big part of their start-up expenses. They will come down over time.
#5. .....Grossly overstated synergies..years to obtain. Again, Use Serious Fan's example above and you can see some synergies are immediate, and others will come over time. In any event regardless of the exact #'s there will be substantial decreases in operating expenses, increasing margin, FCF and Profitability down the road.
As my reasonable friend has already pointed out, when do you prefer to get in? And do you believe that this stock will go up? If not move on.
pain... 163888... Thanks for the info on NM. I looked at their website: investor relations, and down loaded their info. Looks like a lot of potential. I'm confused on how NMM figures into the equation though? Any incite?
Go to letsgodeep.com to see what I'm talking about! See where I'm going with this?
183888... Thanks for clearing NM and NMM. I saw the reference to NMM in NM's company info and saw that it also traded independently on the market but couldn't see their role. Financing makes sense. I will be waiting until after the dividend distribution mid May, hope for a pull back, and start to move in. Thanks again.
Thanks for the heads-up on NM. I got in yesterday @ $12.17
Financials come out June 30, and the CE has said it's going to be a "shocker".
Thanks ether way it gos. You watch though as soon as I buy Wed. morning it will go down. Whats that old saying; easy come and easy go.
Happy hunting!
NEW YORK, May 7, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- SIRIUS Satellite Radio (Nasdaq: SIRI) today announced that it plans to release first quarter 2008 financial and operating results on Monday, May 12, 2008.
WHAT A BUNCH OF PIGS.
OINK OINK OINK