Bearish Report Sends Satellite Radio Lower

Goldman Sachs analyst Mark Weinkes outlined a bearish situation for SDARS (Satellite Digital Audio Radio Service) that sent both Sirius (SIRI) and XM (XMSR) plummeting lower on heavy volume. Weinkes, who has been bearish for quite some time, went grizzly bearish. Both Sirius and XM had staved off previous anticipated Goldman lows until now, but new price targets set even lower seem to have taken the feet right out from under satellite radio.

Weinkes established new price targets of $1.75 and $6.50 for Sirius and XM respectively. These new prices are down from $2.25 and $11.50. The new prices would give more implied room at the bottom than many previously anticipated, and the new lower targets could well have given short traders more confidence that a short position would pay off better than they previously had thought.

Goldman cites slowdowns in subscriber growth, debt refinancing, existing costs associated with debt, and a lower revenue per subscriber as some of the reasons for their latest thoughts on this sector. The lower price targets even with a merger are frustrating enough for longs, but a $1.00 standalone price on Sirius shows that Weinkes is no fan of the satellite radio business model.

All of this transpires just as it appears that Sirius and XM may be on the verge of FCC approval of the license transfer, paving the way for the companies to merge. Goldman sits at the direct opposite end of the spectrum than Citigroup, which has much higher price targets for a merged company. So far it would appear that Goldman has a large audience listening to their analysis.

Disclosure: Long Sirius, Long XM

Comments

[Lendog]

You didn't mention the Cowen note!



Cowen & Co. comments on Sirius Satellite Radio (Nasdaq: SIRI) and XM Satellite Radio (Nasdaq: XMSR) after the stocks sold off 12% and 17% yesterday, respectively, following a negative research note from Goldman Sachs.

The firm said they disagree with the Goldman note and expect FCC approval of the merger and the debt restructuring to drive a rebound of both stocks in the near term.

Some points Cowen made:

- The increased penetration of Chrysler and GM should generated higher Q/Q and Y/Y OEM adds, more than offsetting any slowing in vehicle sales.
- Sees merger synergies at $5B.
- Sees FCC approval of the merger in July
- Debt to Be Renegotiated by Closing
- Expects Arb Spread to Re-Narrow

[Wez]

Tyler, you're a great example of someone who can report and discuss stocks without coming off as biased in either direction. Some of us here appreciate it as there is a lot of pitching and pumping that goes on here.

[gekko13]

I just have to question the timing of the downgrade. Why didn't they do this a while back? Why just days before the merger? I'll tell you why--so they can have one last chance to drive the price down so they and their cronies can pick up shares on the cheap. If margin calls can be avoided, then we longs are in a better position. You can bet that at these prices there's gonna be a lot of interest from raiders, arbitreurs and other institutions. Because this FACTS cannot be overlooked: 1- 200 million in monthly revenue in the short term post-merger. 2- Terrestial radio will be slowly CRUSHED. 3- Competition such as MP3s, etc are temporary, supplemental alternatives to satrad if you will. Remember the cassette deck? It was used ALONG WITH am/fm.

So hang on peeps...ALL GOOD THINGS TO THOSE WHO WAIT...AND DODGE THE MARGIN CALLS!

[User 202507]

goldman thosew $#%@^!&*!@($#%#@^@...

[ripped]

Here's the note I sent off to wank job at GS:

It seems I know more than he does.

"Saw your dg today.

Can I ask you why you think the numbers over the last year would, in any way, have anything to do with the numbers post merger?

No one has been buying at retail because they don't know what to buy and because there has been zero marketing effort regarding it and very little dollars spent.

It's like comparing apples and oranges for you to say everybody has decided SatRad was the flavor of the day and now is not.

Let me also ask you about this. What kind of marketing muscle, aside from billions in cost savings, do you think the combined company will bring to market?

Let me give you a small example. Post merger watch for the combined entity to offer a subscription that offers SatRad with 3 free downloads / month from their new Music library service.

Watch that library and software become loaded onto the desktop as an OEM with Microsoft's new Op system.

Watch penetration rates of 100% on every new car over the next three years. And watch the deals with Nokia, Samsung and Motorola.

Even in light of your short sighted analysis, subscription rates increase each and every quarter. AND THAT IS WITH THE COMPLETE FOG OF THE MERGER!

Once that lifts the marketing message gets rammed home solidly. This xmas you will see SAT RAD re-invigorated.

Your analysis does not take any of this into consideration. You have not given enough weight to the pre -merger situation as it exists currently and how it has affected retail.

Essentially you've acted like the kid at the school yard who yells "Pig pile".

Your analysis is so lopsided and ill informed regarding the future plans for Sat Rad that your ultimate motives have to be questioned regarding all affiliations.

Are you tuned into how World Space would get folded into the post merger scenario and what is planned regarding Europe over the next 5 years as World space gets a new MO?

Of course you're not. You use the past as your crystal for the future. While your clout secures a self fulfilling prophecy that makes you right short term, you couldn't be more off base and ill informed about what a merged future means and will ultimately look like.

It's really not that hard to forecast. You should hire a futurist
because you can't seem to see the forest throught the trees.

But thank you, not since Elan was taken done to single digits has there been a pile on scenario like this that sets up the same
blast off. I'm on the other side of your trades big time.

Oh yeh, really nice quarter over there. . . keep up the good work and see how much more your firm can lose this year. Now there's a short!

Ripped.

[Tyler Savery]

lendog....

I published the article on my site yesterday. SA picked it up today. The Cowen note was not out at the time published. I did cover the Cowen note in a second article today.

wez...

Thank you for the kind words

[dave010a]

Given today that all I can do is focus on the disaster that is Sirius Satellite Radio stock, I would like to pose a question to you all:

What will it take to change the paradigm regarding Sirius and get this stock climbing instead of tanking?

From Mel?
From Analysts?
From the numbers?
Etc?

Thanks in advance for anyone's thoughts on this. I still believe there will be a renascent moment for Sirius; I just don't know what it will take.

[Wez]

Other than Mel's big purchase of shares in 06 there is nothing but selling. It would be nice to see some confidence by the people who run the company.

Those same people, likely Mel who makes most of the announcements, will need to come out and totally change sentiment on this dog. Not just puffery but clear paths to profitability sooner rather than later. Maybe some new big money relationships, basically something other than the usual "So and so joins with a new broadcast...." which usually just means they spent more money. They have the content, they need creative ways to bring in more money.

[connorport]

People..lets not look only at the negative reports but the +90% positive reports. it seems people are looking for any negative press to "Panic Dump" a stock these days. My outlook on stock buying is..Dont listen to analyst..most of the times they are wrong or on an economic bandwagon that anyone can read who has a speck of a noodle up there. Sirius satelite stock is on Blue Light special for a limited time.

[omagod500]

Tyler - thanks for your diligent, accurate, unbiased reporting on the satellite radio industry.

I am confident that it is just a matter of time and those who stuck with it will be rewarded for their patience. I just wish I had more cash to invest at these prices.

The above post by Wez mentioned the hiring of talent.

I am a big Howard Stern fan - and if you look at the Sirius stock, it certainly reacts to him. Look at the pop in 2004 - he announced his contract on Oct 4, 2004, SIRI opened at $3.23. It peaked around December 20, 2004 at around $8.08. It peaked again during the Xmas buying season just before he went on the air (Nov - Dec 2006) and has been in steady decline since.

My question for you Tyler, and of course anyone else who would care to respond, is do you think Stern has been worth it? Would he be worth an additional 5 year $500M contract? In terms of subscriber revenue, you can see similar jumps during the same above mentioned time periods, which I assume reflects the loyal Stern fans signing up after his announcement and before he went on the air. I wonder if some of the palpable anti-SDARS sentiment from Congress, the FCC, and Terrestrial Radio is due to their hatred of Stern (and anyone who listens to Stern regularly knows of his "F*** the FCC!!!" soundclips, which probably doesn't help the situation).

Stern says he is sure he will be retiring at the end of his contract. I do hope that this will not result in any material drop in subscribers, but I am nervous.

I did get the radio just for Stern, but I will be keeping the service whenever he retires, as you can't beat commercial free uncensored radio, especially if you travel a lot in your car. An Ipod does not cut if if your spending the whole day in your car. I hope all those who signed up just for him feel the same way. He does it less often know, but for the first year or so after Stern went on the air at Sirius, he would take the occasional call which would repeat my exact position - "Hey I got the radio for you, but I'm keeping for the music.." and then the caller would rant how great the service was.

His contract expires in 2011 (I think), so this isn't a pressing issue right now, but I do think about it when I am considering the future of satellite radio. I at least think that the stock would react positively if he announced an extension... but $100Mil/year is big money. Thoughts?

[Wez]

Stern has helped bring members, all he was supposed to, mission accomplished. Was he worth it, hell no. In the grand scheme of running a successful business, this merger needs to yield sustainable revenue far and above what Stern brings. They need to be able to survive his retirement (which he has cried wolf so many times) and go so far beyond what ever extra revenue he brought with his fans.

I bought this stock a few years ago when I used to listen to Stern in the car and thought like so many others that they may do well. That was before I learned to think before I bought stocks. I bought on the hype alone and refused to sell despite what the market was telling me.

I'm keeping my shares because I do think the merger will happen and be beneficial, but I expect Mel to deliver on a company with success far and above any Stern hype.

[4play2]

Hey Ripped, You asked the GS analist Winky if he knew how Worldspace would be folded into the post merger scenario? I would love hear the answer to that myself. I have a small investment in WorldSpace as well as siri. BTW I did participate in the Blue-Light special today at $1.99. Thanks Goldman.

[clamsy]

weinkes is a TOOL...the market gets manipulated everyday by these idiots...ill bet weinkes has a beard buying siri for him right now....f.ckin tool!!!

[bababoooie]

Tyler,
Was Mr. Weinkes the same analyst responsible for the opinion that you cited for GS on March 26th?
If so, this gentleman is very consistent.

The financials of the company may go either way, but the psychology of the statement made by Weinkes bears in mind at this point in time a quote by FDR, "We have nothing to fear, but fear itself". With little reference information from other analysts, the investors focus on the only known available (the negative GS outlook).

Citing the March 26th report:
“Catalyst:
We believe SIRI shares, having closed at $3.15 following the DOJ approval, have likely marked a near-term high, similar to the $3.75 February 2007 peak upon deal announcement. Given a combined $11.5 bn EV and $7 bn of implied synergies, we recommend investors sell SIRI shares to take advantage of likely: (1) continued deterioration of fundamental trends; (2) recognition of potential FCC conditions and integration risks; (3) unfavorable debt refinancing; or (4) de facto FCC rejection of the deal. With the DOJ approval now out of the way, the primary obstacle cited to shorting the stock has also been removed, with the market now more apt to apply a more appropriate valuation relative to the opportunity.”

It would appear that FCC acceptance and the FCC conditions are now known elements, based upon Kevin Martin statement and formal filings by Sirius. It would appear a greater emphasis has been made on items 1 & 3 by Mr Weinkes, and rightly so. The automobile market is still on a downturn (majority of sales), as well as the financial market (due to the continued housing issues). The statement of SELL, SELL, SELL by GS is merely a reiteration of earlier statements, reinforced by market conditions. I believe that the downward trend of the stock was the catalyst Mr. Weinkes’ used as a basis for his bearish opinion. Taking these elements into account, a cautious approach is warranted. So…………HOLD.

[lukeskywatcher]

I've seen this tactic before-the big boys put the big scare on the shareholders, drive the price down, then buy back making money on both ends. It's called selling short and buying long. If you have the guts and fortitude to wait it out, the reward is coming....

[BillyViscount]

Ever hear the old saying "wear em' out or scare em' out," pertaining to the stock market. Well looks like the FCC did the wearing and GS the scaring. As for me, this was a terrific buying opportunity to add to my position, at a better price point than 4 years ago! LONG SIRIUS

[Oii55544]

Everyone knows that I'm very pro satrad for many years...but ... GS has been about 85% accurate on the stock prices since November of 07 when they called for a 2.25 stock price on Sirius in one year. They have "missed" the general consensus of many giving the merger a 30% chance.... and hopefully, they are not as correct on the merger odds (they have become more positive as of late) as they have been on financing, share price and market trends.

Just because someone's opinion is different, doesn't make the other guy wrong.... there are motives also for Citi who hopes to fund SIXM as well as potential hostilities @ GS if they DON'T get the finance deal.

Just remember, they are all fucking crooks, just like paid off Congressmen and special interest FCC members. There are few Jimmy Stewart's left in the world, and especially in NYC.

[Blues Gal]

Amen, plowboy!

[seraphim]

I think you're right on the money, Luke. Why doesn't everyone else see it? "Beat it down and buy it up." It's fascinating to watch the big boys in action.




On Jun 20 06:09 PM luke skywatcher wrote:

> I've seen this tactic before-the big boys put the big scare on the
> shareholders, drive the price down, then buy back making money on
> both ends. It's called selling short and buying long. If you have
> the guts and fortitude to wait it out, the reward is coming....

[User 134967]

i,m with you and these analyist should go to jail when thier caught scamming us all. so them and thier inside buddys can make money of the backs of the small investor. i,d like to see where he gets his stats for the 1.00 dollar price target. first of all people are not gonna stop buying cars and cars and music go together. he might want to pull his head out of his ass and stop thinking only in america do they listen to sattilite radio. thier selling cars faster than they can make them in india and china and you can bet your ass these people are gonna want some music in thier cars. and i doubt it very much if thier gonna want to listen to red communist radio. this will be siri next domain.so if i were you i,d buy as much of it at this price as you can and screw that asshole.he shouldn,t be an anilyst he should go see one. uncle mike


On Jun 21 05:25 PM seraphim wrote:

> I think you're right on the money, Luke. Why doesn't everyone else
> see it? "Beat it down and buy it up." It's fascinating to watch the
> big boys in action.
>
>

[Tyler Savery]

In my opinion Howard Stern gave Sirius and SDARS an identity when it was needed. Howard brought a fan base. He made it well known that satellite radio is an uncensored format. He made it known that there was commercial free music. He gave SDARS something much bigger than simply his show.

Was the deal expensive? Yes. Was he worth it? In my opinion he was. Is an identical contract worth while as an extension? That is yet to be seen. I think the csah component is likely doable, but the shares that he got need to be considered strongly.

Thankfully SDARS should be in a much bette position when it comes time to negotiate. Being in that position will give Sirius the ability to weigh the issue without desparation.

[sparky]

I hope Goldman's comments are investigated.. But, at the same time the commentary substantiates the case for the merger and the financial fundamentals will speak for themselves in future quarters. I just hope that the commissioners put as much stock in Goldman's assessment as the street has.

Tyler, nice work on the coverage. Is a MP3 / SDARS device a solution? Also, can internet operate off current satellite signals, or would they have to integrate WIFI into those devices? After the merger, what's next for Satellite Radio?

[muley101]

Mark Weinkes is driving while looking in the rear view mirror, and ignoring the forward momentum and synergies of the combined company. He has unwittingly helped the case for the merger, which is certain to happen within a month. Stockholders hang tough.