Sirius XM Radio's Q2 Call Keeps Investors Guessing 15 comments
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I find myself at a complete loss in attempting to figure out the point of having a conference call in the first place. For starters, Sirius XM (SIRI) issued a press release that immediately caught the attention of the investment community. It was very well received and the stock initially began an ascent. Then the unthinkable happened, Sirius XM spoke. It was not a sell off, mind you, as the overall market took a beating. If not for the numbers they reported it could have been a very, very bad day.
The first problem I have with the conference call is that it lacked any emotion or excitement. In a businesslike manner, numbers were given. Any questions from analysts were deflected or deferred. I don’t think one straight answer was given to any analyst at the end of the call. Ironically, Sirius XM offered much more clarity in the future, yet offered none at the call.
An analyst from JP Morgan wanted to know how much of the 400 million dollars in synergies might be realized this year, and the question was dodged much like a politician would avoid answering a question. When Merrill Lynch’s analyst asked about marketing plans, the response was that the company wanted to talk to the retail community before talking to the financial community. Again, no answer was given.
Cowan was reported by a certain clueless writer to be upset with a 3 year time-frame for OEM interoperable radio introductions. (This particular article was probably written to generate more web traffic to his site, so I won’t perpetuate it by linking to it). More on that in a moment. Mark Wienkes basically requested an instant combined report, but that did not really deserve an answer. The call was regarding results ending 6/30/08, not 8/07/08. This tells me that the analysts are looking to see the big picture, and not seeing it.
The problem with not answering reasonable questions is that analysts will lose interest in everything else and feel smitten along the way. All a human being can think about in that moment is that they were dismissed as though their question had little or no value.
The next problem with the conference call was that it was far from accurate, in my opinion. As noted above on the issue of interoperability, I find this inaccuracy is because any manufacturer, at any time of their choosing, can implement what is known as a “running change.” This happens frequently in the automotive manufacturing industry, and is usually the result of parts changes. A radio is a part. The only issue is making the new part fit seamlessly into the manufacturing process. If an interoperable radio was the only radio available, it would be installed in every car on every assembly line tomorrow.
The top line run rate was reported to be at 2.4 billion dollars. I looked at the combined income figures and the run rate is closer to 2.48 billion dollars. That's an 80 million dollar upside surprise potential in revenue, in the current environment and without any increases given in Q4 revenue from new offerings. Under-promising in a big way seemed to be the play of the day.
Another analyst wanted to know if the 400 million in proposed synergies included incremental revenue increases from new offerings, which was answered with a tone of “probably not, but we are going to keep you guessing!” No mention was made of any expected increases from the navigation offerings as well. As investors, it seems we are expected to continue to wait until Q4 to be informed. Is it any surprise the stock cannot recover?
The ironic thing is that most companies will put on a dog and pony show. This call was the exact opposite. Perhaps that was the intent in itself. As usual, we are left guessing as to what comes next.
Position: Long SIRI
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This article has 15 comments:
As for GS they have this odd 'conviction' basis they use now for some of their ratings, and that is indeed nothing better than a 'wild ass guess'. Why investors need analysts to 'guess' for them is beyond me, so I dismiss GS and their $1.00 price target as nothing more than BS!
SiriusXM has strong upside potential is 'my guess', but it seems that we will have to wait a few months to get a better handle on the real effects of the merger. I am willing to wait for now, and just hope that Mel's 'penny pinching' reputation is a good one.
It really does look like this stock is being manipulated. Charles Schwab sent me a request to borrow my shares. When I called and asked why, they said they just had some clients who wanted to borrow them. When I brought up shorting them they finally said their clients wanted to short them, but said they could not be sure shorting the stock would bring the price down. I called bullshit on that one. Nowhere in the document did it say they wanted to short the shares.
On Cramer's show today Mel said we'd have an investor call after Labor Day. I hope he and his staff will be ready to lay out the financials and marketing plans for the combined company going forward.
On Aug 11 04:56 PM nygiants58 wrote:
> WOW, the combined price for XM and SIRIUS programming will be $30
> a month. I can't afford that, I don't who can. I rather just listen
> to my IPOD or free radio.
if you cant afford $30 a month, you cant possibly own any stock. We all know what are options are, we dont need a bandwagon jumper to tell us.
1) Sirius XM management did not provide any forward looking comments designed to increase stock desireability. (looks like they want the stock to trade lower, for the time being)
2) The valuation of the stock (from a longer term perspective) is way too low - looking at standard valuation practices ( I won't go through the formuleas) should be much closer to $3.00 per share. Considering the debt taken on by the company for the merger, it should be of little concern since the debt is long term, due in 2014 (if I read the release info correctly) and the company is projected to be profitable by 2009 - so should easily be in a position to repay the long term debt.
Looking at both these facts, I do get the feeling that Sirius XM may be responsible for the stock pricing lower. This leaves me with the impression that the company may be using this situation to possibly buy shares at the depressed price to improve the companies long term position when the merger debt becomes due (I don't quite understand how they structured the deal - but one thing is clear - they didn't issue more stock but used borrowed stock to finance the deal. Hypothetically, if the financed price was at $1.87 per and the company can aquire up to 50% of the stock used as collateral @ $1.40 to 1.45 and then can get a kick up to $2.20 to 2.30 then the debt is completely covered, with only an outlay of the initial cost of shares (far less then the inital estimates of 4.3 billion when the stock was trading @ about 2.50). Any kick above 2.30 is gravy. I am foggy on how they are structuring the details, but I believe that Sirus has to provide Sirius stock to the XM stock holders - only way they can do that is buy it, unless they issue more stock. Since they 'borrowed it' for the merger - they still have to buy it in order to satisfy the conditions under which they borrowed. Am I wrong?
If some one has a better picture, be glad to listen.