Has The Sirius XM Used Car Opportunity Been Over-Hyped? [View article]
user692741-
"someone please check my math."
Think about it... If the new vehicle conversion rate is only 44%-46%, and the company loses more than 20% of its self-pay subscribers each year to churn, you would realize that they don't have a market share approaching anywhere near 50%. Further, if you note that the company added only 2 million subs while the total number went from 42 million to 52 million in the past year, you should be able to see the fallacy of your argument.
The key is that the total only represents the number of vehicles with OEM installed satellite radios. For a long time most of the Sirius radios were sold at retail. The "inventory" of OEM equipped vehicles with a satellite receiver is growing rapidly, and the number of inactive radios on the road is growing far faster than the number of subscribers.
One last clue. The company expects to have about 1.6 million net adds this year, including re-activations. The total number of factory equipped vehicles put on the road should exceed 10 million (67%-68% of a projected 15.4 new vehicle sales).
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
Porcelain Altar-
"When do you think Malone will believe his "high basis shares" are not so high. "
Probably later this month when the one year anniversary rolls around on Liberty's first open market purchase. Then, more aggressively in early July (the anniversary of the settlement of the first forward).
"I'd encourage you to take a breath and look at the 5 year chart. "
Sorry, but I don't make buy and sell decisions based on charts. I find Sirius overvalued at the current time based on the projected FCF per share.
"I'd say the current $.28 would probably now wipe out the premium you received when you purchased. "
Yes, it would, but why bother to close it out? I'm fine up to about $3.75, and these shares are unlikely to be called before before January, even if the stock trades above $3.50 or $3.75. Unless the calls are used as part of a hedge, the buyer will make more by selling the call than by exercising it. Anyway, the time decay will eat into the premium.
I just don't see a company generating $915 million in FCF worth $28 billion.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
FarLeft-
"I think most projections that model a RMT have it happening after the share repurchase program has ended. "
Not sure I understand this position. The initial share buyback is only for $2 billion. That's not nearly enough to allow Liberty to sell back its high basis shares and have a spin where Liberty stockholders end up with a majority - an RMT requirement.
I'm expecting Liberty to sell the high basis shares ASAP and then spin the rest while extracting a premium. It fits previous Malone moves and avoids taxes on the $9 billion gain for the "zero basis" shares. Even after that occurs, there is no reason that Sirius won't continue to buy back shares (and maybe begin a regular dividend, like Comcast).
"To date SiriusXM is a cash cow reducing debt interest, increasing creditworthiness, "
I suspect the days of reducing debt are over for the foreseeable future. Liberty wants the increased leverage and the low interest rate environment will drive the increase in debt - probably up to the maximum allowable amount.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
90210-
"Eventually, things will balance itself out."
To the best of my knowledge, Sirius management has never acknowledged that the OEM is GM.
Anyway, what will occur is a "permanent" reduction in paid promotional subscribers, a part of the top line total subscriber and a reduction in revenue. In other words, and assuming the OEM has a 45% conversion rate, 55% of that OEM's new car production will disappear from the paid promo and total sub lines. The other 45% drops out for the duration of the trial and then will work its way into the self-pay line.
An increase in ARPU should also be expected as these (presumably) lower monthly fee subs are removed from the population. This is expected to be offset by a reduction in expenses for revenue share.
According to management, the overall profitability will increase.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
candooman-
One satellite will be launched later this year. I believe the next build cycle won't start until late 2016 or early 2017 according to comments made by Frear at Piper Jaffrey. FCF will be more than adequate to cover that and it should have no impact on the timing of the buyback/RMT.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
sirifiar-
"What you envision is pretty much the opposite of what you have been saying all along like siri would never get "cheap" loans whereas I have been saying that it WOULD and it DID."
I try not to use absolutes when writing about an indefinite future and doubt that I wrote something like "siri would never get "cheap" loans." And, I still believe that Liberty will load Sirius with debt, and that the higher the debt climbs, the higher the interest rate will be. I would not be surprised to find the holding company creation as a way to leverage the company further. After all, Meyer did state "Additionally in the next several weeks we also form a new holding company to enhance our financial flexibility." What type of financial flexibility do you suppose they need?
You have been overly optimistic and consistently wrong ever since I became a member of SA, and you haven't toned it down. Here are a couple of my favorites. Part of a comment of yours made October 28th: "Personally, I have ZERO doubt that liberty will not participate in the buybacks with their open market shares (not preferred and not those converted). As the result, we will see about 1.3B shares removed from the market. I am certain this will happen within the next six months and the share price will easily jump to $4 before mid-next year."
In those six months we saw Sirius buy back 209 million shares. Hey! That's pretty close... only off by 1.1 billion shares.
Or how about this one from last summer: "I maintain that my projections are absolutely realistic. My experience clearly demonstrates that I correctly predicted siri's future on all major issues. The latest example is preposterous claims that liberty is about to take control of the company. I refuted strongly because liberty will NEVER get control without good faith negotiations with Mel and serious concessions. This is exactly what is happening today. All liberty can say is that they are no longer in a hurry. Aug 11 04:18 AM"
Would you care to recap all those good faith negotiations and serious concessions?
"So, my argument that siri's only problem has been an obscene share count ..."
Share count is not the real issue. Lack of FCF per share is. I have stated repeatedly. It is not the share count that determines the value of the company, it is the current and projected growth rate of the FCF.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
hdweiner-
"1] Too many investors will disagree about the value and importance of FCF."
I'm not one of them. Although, I'm not a fan of EBITDA or Adjusted-EBITDA.
"[3] It's about finding us in the same investment and whether that's a disadvantage."
If his motives don't align with yours, it could be a disadvantage. To the extent Malone still wants the RMT and is ready to over-leverage SIRI, it can retard the share price appreciation of SIRI.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
Jack10000-
"Sirius does usually guide conservatively, but"
I agree. And, because they are conservative, there are enough moving parts to allow the company to offer extra discounts to boost renewals or conversions in order to make the subscriber numbers, while at the same time it's still able to beat the low-balled revenue guidance.
" I'm just surprised at the continued emphasis on total net subs, when even Sirius started to push the "paying subs" guidance... "
Just to be very clear, the emphasis is on "self-pay" subs. Total subs reported includes all "paying subs" regardless of who pays. There is another category reported by Frear on the CCs called "total trials" which includes both paid and free trials. So, aside from the 24.4 million "total" subs, there were another 1.7 million free trials taking place.
BTW, I thought Frear discussed the self-pay number more than on most previous calls, but as long as the top line sub numbers continue to set new highs and show good growth, I would expect the company to continue to tout its success. I think they are still laying the groundwork for the shock expected in Q4 2013 and Q1 2014.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
hdweiner-
" More specifically, my use includes the market for SIRI shares and the automotive (re-)sales market the size of which affects SIRI financial performance.
FCF is NOT unrelated to sales. "
No, FCF is not unrelated to sales, but the price of SIRI shares has little to do with feeding the FCF machine.
"It may be argued that you are assuming LMCA is so distracted by its other investment opportunities that it fails to appreciate the possible benefits..."
Many things could be argued, however this was less about Malone being "distracted" and more about $2.4 billion worth of high cost basis shares that LMCA holds (705.8 million shares currently trading in the high $3.30's). Malone tied up some $1.7 billion to make those purchases, maybe more with interest and fees. However, the key question is what to do with a $9 billion gain on the "zero" cost basis shares? It looks like Malone may now have his sights set on Charter and rebuilding a cable empire.
The wedding plans were put in place more than 4 years ago. While the ceremony only occurred 4 months ago, the investment landscape has changed a lot since the shotgun wedding was first envisioned.
Anyway, I keep seeing comments about doing a lot worse than having John Malone as an investor or why the investors in Sirius have their interests aligned with Malone. If you want to align yourself with him, wouldn't it make more sense to buy Liberty or Malone's other holdings?
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
Jack10000-
" I didn't see any SA comments on Sirius only adding 309,000 self paid subs last Q."
I'm still working up to the subscriber issues. I started with a look at ARPU, and I have little doubt that the company will meet the guidance, even if it's done by sacrificing ARPU. That sacrifice should become less noticeable as the hike in MRF works its way through the sub population.
(Oh, and by the way, it's a tad worse than you wrote... only 304,386 self-pay net adds.)
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
Jack10000-
"we should rely on the comments from Meyer and Frear that they sought a leverage of 3.5."
I guess I look at that number as a floor. The criteria in the covenants was referenced as operating cash flow.
As to the rest, I just don't see Liberty wanting to wait while FCF builds slowly and that it's more likely to move the leverage above the 3.5 figure and closer to the max. At these interest rates, servicing the debt is not the issue.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
hdweiner-
" In a rising market for SIRI, growth feeds the FCF machine "
How so? Why would a rising market impact FCF? Or, I suppose I should ask you to clarify which market you are referring to... Also, how does LMCA extract a ton of cash from Sirius XM? By selling them back their shares? You are assuming that LMCA does not have what they perceive as other investment opportunities. Malone's recent transactions have been more on the television side of things and Internet based companies.
"I just question any inference that an RMT is likely any time soon."
Define "any time soon." I already wrote that I see it no earlier than a 2015 event. Spencer has written extensively about the importance of getting a majority of the minority to vote to approve the RMT. With many investors wanting to become independent of Liberty, that may be sufficient motivation for the minority to vote to support the RMT.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
bassoonist-
"In the back of my mind it seems like s&p put out a ratio of 4.5 to 1 as their threshold for lowering siri's credit rating, "
Thanks. I thought S&P's number was 5.5x for a downgrade, but that goes back to a report from last August. Also, S&P includes capital leases in its ratio and then there is the whole idea of net debt and gross debt.
"So would the time frame be >1 year or do you think recent events have accelerated the RMT? "
I think the time frame has been pushed out because of the cost of the buyback due to the rise in the share price. Sirius can support a significant increase in debt with the very low interest rates, but the covenants will make that difficult. There are ways around this to a certain extent, but that could present other problems.
Has The Sirius XM Used Car Opportunity Been Over-Hyped? [View article]
"How could any avenue that brings in customers and revenue be overhyped, "
The markets look forward and build in this opportunity. If too much is expected, and those expectations aren't met, the stock price will adjust.
Has The Sirius XM Used Car Opportunity Been Over-Hyped? [View article]
"someone please check my math."
Think about it... If the new vehicle conversion rate is only 44%-46%, and the company loses more than 20% of its self-pay subscribers each year to churn, you would realize that they don't have a market share approaching anywhere near 50%. Further, if you note that the company added only 2 million subs while the total number went from 42 million to 52 million in the past year, you should be able to see the fallacy of your argument.
The key is that the total only represents the number of vehicles with OEM installed satellite radios. For a long time most of the Sirius radios were sold at retail. The "inventory" of OEM equipped vehicles with a satellite receiver is growing rapidly, and the number of inactive radios on the road is growing far faster than the number of subscribers.
One last clue. The company expects to have about 1.6 million net adds this year, including re-activations. The total number of factory equipped vehicles put on the road should exceed 10 million (67%-68% of a projected 15.4 new vehicle sales).
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
"When do you think Malone will believe his "high basis shares" are not so high. "
Probably later this month when the one year anniversary rolls around on Liberty's first open market purchase. Then, more aggressively in early July (the anniversary of the settlement of the first forward).
"I'd encourage you to take a breath and look at the 5 year chart. "
Sorry, but I don't make buy and sell decisions based on charts. I find Sirius overvalued at the current time based on the projected FCF per share.
"I'd say the current $.28 would probably now wipe out the premium you received when you purchased. "
Yes, it would, but why bother to close it out? I'm fine up to about $3.75, and these shares are unlikely to be called before before January, even if the stock trades above $3.50 or $3.75. Unless the calls are used as part of a hedge, the buyer will make more by selling the call than by exercising it. Anyway, the time decay will eat into the premium.
I just don't see a company generating $915 million in FCF worth $28 billion.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
"I think most projections that model a RMT have it happening after the share repurchase program has ended. "
Not sure I understand this position. The initial share buyback is only for $2 billion. That's not nearly enough to allow Liberty to sell back its high basis shares and have a spin where Liberty stockholders end up with a majority - an RMT requirement.
I'm expecting Liberty to sell the high basis shares ASAP and then spin the rest while extracting a premium. It fits previous Malone moves and avoids taxes on the $9 billion gain for the "zero basis" shares. Even after that occurs, there is no reason that Sirius won't continue to buy back shares (and maybe begin a regular dividend, like Comcast).
"To date SiriusXM is a cash cow reducing debt interest, increasing creditworthiness, "
I suspect the days of reducing debt are over for the foreseeable future. Liberty wants the increased leverage and the low interest rate environment will drive the increase in debt - probably up to the maximum allowable amount.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
"Eventually, things will balance itself out."
To the best of my knowledge, Sirius management has never acknowledged that the OEM is GM.
Anyway, what will occur is a "permanent" reduction in paid promotional subscribers, a part of the top line total subscriber and a reduction in revenue. In other words, and assuming the OEM has a 45% conversion rate, 55% of that OEM's new car production will disappear from the paid promo and total sub lines. The other 45% drops out for the duration of the trial and then will work its way into the self-pay line.
An increase in ARPU should also be expected as these (presumably) lower monthly fee subs are removed from the population. This is expected to be offset by a reduction in expenses for revenue share.
According to management, the overall profitability will increase.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
One satellite will be launched later this year. I believe the next build cycle won't start until late 2016 or early 2017 according to comments made by Frear at Piper Jaffrey. FCF will be more than adequate to cover that and it should have no impact on the timing of the buyback/RMT.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
"What you envision is pretty much the opposite of what you have been saying all along like siri would never get "cheap" loans whereas I have been saying that it WOULD and it DID."
I try not to use absolutes when writing about an indefinite future and doubt that I wrote something like "siri would never get "cheap" loans." And, I still believe that Liberty will load Sirius with debt, and that the higher the debt climbs, the higher the interest rate will be. I would not be surprised to find the holding company creation as a way to leverage the company further. After all, Meyer did state "Additionally in the next several weeks we also form a new holding company to enhance our financial flexibility." What type of financial flexibility do you suppose they need?
You have been overly optimistic and consistently wrong ever since I became a member of SA, and you haven't toned it down. Here are a couple of my favorites. Part of a comment of yours made October 28th:
"Personally, I have ZERO doubt that liberty will not participate in the buybacks with their open market shares (not preferred and not those converted). As the result, we will see about 1.3B shares removed from the market. I am certain this will happen within the next six months and the share price will easily jump to $4 before mid-next year."
In those six months we saw Sirius buy back 209 million shares. Hey! That's pretty close... only off by 1.1 billion shares.
Or how about this one from last summer:
"I maintain that my projections are absolutely realistic. My experience clearly demonstrates that I correctly predicted siri's future on all major issues. The latest example is preposterous claims that liberty is about to take control of the company. I refuted strongly because liberty will NEVER get control without good faith negotiations with Mel and serious concessions. This is exactly what is happening today. All liberty can say is that they are no longer in a hurry.
Aug 11 04:18 AM"
Would you care to recap all those good faith negotiations and serious concessions?
"So, my argument that siri's only problem has been an obscene share count ..."
Share count is not the real issue. Lack of FCF per share is. I have stated repeatedly. It is not the share count that determines the value of the company, it is the current and projected growth rate of the FCF.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
"1] Too many investors will disagree about the value and importance of FCF."
I'm not one of them. Although, I'm not a fan of EBITDA or Adjusted-EBITDA.
"[3] It's about finding us in the same investment and whether that's a disadvantage."
If his motives don't align with yours, it could be a disadvantage. To the extent Malone still wants the RMT and is ready to over-leverage SIRI, it can retard the share price appreciation of SIRI.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
"Sirius does usually guide conservatively, but"
I agree. And, because they are conservative, there are enough moving parts to allow the company to offer extra discounts to boost renewals or conversions in order to make the subscriber numbers, while at the same time it's still able to beat the low-balled revenue guidance.
" I'm just surprised at the continued emphasis on total net subs, when even Sirius started to push the "paying subs" guidance... "
Just to be very clear, the emphasis is on "self-pay" subs. Total subs reported includes all "paying subs" regardless of who pays. There is another category reported by Frear on the CCs called "total trials" which includes both paid and free trials. So, aside from the 24.4 million "total" subs, there were another 1.7 million free trials taking place.
BTW, I thought Frear discussed the self-pay number more than on most previous calls, but as long as the top line sub numbers continue to set new highs and show good growth, I would expect the company to continue to tout its success. I think they are still laying the groundwork for the shock expected in Q4 2013 and Q1 2014.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
" More specifically, my use includes the market for SIRI shares and the automotive (re-)sales market the size of which affects SIRI financial performance.
FCF is NOT unrelated to sales. "
No, FCF is not unrelated to sales, but the price of SIRI shares has little to do with feeding the FCF machine.
"It may be argued that you are assuming LMCA is so distracted by its other investment opportunities that it fails to appreciate the possible benefits..."
Many things could be argued, however this was less about Malone being "distracted" and more about $2.4 billion worth of high cost basis shares that LMCA holds (705.8 million shares currently trading in the high $3.30's). Malone tied up some $1.7 billion to make those purchases, maybe more with interest and fees. However, the key question is what to do with a $9 billion gain on the "zero" cost basis shares? It looks like Malone may now have his sights set on Charter and rebuilding a cable empire.
The wedding plans were put in place more than 4 years ago. While the ceremony only occurred 4 months ago, the investment landscape has changed a lot since the shotgun wedding was first envisioned.
Anyway, I keep seeing comments about doing a lot worse than having John Malone as an investor or why the investors in Sirius have their interests aligned with Malone. If you want to align yourself with him, wouldn't it make more sense to buy Liberty or Malone's other holdings?
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
You're welcome.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
" I didn't see any SA comments on Sirius only adding 309,000 self paid subs last Q."
I'm still working up to the subscriber issues. I started with a look at ARPU, and I have little doubt that the company will meet the guidance, even if it's done by sacrificing ARPU. That sacrifice should become less noticeable as the hike in MRF works its way through the sub population.
(Oh, and by the way, it's a tad worse than you wrote... only 304,386 self-pay net adds.)
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
"we should rely on the comments from Meyer and Frear that they sought a leverage of 3.5."
I guess I look at that number as a floor. The criteria in the covenants was referenced as operating cash flow.
As to the rest, I just don't see Liberty wanting to wait while FCF builds slowly and that it's more likely to move the leverage above the 3.5 figure and closer to the max. At these interest rates, servicing the debt is not the issue.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
" In a rising market for SIRI, growth feeds the FCF machine "
How so? Why would a rising market impact FCF? Or, I suppose I should ask you to clarify which market you are referring to... Also, how does LMCA extract a ton of cash from Sirius XM? By selling them back their shares? You are assuming that LMCA does not have what they perceive as other investment opportunities. Malone's recent transactions have been more on the television side of things and Internet based companies.
"I just question any inference that an RMT is likely any time soon."
Define "any time soon." I already wrote that I see it no earlier than a 2015 event. Spencer has written extensively about the importance of getting a majority of the minority to vote to approve the RMT. With many investors wanting to become independent of Liberty, that may be sufficient motivation for the minority to vote to support the RMT.
Liberty's Plans For Sirius XM Take Another Step Forward [View article]
"In the back of my mind it seems like s&p put out a ratio of 4.5 to 1 as their threshold for lowering siri's credit rating, "
Thanks. I thought S&P's number was 5.5x for a downgrade, but that goes back to a report from last August. Also, S&P includes capital leases in its ratio and then there is the whole idea of net debt and gross debt.
"So would the time frame be >1 year or do you think recent events have accelerated the RMT? "
I think the time frame has been pushed out because of the cost of the buyback due to the rise in the share price. Sirius can support a significant increase in debt with the very low interest rates, but the covenants will make that difficult. There are ways around this to a certain extent, but that could present other problems.