Sirius XM Has Long Term Staying Power

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Includes: AAPL, SIRI
by: King of All Trades

By Gino Lattarulo

After common shareholders breathed a sigh of relief with the Liberty Media bailout, the next question of course is what might be next for satellite radio. As usual, it is anyone's guess, but I will give you some short term and long term food for thought.

For the short term, SIRI will probably be in a holding pattern. If everyone is waiting for a huge break out, it is unlikely to happen even after the next earnings report coming up, although the SIRI stock chart does show some interesting things. It seems to be supported nicely by the 21 day moving average. After its run up to 40 cents last month it did a nice Fibonacci retracement and now has formed a bear flag which could soon be used as a jump rope if it gets any longer. All of this is nice to look at from a technical standpoint. The chart points up. Great. But the stock's current price is a reflection of Liberty Media's bail out and a slight credit rating increase. Yes, all good signs. But now what? SIRI needs another catalyst and there are fundamentals that still need to play out. The future hinges on what Sirius can do in the near term to reduce their debt as well as compensate for the dreadful state of the auto industry, which is probably two years away from any kind of recovery. After all, Liberty Media is not a money tree.

But I do believe the auto industry will recover, mainly because the used car market is getting out of hand. The auto repair industry is beginning to experience a sea change because everyone is buying used cars instead of new, or simply keeping their current car. In either case, the consumer has decided that repairing their car is better than buying a new one. But guess what? That demand for used cars is driving the prices up until their values will start to bubble out. Believe it, it is already happening. But Sirius needs to find viable sources now to be able to sustain itself later. I like the the idea of partnering with Apple (NASDAQ:AAPL), which has received criticism for not being a viable enough solution. Why does every analyst want to stem a company's success on one single entity? Of course, an Apple partnership is not the sole entity that will turn SIRI around, but it is SOMETHING. And a lot of little somethings are the bread and butter of a business model.
Long term is another story. Assuming that Sirius can remain solvent for the next two years, we have a much different ball game. There are a lot of opinions that internet radio will make satellite obsolete and admittedly I was one of them. But it won't happen. When I formed that opinion I was thinking like a tech geek and not like a consumer. If you are tech savvy, you can transform your car into its own hot spot and stream internet radio 24 hours a day. But the general public is not really interested in what adapter to buy to convert their iPod or laptop into a stream source. They want to get in their car, turn on the radio that it came with, and listen to their favorite content with clarity and no buffer issues. Here is a link to a previous article I wrote about the complications with internet radio for anyone who wants to be bored to death with tech jabber. In a nutshell, internet radio will have its place, but it will not make anything obsolete. The drastic increase in band width that ISPs will be dealing with will send subscription rates higher.
Even now, companies like Sprint (NYSE:S) and Verizon (NYSE:VZ) that used to have unlimited satellite card access have placed a 5MB cap on the service (which by the way still costs 60.00 per month.) because of the increase in bandwidth demand. In any case, I don't see any single entity - satellite, internet, or iPod - being the sole owner of your media content. They will all have their place, but right now and for the indefinite future, SIRI owns 100% of the car market contract and that is large large large. And maybe someday they will decide to integrate their satellite with the mobile web.
You may find this article to be a little push and pull. It's true. But no one wants to see SIRI succeed more than I do. It is just too good. I couldn't live without my CNBC or Bloomberg radio in the mornings on the way to work. As a consumer, I think satellite radio is here to stay. As an investor, my retention of SIRI shares hinges on a recovery of the auto industry, and I really don't see the stock price going much higher than .75 to 1.00 until that happens. But believe me: if there is one person who hopes I am totally wrong about that price prediction, it is me.

No matter what happens, I will still shell out $12.00 a month for my radio service.

Disclosure: Long SIRI