Okay, let me state clearly at the beginning here that Sirius XM (NASDAQ: SIRI) closed on Monday at $0.27 per share. Right from the start, you know we're talking about a risky stock -- a lottery ticket, as they say. And since our subject is the result of a recent merger, there's a lot of pro forma data located in the press release detailing the satellite-radio company's Q3 performance.
According to that pro forma data, revenues increased 16% to almost $613 million. The pro forma net loss was halved to $0.09 per share. It's funny, because when you look through the numbers, you almost feel compelled to come away with a good feeling about the story. Total subscribers increased 17% on a year-over-year basis, subscriber-acquisition costs decreased, cost synergies are manifesting themselves, and projections for free-cash-flow generation seem to be attractive.
However, one has to realize that an attractive cash-flow statement isn't around the corner. Positive free cash flow should begin on an annual basis in 2010. Plus, Sirius XM management must deal with refinancing its debt. And it did make a $4.8 billion write-down relating to goodwill impairment. Also, the economic problems of auto manufacturers such as Ford (NYSE: F) and General Motors (NYSE: GM) are not helping Sirius XM. If car sales are down, then adoption of the satellite-radio company's programming is challenged. It's a simple relationship.
Look, I don't like fooling around with stocks that are priced like pocket change. It's not my style, and I don't think CEO Mel Karmazin is the world's biggest genius by any stretch of the imagination. Yet, I think satellite radio could be financially successful over time, and I think some of the big names that Sirius XM has working for it (the biggest example being Howard Stern) might indeed bring in the cash flow.
The only way I would play the stock is if I had triple-risk capital to burn (and I don't). So, I'm definitely not recommending a buy here. I just wanted to be honest and say that, although I was prepared to hate the quarter due to the stock price, I didn't. There are a lot of risks attached to Sirius XM, no question. Better visibility on the debt refinancing and further information on cash-flow projections are needed. But could the stock be an interesting speculative gamble? I can't say that it wouldn't be; if the company doesn't disappear, and the economy improves, who knows. Each investor will have to judge the Sirius XM story on their own.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
11-11-2008 @ 10:11AM
Mike O said...
This could be a good gamble if you can wait 2-3 years. The stock has nowhere to go but up.
SiriusXM will continue to cut costs as they continue to dump redundant workers (and redundant content).
Also, keep in mind that they now provide programming for all major auto manufacturers.... that's big.
11-11-2008 @ 1:34PM
SIRI-LOVER said...
Most are missing an important part of the SIRI / auto relationship. Before they had 20-40% of the 16 million autos sold; now they have 50-70% of the 10-12 million autos estimated to be sold in 2008. These numbers should only go up unless we go back to walking or buggies.
11-11-2008 @ 8:02PM
JamesD said...
Why are we so perplexed with "US Auto makers" recent history has proven their downward spiral, this company is not only safe but also smart, just tune your TV to any station playing commercials... Hyundai, Toyota, Lexus and many more offer Satellite radio options.
11-12-2008 @ 12:36AM
Victor Medina said...
remember CB's? How about all the USB connections now being installed in car radios? Any body ever heard of HD Radio? Satellite had quality on its side now thats gone. As far as content any body remember the last show of Howard Stern. Satellite moves personalities to the margins and music is cd qualty on HD. How much profit did they make over the last 5 yrs? $0.00 Can you say internet bubble.
11-12-2008 @ 12:22AM
art said...
Get out of this "dog star" before it goes to zero. I bought the predecessor (CD Radio) IPO and flipped it years ago (1999?). I think that was the last time someone made money on satellite phones or radio. Satellit has too much competition from HD, terrestrial/free, and MP3 players. To boot, its overpriced "talent" like bonehead Stern is a drain on earnings. Add the depression in, and this company is just a dead man walking.
11-21-2008 @ 2:13PM
bob said...
buy all u can buy.
12-15-2008 @ 8:13PM
kennyk said...
I feel that SIRIXM is dead and have lost a lot of money on this stock also channels that i listen to has gone away and Mel K needs to be fired, Need new Directors to put the Company in order or BK will happen thanks.