I've known for some time the risks inherent in owning Sirius XM Radio (NASDAQ: SIRI), but never in my right mind did I think the company would fail, leaving shareholders with nothing but a worthless stock certificate.
And yet here we are today with SIRI trading for 25 cents per share and a market capitalization of less than $800 million. Investors are expecting the worst with SIRI. All that remains is pure speculation on survival or failure.
It really comes down to that simple question: Will SIRI make it?
If the answer is yes, then investors can still reap a tremendous reward. If the answer is no, investors will lose everything.
How did we get to this point? The answer is quite simple. Destructive competition between two competitors in a race for supremacy that never did materialized resulted in cost structures that kept pushing profits down the road.
When it was realized that the industry could potentially lose both entities, a merger was announced. Oh, but wait, a government supposedly looking out for the interest of customers dragged its heels.
Losses mounted while both companies waited and waited and waited.
Reluctantly, the government finally approved the deal, but is it too late?
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.
While SIRI shares sit below $0.50 today as the Dow plummets yet again, the company's newest radio plans are aimed at increasing subscriptions. The new plans are aimed at letting customers have more choice by purchasing programming from both the Sirius side, as well as the XM side.
Looking to boost its revenue and number of subscriptions, Sirius XM Satellite Radio Inc. Thursday announced a range of new programming options that lets subscribers buy programming from both of the recently merged rival services. The "Best of Both" plan actually tips the scales at $16.99/month, which is over $4 higher than the normal $12.95/month subscription. But, that amount does give all XM subscribers to ability to hear Howard Stern while giving Sirius folks the ability to hear Oprah's satellite show.
But the big news is this: a new $6.99/month plan will allow customers to ability to choose 50 "ala carte" channels from either service. That's what many of us having been waiting for: we may only want a few channels but don't want to pay for all of them. If you've been on the satellite radio fence for a while, will you jump on board now for less than $7 a month and get your fix? You won't get Howard or some live sports without additional fees -- and only certain radios are supported -- so be prepared.
Today's markets started out strong and got stronger.
If you were a conspiracy theorist you might even make a crack noting that Wall Street had already seen the dovish FOMC comments which signaled that rate hikes are not a certainty until after the election. Throw in a substantial drop in oil to new recent lows of under $119.00 per barrel, and the rest is all gravy.
Here are today's unofficial closing bell levels: D.J.I.A. 11,615 (+331) S&P500 1,283.28 (+34) NASDAQ 2,347.36 (+62) 10YR T-NOTE 4.007% (+0.035%) 52-Week Lows Top Analyst Downgrades Top Analyst Upgrades
Archer-Daniels Midland Company (NYSE: ADM) saw shares down over 5% in today's final minutes. Despite the stock being close to new fresh lows, traders were very unenthusiastic after the company missed earnings expectations.
Today was another day of strong selling, led by financial stocks and by earnings more than anything major. On last look oil was up more than $1.00 to almost $125.00 per barrel. Today is a reminder that a low valuation alone is not a reason to buy.
Kraft Foods Inc. (NYSE: KFT) managed to show its first substantial earnings beat. It also raised guidance on planned price hikes. Shares were up 5.5% in today's final minutes at $31.00.
"Republican commissioner Deborah Taylor Tate is the only FCC member left to vote on the deal and she is expected to do so shortly, two FCC officials close to the negotiations said," the paper said. "She is expected to sign off on the deal in exchange for a consent decree that resolves several enforcement issues involving the satellite radio companies and a combined fine of about $20 million, an FCC source close to the deal."
Even with the regulatory hurdles just about cleared, the future of satellite radio is far from clear. As my colleague Douglas McIntyre noted earlier today, losses at both companies are narrowing but their subscription growth rates are slowing. Both firms also are more than $1 billion in debt.
Though I am a big fan of the medium, I wonder sometimes whether its moment in the sun has past. Remember BetaMax and 8-track players were considered cutting edge at one time.
Three of the commissioners of the FCC have voted on the Sirius (NASDAQ: SIRI) merger with XM Satellite (NASDAQ: XMSR). Two have voted in favor, and one has voted against. That leaves two other votes. In other words, the deal could still be killed.
One of the remaining commissioners has indicated that he would vote for the merger if the companies would agree to a six-year price cap on their services. According toThe Wall Street Journal, "The offer was viewed as an attempt to start negotiations, but the companies so far are showing little interest in haggling."
Is it any wonder? The most recent earnings reports from the two companies indicate that, while their losses are getting smaller, their subscription growth rates are slowing. Each firm has more than $1 billion in debt and neither has ever had an operating profit. In other words, if the companies cannot raise their rates the chances of them becoming profitable are significantly curtailed.
The FCC may be putting Sirius and XM in an almost impossible position. If they are willing to make moves which could hurt their earnings longterm, they may get the votes they need for approval. If not, the merger could be scuttled.
The future of satellite radio is now based on two bad outcomes.
Today might have been one of the more boring options expiration dates. If you pretend that technology stocks weren't a part of the market, today was rather stable considering the major bounces we have seen. Oil stayed under $129.00 per barrel, which didn't give the bears much meat to chew on. We had essentially no government economic data today. Here are today's unofficial closing levels:
Apple Inc. (NASDAQ: AAPL) is set report earnings after the close of trading. Read a FULL EARNINGS PREVIEW. Shares of Apple were down over 3% at $166.10 in today's final minutes of trading.
Today was looking like just another one of those post-holiday trading sessions that you can look at the tape and not be able to determine if it was a win, lose, or draw. But then came the last 90 minutes of trading, and suddenly the rally caps came on. This was despite grim economic news, although that is something we just have to get used to for quite some time. Home sales posted a small unexpected increase, but we also saw a 20-year record as far as a jump in housing price declines. Consumer confidence also came in under expectations.
Anheuser-Busch Companies, Inc. (NYSE: BUD) saw a mixed reaction today. It may be getting a buyout offer from InBev in Europe, but Detusche Bank Securities lowered its rating to a "Hold" rating. Shares were only up marginally at $56.90 with a few minutes to the close.
Add Sirius Satellite Radio Inc. (NASDAQ: SIRI) to the list of stocks Wall Street thinks are undervalued. You heard that right.
If anyone wants to take the advice of these analysts, I have a bridge in Brooklyn I would like to sell you. Sirius, which reports earnings next week, is expected to lose 7 cents per share, down from 11 cents a year earlier, according to Thomson Financial. Revenue is due to rise more than 33% to $272.3 million. Their average price target is $3.86, higher than the $2.80 where the stock currently trades. The high target is a whopping $8.
I am still not convinced this is a good stock. Even if the XM Satellite Radio Inc. (NASDAQ: XMSR) merger happens, I don't see the company's prospects improving.
First of all, people aren't buying cars of any sort including those that come with satellite radio pre-installed. Moreover, Apple Inc. (NASDAQ: AAPL) has a device called the iPod. Perhaps you have heard of it.
"Now that many new cars offer input jacks to broadcast media player content through car stereo systems, won't that compete with the commercial-free digital music that makes satellite radio so appealing?" asks Rick Aristotle Munarriz of the Motley Fool.
Good point. Keep in mind that I am a satellite radio subscriber. In fact, I am listening to Howard 100 over the Internet right now. I also like my iPod. I find Howard Stern as amusing as most people and enjoy the commercial-free music such as the Grateful Dead Channel. But I am not sure whether I am going to need both devices in the future.
Until its future is cleared up, investors should avoid satellite radio even if they are fans of Howard.
Either short sellers don't think a merger between Sirius (NASDAQ: SIRI) and XM Satellite (NASDAQ: XMSR) will happen, or they don't believe that the deal will save the two debt-laden companies. Short interest in Sirius rose 20.2 million shares for the period ending April 15 compared with March 31. Total shares sold short hit 157.9 million. Shares short in XM also pushed up 6.3 million to 22.7 million.
The bets may be smart ones. The delay in approving the deal at the FCC has probably made it less likely that the merger will get the green light. A number of members of Congress have loudly protested that the new company would be a monopoly, They reason that a new entity would eventually raise rates sharply because there will be no competition to dampen prices.
The core problem with the merger may be more profound. Subscriber growth rates at the two companies are slowing. Both also have negative net income. At this point, neither company has predicted when it might make a profit.
The biggest burden that the companies have is their debt. Each has over $1 billion in long-term obligation to repay bonds and loans. In a poor credit environment, it is hard to see that paper getting refinanced at better rates.
A new company, even with some cost savings, could have enough debt to sink it.
Douglas A. McIntyre is an editor at 247wallst.com.
There are many that fear the bear hasn't died. Maybe he's hibernating. But if the bear isn't gone, he's at least lost some teeth. In the last hour of trading today, the DJIA was up more than 900 points from its intraday lows seen just last Monday. Despite weaker home prices trends not seen for 20 years and despite an absolutely dismal ugly Consumer Confidence report, the market managed to do well today despite mixed index averages at the closing bell. There was not a single earnings report that can be used for "the focus" that turned the whole market. It looks like there was actually real buying interest coupled by short covering. Here are the unofficial closing bell index averages for today:
DJIA 12,532.60 (-16.04; -0.13%)
S&P500 1,352.99 (+3.11; +0.23%)
NASDAQ 2,341.05 (+14.30; +0.61%)
10YR-TBond 3.492% (-0.03)
Monsanto (NYSE: MON) rose almost 10% to $114.54 after the agriculture giant raised guidance for both Q2 and for fiscal 2008 based on strong seed sales and all other markets firing on all cylinders.
The acquisition -- not a merger -- has been held up for eons by phony arguments that combining these two floundering companies would limit choice. Terrestrial radio and consumer groups have been lobbying hard against the deal, arguing that anything that benefits Howard Stern can't be good for America.
I can't see how the FCC can block a deal that the DOJ approved after examining the deal under and electron microscope. The medium won't survive if the companies stay separate. Even fans of satellite radio admit that it is a niche medium. Then again, so is cable TV.
For me satellite radio is a godsend, particularly on long road trips. I enjoy listening to Sirius while tapping out my blog posts. I particularly like the commercial-free music channels. Regular radio has annoyed music fans by piling on commercial after commercial between tiny slivers of music.
Satellite radio can avoid the fate of BetaMax by continuing to produce high-quality content that people want to buy. It's that simple and that complicated. Freelance writer Jonathan Berr edits the blog Ketchup and Eggs.
Sirius Satellite Radio (NASDAQ: SIRI) ended the year with 8.3 million subscribers, up 38%. The company would probably prefer to have had its merger with XM Satellite (NASDAQ: XMSR) approved, but the subscriber growth is a consolation prize.
Chief Executive Mel Karmazin told The Wall Street Journal, "Our gross subscriber additions in 2007 were the highest in the history of satellite radio."
That still leaves open the question of whether Sirius is a viable company without the merger. It lost $121 million last quarter and it has long-term debt of almost $1.3 billion.
Some analysts believe that the merger will bring savings. But, the talent on the two satellite networks is not likely to want to take pay cuts. The new company would also have to run two networks for some period because the systems are not comparable.
The subscriber additions are nice news, but the company is still a long way from being viable.
Douglas A. McIntyre is an editor at 247wallst.com.
The sizable hurdles of regulatory approval on the part of the Justice Department and the Federal Communications Commission (FCC) remain. Those opposed to the collaboration say the deal would create a monopoly in the satellite radio industry and point to the failed merger attempt between EchoStar Communications (NASDAQ: DISH), parent of the DISH Network, and DirecTV.
I've known for some time the risks inherent in owning Sirius XM Radio (NASDAQ: SIRI), but never in my right mind did I think the company would fail, leaving shareholders with nothing but a worthless stock certificate.
Okay, let me state clearly at the beginning here that 
Today's markets started out strong and got stronger. 
Add Sirius 
Sirius Satellite Radio
The storied merger proceedings between 
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