By Brandon Matthews
Yesterday, Sirius XM Radio (SIRI) reported its third quarter results, which can only be described as outstanding by any measure. Subscriber growth has returned, revenue has increased, costs continue to fall as any future liquidity questions have now been put to rest. As critics attempt to spin the results, much like a sports fan would blame a referee for a favorite team’s loss, they ignore the most important facts that the company has now achieved positive free cash flow and cash flow break-even. This while beating earnings expectations by .02 per share. All of this has been achieved in just over 1 year since the merger of the two Satellite Radio giants, demonstrating the futility of betting against the future success of Sirius XM Radio.
Nothing worth having or doing ever comes easy. The N.Y. Yankees just won the World Series, but it took time to get there. There was doubt and fear earlier in the year. Injuries, losses and other obstacles that needed to be overcome. In the end, not a single critic nor their combined assaults were able to prevent the 2009 Yankees from realizing their destiny. Likewise, the verbal assaults that will no doubt come today from Sirius XM critics will have little in the way of fact and much in the way of misplaced negative speculation. Facts don’t lie. People Do.
Today begins a new era as Sirius XM can no longer be justified as a radio company and compared to the likes of Clear Channel and other failing radio companies. The Satellite Radio provider has leapfrogged its way into a new weight class of subscription based companies such as Direct TV and Comcast. Cash flow breakeven and free cash flow cannot be ignored. It cannot be denied. It means that all future growth will go directly to the bottom line, which means company shareholders will reap the rewards of victory.
Today, shares of SIRI remain on sale at .62. Tuna Amobi of Standard & Poors has a 1.00 price target on the equity. Jim Goss of Barrington Research Associates has provided a target of 1.30. The current quarter looks to be the most promising quarter in the company’s history, as a new nationwide branding campaign is about to begin and retailers such as Apple, Best Buy and Radio Shack promote new Satellite Radio products. By December, everyone in America will know that Sirius XM Radio is here to stay. Demand will increase. Churn will drop. Retail will again be on the rise.
For the critics that remain, the game is about over. The clock is running out and they have no timeouts left. All they can do now is grab a face-mask and hurl insults as they cry of their misfortune. Enjoy the victory Sirius XM. You’ve earned it.
Position: Long SIRI
Props. Exactly what needs to be said.
This company will prove to be a steamroller. The combination of superb, unique and proprietary CONTENT coupled with equally superb and proprietary delivery systems will definitely propel Sirius XM to dominance of the radio industry into the future. Likewise – the business model of translating free trial periods into paid subscriptions at an unusually high success ratio (50% according to Mel Karmazin’s recent comments with regard to auto trials experience)reinforces the strength of the Sirius XM stategy for explosive growth in years to come. This model is now being expanded to include the entire wireless/internet arena – all reinforcing Sirius XM’s fundamentals and potential.
What’s not to like?? (Unless you are Jim Cramer!)
RAF…….Thank You!!
You have a huge fan in me and so many who follow
your writing. We have turned the corner and are out
of the woods now……The Best is Yet to Come!!
Mark H
I have to shake my head at the inaccurate reporting that is still out there, but I am heartened by the fact that in the very near future, I think we will all be smiling at their lack of integrity. For those of us who have had the opportunity to buy at lower prices thanks to the media’s bashing, we can give thanks to those who have had an interest in being less than truthful. Of course, they will not admit that they were “wrong.” After all, we all know they are not “wrong” when they misrepresent facts or greatly exagerate, or leave out pertinent facts. “Wrong” is when you represent facts as they are and, using those facts, give an opinion of a situation that turns out differently from what you predicted.
Unless someone needs the money right away to pay bills (and that affects a lot of people these days), I think our patience will be rewarded. We have been waiting a long time, so I suggest we all hold on for awhile and wait for the big reward and not give in to the naysayers by settling for pennies.
Yippee!
buy, buy, buy!
Yeah, as a long, I’m happy with the results yesterday. But, I’m also facing the reality that growth is going to come slowly over the next 4-5 quarters for Sirius–unless car sales are revised significantly upward for next year.
T.Amobi has a $1 SP target, but he also cites significant overhangs of slow subscriber growth, high interest payments on debt, and a potential reverse split. Everyone on this site is talking about impending analyst upgrades, but he didn’t seem entirely impressed with Sirius near-term growth potential. In fact, he didn’t change his opinion even after Q2–Hold.
The skies-the-limit hype on Sirius may need to come back down a bit closer to earth.
INVESTORS do not forget that all these positives were accomplished in the ‘Great Depression II’. My biggest worry now is being overcome by technology. But I think we have that on our side now, as well. But our biggest plus is CONTENT. Thanks, Mel! I love you man!!
Where is Montly fool author Rick? I cant wait to read his next article. LOL.. He projected negative subscriber growth for SIRIUS/XM.
Good article Brandon. What I like most about the CC is that Mel delivered exactly what he said he would deliver and that is why I have every confidence that he will continue to deliver. Just have to continue to have patience. CY 2010 is going to be nothing but Green!
great read!!!
Great article. It can very tough at times to hold on to your investment when one hears all the negative comments about Sirius. Even Rick from MF actually had something good(sic) to say. Patience will rule and all will be rewarded.
Appreciate the work here, Brandon, but wouldn’t a team like say, the Marlins, be a better comparison of the Sirius/XM model than the Yankees? No wait, I guess, like the Yankees, SXM can afford to dish out a half billion in contracts even if there is nobody to bid against them.
Great Article. The true investor can read and see the facts. A long investor can wait as the flagship is rebuilt after the merger. No competition as the old contracts expire. Our cost will continue to decrease and revenue on the rise. The future is bright.
Long Siri
Sirius will end up with a loss of subscribers this year–without looking up the numbers, somewhere in the range of minus 400,000-500,000. This is based on car sales of roughly 10.5 million.
So, the question is, how many subscribers can Sirius gain on car sales of 11.5 million?
2010 positive factors compared to 2009:
1. Higher penetration rate
2. SkyDock sales
3. Less market confusion/better marketing
4. CPO program
What do you think the number of subscriber additions for 2010 will be? 300K? 500K?
Either way, the number is not great. Hence, Mel’s estimate of revenue increase of “mid to high” single digits.
Obviously there will continue to be cuts in costs, hence, Mels guidance of a 20% gain in EBITDA. So, let’s say EBITDA is 600-700 million next year, what does that mean for the share price?
Another 20-30% from here? .74? .80?
If that’s the case, the impending reverse split will seriously drag on the share price. So, next question, what to do from here? Near-term prospects (1 year) don’t seem positive. Long-term could be better, but who knows.
I’d be interested in other’s thoughts on Sirius growth potential. And not just how it’s going to be a “steamroller.” Thanks.
Great Piece Brandon! I have a question that you or one of the staff or maybe cos1000 or RAF can shed some light on. With the merger 2 companies became one, how does that relate to the dilution of shares? With the growing number of shares how much of those shares can be attributed to Sirius + XM? In other words are the shares watered down as much as it seems by just looking at the growing number of shares?
I was very disappointed to hear that the long-term penertration rate will only reach in the mid .60’s per Mel. I thought 90% or more was probable at some point. This business model is stil broken and I’m disgusted. Unless retail picks up considerably or the OEM conversion rate & churn improve significably, growth will be anemic.