By Brandon Matthews
In a Fox News exclusive, Sirius XM Radio (SIRI) CEO Mel Karmazin sat down with Neil Cavuto to discuss the current Satellite Radio environment. Karmazin reiterated his position that Sirius XM is now a cash flow growth story as opposed to a subscriber growth story, as he described the newly merged Sirius XM Radio’s generation of positive free cash flow. He indicated that free cash flow is what will enable the company to pay down debt, buy back shares of its stock and make acquisitions.
Seemingly frustrated with misconceptions of those critical of “overpriced” talent, Karmazin explained that he has been witness to such misnomers throughout his career, and that the company is prepared to pay what is necessary to attract and retain such talent as Howard Stern.
Karmazin dismissed any rumors that he might consider another job offer stating that he would not accept a job as number two to Warren Buffet and that no amount of money could convince him to leave Sirius XM Radio. Karmazin explained that he has no desire to run another large media company.
In taking on the competitive landscape, Karmazin likened the competition to an era where 8-track tapes were supposed to have been the end of terrestrial radio. Stating that Sirius XM realized trailing revenue of $2.5B a year, Karmazin goes on to explain that this interview for example was being listened to all over the country as it occurred on Sirius XM Radio, and that the content available on Sirius XM Radio is much more than just music.
Position: Long SIRI
Absolutely right on, Brandon. I also listened to the interview in its entirety and was extremely impressed with the very positive outlook and metics. It is clear that Mel’s projection of increasing free cash flow – quarter by quarter into the future – is the number one diving force for Sirius XM going forward. In Mel’s words, this will enable future stock buy backs, paydowns of debt, and the ability to pay for the very best talent available on radio. Note – of significance – there was no mention of any contemplated reverse-split, while there was a mention of stock buy backs in the future. To my way of thinking – this is very significant -as there has been rampant negative speculation about the impact of reverse-splits (totally unwarranted, in my opinion) – and Mel’s comments about the possibility of future stock buy backs should really put this reverse-split speculation to sleep for the time being.
When I first read your article, I thought, whoa, that wasn’t the main focus of his interview, it was about generating free cash flow. So, I went back and listened again, I think you may be on to something here Brandon. It’s clear Mel was very emphatic about being #1 and that he would not be good as a #2…this must be killing him to be dependent on anybody in any way including Liberty. His enthusiasm at now generating FCF and indicating it could be used to buy back stock makes me now think that maybe that will happen as you outlined in your previous article. I guess it depends on whether or not he can overcome any legal covenants that may prevent this from happening as well as any reluctance on the part of Liberty…the man seemed to be beaming with confidence…you just might be on to something Brandon…
Well Mel certainly looked like a confident CEO of a company on the rise. I think he is well aware of what’s in store for this company, and that’s major cashflow. If SIRI can show the folks on Wall Street that Mel wasn’t just blowing smoke up their ass, this stock has a real potential to jump back to the ranges we all had hoped for. It’s starting to feel good being a shareholder as if any week now the breakout we have been hoping for is just on the horizon.
I like the interview also. However, won’t it take several quarters to generate the FCF needed to do a substantive stock repurchase? Seems like we either need a waiver from the SEC or a 4th quarter profit that some analyst is willing to bet a forward PE on to take the stock above $1.
Sorry, meant a waiver from Nasdaq (for some reason anything negative I immediately jump to SEC).
Brandon,
Once gain another great article and video as evidence that you have provided to your viewers. Your articles are always full of insight and facts. I have watched the video 2 times today and yes, Sirius the star is the brightest star in the sky and it seems that the future of Sirius XM Radio inc is very bright with the leadership of Mel Karmazin.
Richard Keane, narrator Stock Shock
A few things that stuck out to me in the interview.
1) Mel is not going anywhere and that is how I like it as I wouldn’t want anyone else running this ship.
1 Billion dollars in savings since the merger
2) Mel advertised the lifetime subcription package. Not sure why he would advertise that as other plans would bring in more revenue in the long run. Strong subscriber base could be the goal here.
3) Content is KING, and Mel is willing to pay for it. I do believe Sirius XM will step up to the plate and give Howard a 10% raise to retain his services.
4) Sirius XM projects 60% penetration rate and 11-12M cars sold, which is in line with experts, in 2010.
5) Mel inherited a business model that didn’t work and an economic environment second only to the Great Depression. Now, Sirius XM has a business model that works and has fixed its balance sheet. Mel can focus on what he does best, which is run operations.
6) Focus is on revenue and not subscribers, as it should be. Investors want a profitable company.
7) 2.5 Billion dollars in trailing revenue
9) Mel sees an environment where AM, FM, and satellite can co-exist together.
10) Mel cannot be the #2 guy
The future looks bright for the company, and the stock is at .65-.66 cents. I am going to keep preaching how undervalued it is until it is not.
Love it.
As allways, a great article that you have provided to us. U realy are a very good member to this company and it’s sherholders.
Thxs Brandon
The title of this article should have been: Sirius XM CEO talks of Future Acquisitions on Cavuto. Then you could go on to speculate that Sirius is going to buy Microsoft or someone. Because it’s just as plausible (in fact, he mentioned acquisitions first) as what you’re asserting above. Of course Mel mentioned acquisitions, share buy-backs, and debt paydown in the interview as those are basically the only things you do with cash. But you make it sound like its going to happen next quarter.