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SIRI (SIRI)
Looking Past the Hyperbole to Analyze Sirius
Sirius XM Satellite Radio had a busy news week. The company came dangerously close to filing for bankruptcy protection in February but a last minute deal with John Malone's Liberty Media saved the day. The stock has rebounded nicely since then, it was trading for about a nickel and now even though it is still in penny-stock land, its trading at $0.55. Sirius has become known for eliciting varying views from traders as people tend to reach different conclusions after looking at the same exact set of information. If you are curious to find out where you fall on the spectrum, read on.
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Let's start with the bullish arguments. It's a great product and 10 years ago, nobody would have taken the notion that you can get 18.4 million people each to pay an average of $10.66/month for something as basic as radio seriously. After the merger with XM, it is now the only player in town, and the chances of a new competitor popping up in the near future are close to zero -- it's an expensive business, you need tons of regulatory approval etc. New auto-sales which have always been the main catalyst for growth for SIRI are picking up and they had a great August with the cash for clunkers program. And the next major debt obligation doesn't come due until 2013, so the prospects of a bankruptcy are firmly in the background. Finally, the stock is trading around 50 cents making it very attractive and accessible to retail investors who want to make a couple of small bets here and there with a company whose product they actually understand.
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The bears have decent counter arguments to most of the above. It's a good product and yeah, there is no competition from other satellite radio providers but there are tons of other places to get music -- terrestrial radio, iPods, iPhones and services such as Pandora. Sirius is trying to get into this market by streaming their content via iPhone apps. Cash for clunkers was people with old cars trading them in, not a high percentage of them could have been receptive to a discretionary product like Sirius (we'll find out for sure when Sirius reports on net subscribers gained during Q3 next month). And yes, it is cheap to play in the stock as it trades for less than a dollar (in fact, Sirius is probably going to do a reverse stock split soon to get the stock above $1 lest it be delisted from the Nasdaq) but as the WSJ pointed out this week, there is a massive float out there -- of 3.88 billion shares. And this does not include the 12.5 million preferred shares Liberty got in Feb, each of which can be converted into 207 common shares. A conversion of the entire preferred stake would give Liberty (LMDI.A: Charts, News, Offers) 40% of Sirius. Basic point, investors should keep in mind that there are in a very crowded room when it comes to Sirius and the prize is just a company that had revenues of only $591 million last quarter and expenses as high as $554 million. The WSJ also reported that five executives of Sirius have sold nearly $3.2 million in stock over the last few months. But each of them still has a sizeable stake in the company, so no point reading too much into these insider transactions.
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The other big variable is the economy. A V-shaped recovery would be great for Sirius as that would result in new car sales going through the roof but that is probably not going to happen. Either way, the stronger the recovery, the more upside there will be in Sirius and there is something definitely some upside in stock but not as much as some Sirius enthusiasts would like to believe, e.g. don't be surprised if the stock breaks the $2 mark (not accounting for a reverse split of course) but don't expect it to break $5 anytime soon.
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What others are saying about Sirius
Back From the Brink, Sirius XM Not Yet a Buy -- A WSJ piece which opines that Sirius may be back from the abyss but it is not ready for primetime yet.
Quarterly Auto Sales Look Positive For Sirius XM -- Crunching the numbers to predict the churn rate and subscribers numbers.
The Short Road to $25 Sirius -- Keep the phrase ‘smoke and mirrors' in mind while you read this.
Anything else making news?
Citigroup Sheds Energy Unit and Its $100 Million Trader -- Vikram Pandit chickened out of finding a real solution when it came to the $100 million payday he had promised one of his traders.
Ex-Morgan Stanley executive Cruz to start fund -- One of the fastest rising woman on Wall Street until a couple of years ago is coming back.
I am just as surprised as you are -- The President just won the Nobel Peace Prize , less than a year into his term
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