SIRIUS XM Radio Marches Forward

As we have watched Sirius XM Radio (NASDAQ:SIRI) shed its negative image and show real promise again in the metrics of the company, there are still writers and bloggers out there writing and posting some overly negative commentary.   The truth usually lies somewhere in the middle, as a shareholder I see a glass half full, but there are many who see a glass half empty.  What really frustrates investors are the stories that come out with a negative slant and only a half-hearted attempt at providing real information, usually backed up with no facts.  I have included several excerpts below from articles which appeared over a period of several weeks and included Sirius XM Radio that I perceive to be negative and unjustifiable connotations.  Many are just attempts to scare off the average investor thinking about investing in SIRI stock.

Let’s begin with Scott Rothbort and his article entitled “The Worst Run Companies of 2009”:

Mr Rothbort writes: ”That this company hasn’t made my list in the past is a major oversight on my part.  Sirius XM — the merger of two poorly managed and capitalized companies, Sirius and XM — is a classic case of a great product (satellite radio) coupled with a bad business model.  The company is burdened with more than $3 billion in long-term debt and $4.5 billion of intangibles and goodwill.  The strategy of giving large deals to big-name stars such as Howard Stern and Chris “Mad Dog” Russo doesn’t really seem to have paid off.  Management relied heavily on the automobile industry to spur sales, and we know how successful that has been.  Perhaps government-sponsored cash for transistor radio program could help Sirius survive.  Its date with destiny will be in bankruptcy court.”

What Mr. Rothbort fails to mention is that Sirius XM Radio has only operated for just over a year as a combined entity during one of the worst recessions in our history, and that competition between Sirius Satellite Radio and XM Radio pre-merger resulted in many of the financial issues the company now is re-working.  Those issues have truly become non issues moving forward, as there is no one the company is bidding against directly for talent anymore.  In addition, many of the debt issues are being overcome by synergies and cost savings created by the merger of the two companies.  Also, the company has added new revenue streams with the internet and Apple iPod and iTouch application, as well as the new SKYDOCK which turns an iPod or iTouch into a full fledged satellite radio.  While things are not perfect, the company has moved far from the threat of Bankruptcy in a very short time.  It should also be noted that Liberty Media’s Greg Maffei recently called Sirius XM Radio “the anchor of the LCAPA portfolio”, noting that their investment had and was continuing to pay off handsomely.  This is undoubtedly due to their focus on moving into new markets and sectors.  Does Mr. Rothbort claim to know more about this situation than Greg Maffei or John Malone? I highly doubt that is even remotely possible given their experience.

Moving on – the following is from a Mike Santoli article in Barron’s entitled ”Don’t Sweat the Junky Stuff”: “For sure, the market won’t keep going up an average of 0.4% a day, as it has since July 13  and aside from the above-mentioned financial stocks, there has been some recent frothy speculation in lottery-ticket stocks such as Vonage (VG) and Sirius Satellite (SIRI), which should serve as a caution flag.”

Apparently, Mr. Santoli knows very little about Sirius XM Radio, and follows the opinions of Jim Cramer and the strongly biased street.com, who have posted comments ranging from “SIRIUS should not even be a stock,” to “SIRIUS stock should be given to the bond holders.”  That last part is kind of funny.  Why would you say a worthless common stock should be given to the holders of the company’s debt – if it is as worthless as you so loudly pronounced?

This next little tidbit is from a Rick Munnariz article at Motley Fool entitled “Apple Fails SIRIUS XM Again.”:  “I’m a satisfied iPhone owner.  I subscribe to both Sirius and XM.  Convergence — at a premium — is no slam dunk.  Apple is a developer magnet, with thousands of apps shouting “pick me!” in the App Store. It’s hard to get noticed in a crowd, especially when you’re competing in a realm of fierce, no-cost rivals.”  iPhone owners are paying AT&T $20 to $30 a month for unlimited data plans that give them access to free apps including Pandora, IMEEM, and Time Warner’s (NYSE: TWX) AOL Music.  Wireless isn’t the future for satellite radio.  XM has offered limited programming at discounted prices for years through its XM Radio Mobile platform.  It’s available through Alltel, AT&T, and select models of Research In Motion’s (Nasdaq: RIMM) BlackBerry.”

What no cost rivals is he speaking of?  Pandora is charging $36 dollars a year right now for their ”FREE” service to not have annoying advertising pop ups coming at subscribers.  Slacker charges $3.99 a month for unlimited skipping of songs you don’t want to hear and no banner or pop up advertising.  Neither sounds free to me, and neither has the content quality and variety you get with Sirius XM Radio.  IMEEM and AOL music are a stretch to even include as competition. As for wireless not being the future of SIRIUS XM, they are getting down to business with the internet version of their service.  It has a price, but also has much better content and variety than IMEEM or AOL music.  There is also a new wireless tabletop internet radio out there to take advantage of the premium Sirius internet stream, introduced by Sirius XM Radio recently along with the SKYDOCK for the Apple Ipod Touch and Iphone at the new products show.

Last but not least, is my favorite comment from “Beware of Penny Stock Profits” by Anders Bylund at Motley Fool:  “Moreover, many of these and other penny-stock winners are still extremely speculative. Sirius may still collapse under a capital-intensive business model.”

I will simply counter with this, as Mr. Bylund apparently didn’t do his homework before writing his article.  The 2nd Quarter saw a surprise in reduction of subscription losses at a time where the economy was still horrible for the most part, and GM and Chrysler were going through Bankruptcy proceedings.  Sirius XM Radio also has managed to pay off its loans from Liberty with new offerings at significantly lower interest than Liberty was, and they paid no penalties or fees for terminating the Liberty loans early.  Sure appears like sound business to me so far!

In addition, cash for clunkers has done nothing but help subscriber numbers  leading into the 3rd Quarter conference call.  Recent roll out of used car programs may well bring a positive surprise in the numbers.  Synergies of the combined company are providing real cost savings, and by his own admission Mel Karmazin was cautiously optimistic based on very good July numbers at the second Quarter conference call as well as at the recent Liberty shareholder meeting.  During the Liberty meeting he commented that he tried to persuade the Liberty team to postpone their meeting till after SIRIUS XMs Q3 meeting was over.  Now add in the Sirius XM Radio app for APPLE iPhone and iPod touch, the just released skydock, and the ability to pass royalty payments to subscribers.  The royalty passthrough, though slightly negative, is only fair.  When you put these factors together, along with the fact that Sirius XM Radio has moved the majority of its debt out to at least 2013, stating that SIRIUS may still collapse and is extremely speculative seems like a long and jaded stretch.  Sure there is a possible reverse split available to be excercised through mid 2010; However, more than likely as Mel Karmazin took the time to say last week at the Liberty investor meeting, that will not occur any time soon.  The company has no plans to implement a reverse split right now and is concentrating on increasing shareholder value.  I see the reverse split as a good event if implemented properly at the right time and in a stronger financial position.  Mr. Karmazin even went so far as to say the focus was on EBITDA growth and free cash flow to increase shareholder value recently at the Liberty investor meeting.

Yes that is correct folks, Mel Karmazin spoke at a Liberty investor meeting as part of the Liberty team.  As Sirius XM Radio continues to implement its strategies and cost-cutting measures, it is not a stretch to say that Sirius XM Radio will survive and thrive, you simply have to look at the facts.

Position: Long SIRI