So many have asked about Sirius XM’s (NASDAQ: SIRI)
stock price reaching the two dollar mark, I feel compelled to provide a look at possibilities. In my opinion $2 before the CC is achievable, with the usual drop down post conference call. Only this time the quick drop will be to the mid $1 .70s-$1.80s support area after it hits the $ 2.00 mark or slightly higher and the conference call is complete. My opinion is partly based on the psychology of anguish the Wall Street know it all seems to enjoy with regard to Sirius XM shareholders. Sooner or later one of these times the stock is going to move up significantly and the movement up will stick. The 112/Stern/Buchwald lawsuit filing against Sirius XM did nothing to help the situation. The short term fear mongering it created should be silenced once a settlement is reached. It really wouldn’t take a large amount of good news headed into the conference call for the 1st quarter to achieve new and possibly $2.00 plus highs. The following situations should have some impact regarding how high we go either prior to the 1st quarter CC or later this year.
- Further push out of debt (refinancing at lower interest)
- Credit or debt upgrades
- The continued removal of debt (as evidenced recently with the early retirement of 3.25% convertible debt)
- A detailed explanation of the 2.0 system(what EXACTLY it is as well as functionality; we do know that 2.0 will add more programming as well as pause, record and rewind)
- Clearly defined metrics for the CPO/Used car market conversion rate as well as clearly defined targeting of the segment
- Removal of reverse split possibility(May annual meeting)
- No extension of poison pill (May annual meeting)
Auto news has been validated as positive in the media once again…which will help when the CC actually takes place and the latest(new record?) subscriber numbers are revealed for Sirius XM.
Coming out with a positive outlook and analysis in general was nice but did little to help support the pre 4th Q conference call highs. The burning question is how high the stock runs into this CC and whether or not we finally hold on good results. Still, it appears shareholders are forced to deal with the same pre conceived media biases and short sided analysis, from those looking to help hedge fund and other short interest positions. The repeat appearance of old news and simply made up news regarding internet radio having a tremendous impact, as well as Pandora specifically hurting Sirius XM satellite radio has raised its ugly head yet again, with the same group of media bashers disseminating it repeatedly. For those who don’t know, Sirius XM does have an internet presence. One media member is also trying to bring back r/s talk when in fact, those fears were all about delisting from NASDAQ and getting the stock price above one dollar so the company could stay on the NASDAQ exchange. That certainly puts any thoughts of a r/s now in the garbage where they belong. CEO Mel Karmazin has stated there will be no r/s time and time again as well.
Looking at the Q4 results, what is interesting is how retail subscriber losses have slowed down a bit, though the company is still bleeding from the retail side. With new revenue streams available such as the cell phone apps and the reworked internet offering, along with other new offerings in a myriad of electronic products used in the home, we should expect the company to reverse this recent trend in the coming year or at least hold the trend in place with no further erosion. Continued strong updates in Conference Calls by Mel Karmazin as he has done for the last several CC and media events, should help to alleviate any fear mongering and bring excited anticipation for the next few quarters with 2.0 rolling out, reductions in CAPEX, launching of FM6, re-negotiation of royalties with sound exchange and some possible price increases or tiered pricing on the table for later this year, as well as help support a higher stock price, keeping the trend over the last 2 years intact.
The most encouraging sign is that even with all of the economic negatives revenue increased year over year (YOY) and Sirius XM was cash flow positive from operations. That is an excellent example of why these two companies had to merge to survive and the resulting synergies they provide to improve performance of the equity and the balance sheet. Not to say things are perfect, as I feel the balance sheet still needs a reduction of debt, but the company has said and done all the right things this past fiscal year to earn the right to thrive going forward so long as they maintain the same steady improvements.
Given continued positive subscriber additions as well as new record subscriber numbers as recently reported, along with positive numbers regarding auto production, what should we anticipate the impact to be on revenue, operating adjusted gains, and free cash flow? It is easy to see that Sirius XM has once again lowballed their expectations for 2011 to the media and analysts. Much will depend on steady production increases with the OEMs as well as maintaining low churn and higher conversion rates in determining how positive the numbers will actually be. The big unknown being the Certified Pre Owned car market, which still has not rolled out fully but is getting there according to Mel Karmazin. The CPO market has not been reported by the company as a separate number to this point, but Mel did hint at it being reported in a recent media event and actually gave numbers for 2010.
Other unknowns moving forward will be the impact on revenue from the following:
- The reduction of Royalty fee charges passed through to subscribers that went into effect last quarter.
- The possible price increases and tiers for subscribers later in 2011.
- The actual bottom line reduction in CAPEX post launch of Sirius FM 6 in October.
Another item to keep in mind here is the actual launch of Sirius 2.0 slated for the late 2011 timeframe in retail and further out for OEM radios into 2012 and 2013. There has been clamoring for knowledge of how 2.0 will work, however the true impact will come from public opinion of satellite 2.0 and its platform. Will it be user friendly? Will it provide any customization capability? Is it strictly a TIVO (NASDAQ:TIVO) type device which allows subscribers to record programming? Many, including analysts, are waiting to see the next generation platform revealed. Hopefully, it will be a platform that causes consumer interest to increase with its capabilities and generates some excitement post launch. The relaunch of the merged internet version of the company’s website as well as its listening platform upgrade, may provide some more small clues as to the coming 2.0 platform.
It is abundantly clear when looking at the fundamentals of this company, that revenue should continue to grow and the numbers will top Q4 2010, provided no major problems which are currently unforeseen crop up. Another question regarding profit is whether or not Sirius XM will be hit with more one time debt restructuring costs moving forward? We now know that the second quarter will have some onetime charges associated with early retirement of some 3.25% convertible debt (approx 97.5 million worth of debt)which was announced just days ago and will take place in April. The early retirement of this debt will save money for the company, though not a huge amount at this point. There should be more debt re payment as well as restructuring to come with over 800 million in debt due in 2013 over 1 billion due in 2015 and 700 million due in 2018. I would expect the $ 550 million in 2014 convertible debt to be converted to common stock at some point as the stock price should well surpass the 1.875 conversion price by then. What will Sirius XM satellite radio be worth when these scenarios play out, much more manageable debt, and much less debt through at least 2016 or 2017; at which time the company will need to start preparing for its next series of satellite launches? It is important to keep in mind that there will be fewer satellites needed moving forward as well. That was what recent repositioning of current satellites and the launch of 2 Geo Stationary Sirius FM satellites, as well as the XM 5 spare satellite were set up for, a future more integrated and less expensive, that also provides superior performance to the previous Non Geo Stationary Sirius platform. The XM platform was already GSO based and the XM 5 satellite is a spare for both the Sirius and XM platforms. Keep in mind that cash on hand will be growing as well. Let us know what you think.
Disclosure: Long SIRI
“What will Sirius XM satellite radio be worth when these scenarios play out, much more manageable debt, and much less debt through at least 2016 or 2017″—-
—and the answer is??
Steve, great article, thanks for consolidating all the major items going on with Sirius XM right now. Definatly looking forward to the next 6-18 months.
China, now one can know for sure, but I am betting it will be higher than $2.00, actually much higher.
As always, a very nice article ASM. You sum up nicely all the factors that should result in another nice run into the Q1 CC and possibly a 2.00 PPS and little doubt in my mind if not achieved prior to the CC call certainly will based on known fundamentals later this year. However, “once again”, the big question to me, at this point, is what kind of retrace post CC will we have? No doubt one of these times, as you say, the price will stick and there will be no retrace. I see you think any retrace will hold in the 1.70 -1.80 support area. My concern is short term that Q1 results will not be anything to blow investors away. David Frear explained the “beat” on FCF for 2010 was due to some “early” receipts in December. He also said that cash was being used again to pay for content (MLB) and other expenses (probably employee bonuses and some Plant & Equipment for Sat Launch). Last year Q1 had FCF at negative ($127M). Hopefully, they will do better than that and be at least positive, but with all the excitement in the media about SXM being a FCF story, I think anything under $50M or negative will be spun poorly. What are your expectations for FCF?
Boomer,
I do not expect very good numbers for the first quarter Conference call. There are quite a bit of charges hitting the bottom line, including over 100 million in early debt repayment…which is good…but still…it leaves less in the till.
what will Hawaii and Alaska add to Q1 subs do u think there will be an upside surprise?? I’m thinking maybe 400,000 just a guess fraz
Why do you say this will drop to the mid 1.70 range after it hits 2.00 ? Maybe it is the belief that this will happen that fuels the actual selling that DOES make it happen. So should I sell it $2.00 and then buy it back? I guess that is a rhetorical question.
Jerry,
My article comments are strictly based on past performance of the stock. We all have been waiting for the time that it runs up into some news and doesn’t look back. As yet it has not occured. As always…dyodd.
I never thought of that this way .. good writing.