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Yesterday's WSJ article about Sirius


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#1 of 33 OFFLINE   Philip Hamm

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Posted December 09 2004 - 03:59 AM

Did anyone else read yesterday's WSJ article about Sirius radio? Comments? Basically it all boiled down to Sirius hugely overvalued and basically doomed to failure.
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#2 of 33 OFFLINE   Ronald Epstein

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Posted December 09 2004 - 04:07 AM

Phil,

My thoughts are this....

Sirius is taking a HUGE gamble with their
investments.

From my understanding, to date, they have
been a company that hasn't made a dime.

They invested millions in obtaining NFL
rights and bringing aboard Howard Stern.

There is a good chance that their investments
will pay off in subscriber signups. There is
even a better chance the company will not meet
subscriber expectations and go belly up.

Thus far Sirius has made great strides with
subscriber signups thanks to Howard Stern. The
question remains whether the signup surge will
continue or whether it will flatline in the next
year. Sirius needs to keep the momentum it is
at and no-one is certain they can.

As a Sirius stockholder I would be nervous.
The company is actually riding on a gamble
and a dream.

I'm not an expert when it comes to stocks,
(I own XM and Sirius stock) so I hope someone
will correct me if I am wrong about this....

It is my understanding that there is so
much Sirius stock out there in circulation
that the stock either loses its worth or
faces a much tougher climb than XM radio
stock.

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#3 of 33 OFFLINE   Michael St. Clair

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Posted December 09 2004 - 04:10 AM

Put your money where your mouths are and sell the stock short! You could clean up!

#4 of 33 OFFLINE   Chris

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Posted December 09 2004 - 05:07 AM

Just so we can clarify here.. the WSJ did not take the position that SIRIUS was "doomed to failure".. What the WSJ said was that SIRIUS stock has been on an incredible upward swing, and is overvalued for it's stock worth; it's per share value (was) significantly greater then XM or other stocks (about 40% more) which was unjustifiable.

Current analysis from firms anticipate that SIRIUS, at it's continued growth rate (it is now officially over 800,000 by a fair bit, and expected to cross 1,000,000 through Christmas) has a "bright future" but it's valuation is not so hot.

To answer this point:

Quote:
There is
even a better chance the company will not meet
subscriber expectations and go belly up.

Not really. Even if SIRIUS totally misses subscriber expectations, and receives only 1/2 of expected subscriptions (ie, it begins Stern's gig with say, 1.7M subscribers instead of 2.7) SIRIUS would still not be at bankruptcy risk. Due to the structure of the deal with Stern as well as the NFL, the actual risk undertaken by the company is not such that it could be overcome.

Now, if SIRIUS were to gain no more subscribers from today to Jan, 2006, that would also not bankrupt the company, but would put it on very risky ground. However, no analyst currently projects that.

By the same note, we should point out that as of today, XM subscriber base is stagnant, no growth at all over the last few months.. this is primarily because dealer incentive "1 year free subscriptions" are expiring as new users join up. In order for XM to also stay competitive under the MLB contract (which has valuation greater then Stern & NFL combined at $700M) XM will also need to maintain a subscriber base around 2.6M.

So, both have hard targets that they really are under pressure to meet. SIRIUS has to grow to it's target; XM has to do a better job re-booking the incentive/dealer installs, and so on.

Right now, per installs, XM is in a much better place. But if dealer renewals don't start perking up, that will also be in question.
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#5 of 33 OFFLINE   Michael St. Clair

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Posted December 09 2004 - 05:24 AM

Sirius was covered in no less than six WSJ articles yesterday. Chris, I think the one that Philip is referring to is the one by Jesse Eisinger; the only article predicting doom and gloom.

Interestingly, Eisinger also writes for TheStreet.com, where another analyst, collegue Jim Cramer, is still bullish on the company.

Whenever there are new stocks that deal with new techologies, new segments, and other unknown quantities, some analysts predict success and some predict failure. There are too many factors that can't even be measured here yet. The XM CEO is crowing that they 'have not lost subscribers' to Sirius over the Stern deal, and some analysts are parroting and nodding. Yet who would think that any but the tiniest minority of listeners would switch now when Stern isn't on until 2006? I personally know five people who are switching just because of Stern, but they feel that they have 13 months to make the transition; no need to rip out that car stereo yet, go ahead and shop around for some deals for a while!

Some analysts are optimistic on Sirius, some are pessimistic. This kind of thing happens all the time on Wall Street. I'm sure the Stern haters and Sirius haters will only believe the analysts that predict failure.

If I were an XM fan, I would hope and pray for Sirius to thrive. Nothing could be worse for XM listeners than for Sirius to fail.

#6 of 33 OFFLINE   ScottHH

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Posted December 09 2004 - 05:36 AM

Both of these stocks are risky investments. Neither makes a profit, so the one of the most basic ways of valuing a stock (the price earnings P/E ratio can't be used).

One of the valuation methods popularized during the NASDAQ tech bubble of the late 1990s was price to sales (and we know how that turned out). I just poked around on Yahoo Finance and dug up the information: SIRI is around 195x sales, and XMSR is at 40x sales. Just for comparison, Clear Channel trades at 2x sales.

If the sattelite radio companies' sales grow more quickly, then they "deserve" a higher valuation; the current valuations seem extreme. To stay with the HTF them, look at Netflix. Before this one cracked, the valution looked like everyone, their kids and a family pet or two would eventually have an account. When growth was short of expectations, the stock got creamed.

If you think going long the stock is speculative, try going short, as Michael suggested. Eventually, you'll probably be right, but you might very well get squeezed and stopped out of your position before that day happens. There's nothing worse than being right and still losing money.

As for the Wall Street Journal, they write a lot of negative articles. Either it sells papers, the reporters are a bitter lot, or they're getting articles written for them by the shorts.

Ron noted the number of shares outstanding as a risk factor. The number of shares outstanding isn't a risk in and of itself. The company is worth $X, if there are Y shares, the stock is worth $X/Y. If the company's value goes up by some percentage, the stock will rise by the same percentage no matter what Y is. The WSJ article said that the company had no qualms about diluting current shareholders. That's different, and a real risk. If X doesn't change, but the company issues more shares, Y goes up. As a result $X/Y goes down, and you just got diluted.

#7 of 33 OFFLINE   Ronald Epstein

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Posted December 09 2004 - 05:39 AM

Quote:
Nothing could be worse for XM listeners than for Sirius to fail.

Out of curiosity, why is that?

I can see on the PLUS side, XM would gain most
Sirius subscribers. It would be a huge gain
for the company.

On the MINUS side, it would mean complete control
of the satellite radio industry which could
ultimately affect competetive pricing (though I
don't see XM raising their rates).

Personally, and this is no secret, I am not a
fan of SIRIUS radio. I'm not exactly in the
camp that feels SIRIUS needs to survive in order
for XM to thrive.

I'm interested to hear your thoughts on why
one needs the other.

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#8 of 33 OFFLINE   Chris

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Posted December 09 2004 - 05:58 AM

From a stock perspect, a failure of SIRIUS would send a message to a lot of potential investors that the platform itself is a risky one, and would hurt stock value in XM. Really, the best method is either both survive or one gobbles up the other; the failure of one outright damages the overall value of the sector in general.
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#9 of 33 OFFLINE   Michael St. Clair

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Posted December 09 2004 - 06:45 AM

Quote:
On the MINUS side, it would mean complete control
of the satellite radio industry which could
ultimately affect competetive pricing (though I
don't see XM raising their rates).

They wouldn't raise their rates now, because they are still trying to grow a customer base.

Eventually 50 or a hundred million people will have Satellite radio and it will become profitable (neither company is yet).

At that point, with no competition, a sole satellite radio company will start to behave like the proverbial 900 lb gorilla. Not only would prices go up, but there would be little reason to try to secure exclusive content like MLB, PAC 10, or O&A. Commercials might creep back in again with no commercial-free competitor.

Right now, XM doesn't just have to differentiate itself from FM to get customers, they also have to differentiate themselves from Sirius. This results in more choice and better service for the customers. They see the need to undercut Sirius by $3 a month; they see the need to provide a different approach in their music program, and they are starting to see the need to secure major exclusive programming. Take Sirius away, and XM doesn't need to do that.

Can you imagine a world where there is no DISH network and no cable companies, and the only premium broadcasting were on DirecTV? Do you have any idea how much they'd like to stick it to you? XM would be no different. It's just business.

Quote:
Personally, and this is no secret, I am not a
fan of SIRIUS radio.


One can enjoy the service without rooting for the company like its a football team. I hate to think how dejected you are going to feel if Sirius becomes the market leader (very likely, IMO, but it'll take a few years).

#10 of 33 OFFLINE   BrianAe

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Posted December 09 2004 - 07:44 AM

XM listeners definitly benefit from Sirius as competition. To think otherwise is crazy. Just look at the last 6 months. No more commercials (you think they would have done that without Sirius?), O&A, baseball, low rates, incentives on equipment. I read an analyst article a little while ago that predicted that even with both services, that prices will go way up and tiered offerings ala cable TV will become the norm as the services become established. For the fans of sat radio, we need both services to survive.

#11 of 33 OFFLINE   Jeffrey Taylor

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Posted December 09 2004 - 07:54 AM

It is true that Sirrius has taken a big position in "software" with the NFL and Stern, but you can bet that Mel Karmazan didn't sign on as CEO to fail. The fact that they haven't made a dime is offset by the number of car manufacturers who have signed on to sell the stuff, and the market reaction to their potential. Somebody may pick them up some day, but they aren't going anywhere.
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#12 of 33 OFFLINE   Ronald Epstein

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Posted December 09 2004 - 07:58 AM

Quote:
One can enjoy the service without rooting for the company like its a football team. I hate to think how dejected you are going to feel if Sirius becomes the market leader.

Dejected is a little harsh. Let's just say I
won't be estatic about the situation IF it happens.

Opie and Anthony have been talking quite a bit about
Sirius today in light of their stock falling 20-25%
yesterday.

People that work for O&A have worked for Sirius.
Seems things are pretty bad over there. Staff
members not getting paid while the company spends
outrageous sums of money on food spreads and perks
for their talent and executives.

O&A, who are very familiar with the new incoming
CEO, say that Mel is going to ruin that company.
His only interest is Howard Stern and trimming as
much fat from Sirius as he can.

Look...I have been at Sirius. I have seen how
some of these people are. I still hear from someone
on the inside that complains that the talent is being
stifled from playing wider playlists and that there
is absolutely no respect for the music. In my
opinion, Sirius does not deserve the success XM
has enjoyed. I know some of you take offense to
me to bashing that service, but I have no problem
keeping this board full of friendly debate that
supports either company.

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#13 of 33 OFFLINE   TheLongshot

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Posted December 09 2004 - 04:07 PM

Quote:
Out of curiosity, why is that?


XM catering more for the mainstream, maybe? XM would still have to compete with FM and internet radio.

I'd rather that Sirius sticks around, if just for those who are not very musically adventureous. There will always be a demand for the familiar.

As for Sirius stock, a lot of people thought it was overvalued back when it was $3 a share, mainly due to all the outstanding shares. Personally, I'm hoping this keeps up until after christmas, when I'll probably sell some of it.

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#14 of 33 OFFLINE   Philip Hamm

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Posted December 10 2004 - 04:41 AM

It was Jesse Eisinger's article I was referring to. I'm going to paraphrase here since I don't want to directly quote....

Sirius has a market cap of nearly $16 billion. That means the market values it as if it has already signed on 45 million subscribers.

Compare that to the entire cable-TV industry, which has around 67 million subscribers. The whole satellite-TV industry has 24 million. These numbers are from Leichtman Research.

With that kind of comparison the numbers just don't add up for how Sirius is valued. And if it loses value it won't be able to keep up with the licensing of Stern and NFL and others.

Personally I'm not a believer in the long-term viability of large scale mass market sattelite radio in any form. I think it has a place, for sales people, truckers, others who drive a lot, people who listen to music from the stations. I get a bunch of Sirius channels on my Dish Network receivers and I never listen to it! Posted Image I think terrestrial radio is just too powerful a market force, and completely free.
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#15 of 33 OFFLINE   Ronald Epstein

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Posted December 10 2004 - 05:47 AM

Quote:
I think terrestrial radio is just too powerful a market force, and completely free.

Perhaps I am wrong, but so was broadcast
television at one point.

But like the advent of cable, there was an offer
of superior programming with far better broadcast
quality.

I have no doubt that satellite radio will
continue to surge to the point where it will
affect FM listenership considerably.

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#16 of 33 OFFLINE   Chris

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Posted December 10 2004 - 11:21 AM

Quote:
Sirius has a market cap of nearly $16 billion. That means the market values it as if it has already signed on 45 million subscribers.

SIRI's market cap had risen to high. It's market cap value as of today, at 9.4B is closer to right. I know, I know, people are going to say "hey! wait a second that means X customers" No, not really. In fact, SIRI (as well as XM) still do receive marketing revenue from numerous other sources, including paid advertisements of their non-music channels, etc. In this sense, direct comparison to satellite television is slightly different, as satellite television is not an initial content provider; they relay other content. As an original content provider, revenue streams go back to them rather then host parties (IE, DISH doesn't make squat CNN does well, CNN sells it's own ads.. whereas if say, "Mike Church" or other SIRI owned media does well, then revenue generated from those shows go back to SIRI.)

In this sense, it is easier to equate stock value of a content provider to other content providers.. like Infinity Broadcast Systems or ClearChannel rather then a distribution partner.

I think what's also important to realize is that you aren't betting stock for a 6-month return, but rather, a 5-year return. SIRI has the economic fundamentals in place that their first five years are pretty well managed; they will struggle badly after that if they don't ramp..

http://moneycentral.....=103119#Rating

As an example.

Now, right now the market caps are 8B (XM) 9.1B (SIRI). Now, if the stocks were to fall through the floor, that would be one thing.. but highly unlikely because of the institutional trader volume within both enterprises.

No one, of course, knows how this will all shake out; finally sat down and read the WSJ (I've had a pile building up anyway, it's one of the few things I actually subscribe to). Some interesting views, as I always expect from the WSJ.
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#17 of 33 OFFLINE   TheLongshot

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Posted December 10 2004 - 06:05 PM

Quote:
I think terrestrial radio is just too powerful a market force, and completely free.


Also, full of comercials and limited selection.

I also wouldn't count out talk radio. All you need is that one thing that you don't get in your local market, and you could have the sale.

To be honest, I didn't think, with my large CD collection, that satelite radio would be for me. But, I find myself listening to it a lot in the car, and it is good for covering some of the holes in my collection. I wouldn't sell it short.

Jason

#18 of 33 OFFLINE   Ronald Epstein

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Posted December 10 2004 - 08:16 PM

Quote:
To be honest, I didn't think, with my large CD collection, that satelite radio would be for me. But, I find myself listening to it a lot in the car...

It's funny. While the music falls slightly short
of CD quality, I don't listen to CDs in my car anymore.

I like the diversity of music that is offered to
me through satellite radio. I like the "Oh Wow what
is coming on next" factor that the services offer.

...besides I really souped up my car stereo system
so that many would be hard pressed to know what they
are listening to is not CD.

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#19 of 33 OFFLINE   Michael St. Clair

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Posted December 11 2004 - 08:10 AM

Quote:
...besides I really souped up my car stereo system
so that many would be hard pressed to know what they
are listening to is not CD.


In my experience, the opposite is true.

A really good system is more revealing and makes the differences between satellite and CD much more apparent (if you are comparing the two).

On a crappy system, satellite and CD sound almost the same.

I do find the music quality lacking on both services, and can't listen to more than a half hour or so before it really starts to sound grating. My hand-ripped MP3s (using EAC and LAME) at 192k to 256k on my Rio Karma sound much better.

#20 of 33 OFFLINE   Chris

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Posted December 11 2004 - 10:43 AM

I'll be honest.. when I'm not listening to Audiobooks via an Ipod, I tend to listen to talk/sports on SIRIUS. Since Sunday is my big drive day (I get about 6 hours on the road on Sunday) NFL was a no brainer to have.

But when I drive around during the day, I tried the "what songs do you listen to" thing in this forum and realized that I listen to music almost not at all.. and when I do, it's not stuff I would find on either SIRIUS or XM (IE, I tend to listen to the same album repeatedly and like hearing it all the way through over and over again, until I tire of it and switch)

But that's me Posted Image
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