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What do vampires, leeches, and Sirius XM Radio (Nasdaq: SIRI ) CEO Mel Karmazin have in common?
One bite and they can bleed you dry.
The difference, of course, is that vampires and leeches don't have message boards that fill up with passionately irate shareholders who feel as if the whole world is out to get them by driving shares of Sirius XM lower, when the real culprits are coming from inside the house.
Love the product, hate the stock
It's not easy for me to give Sirius XM the "scary stock" treatment because I've been a satellite radio subscriber for four years. I love the product. However, I'm also a realist -- I can separate the service from the stock.
Investors may also want to learn to separate the company from the stock. When I opened up the floor to reader suggestions to save Sirius XM, a few suggested a charity drive where shareowners and subscribers kick in a little coin to keep the company going.
The problem, of course, is that its 18.6 million collective subscribers will be just fine if common stakeholders go to nil. If Sirius XM files for bankruptcy next year -- a very real possibility, as if the pocket-change share price didn't tip you off -- Sirius and XM will keep broadcasting. It will only be the shareholders who suffer as their stock gets wiped out by creditors, who in turn may hand off the company to a private equity firm or perhaps a terrestrial heavy like CBS (NYSE: CBS ) , Clear Channel, or Cox Radio (NYSE: CXR ) .
It's pretty grim when Goldman Sachs analyst Mark Wienkes lowers his price target to $0.25 a share, as he did this week. A quarter? Are you kidding me? Jukebox money for a share of the premiere satellite radio provider? Wienkes has been one of the more vocal critics of Sirius XM since the drawn-out merger process. I may have disagreed with him in the past, but there's no sidestepping the obvious: He nailed it this time.
Look out below
As bad as things appear to be at the moment, things can always get worse.
We're now less than four months away from the first of three beefy debt repayments that Sirius XM will have to renegotiate. With nearly $1 billion in debt to refinance next year at a time when the company is hemorrhaging money and creditors are guarding their greenbacks, brace yourself.
I think it would be a disaster for the consumer-facing company if it filed for bankruptcy reorganization. Subscribers who aren't aware of the differences between Chapter 7 and Chapter 11 may run for the hills, further capsizing an already shaky operating model.
I'm not as concerned as others about the general weakness in the auto market. Ford (NYSE: F ) and General Motors (NYSE: GM ) realize that satellite radio is a steady source of incremental revenue, so they are going to install the technology in more and more cars. The consumer's ability to pay for the subscriptions after the free trials run out is a bigger concern.
Sirius XM is holding up well on that front, for now. However, Apple (Nasdaq: AAPL ) opened up more than a Pandora's box this summer when it launched the App Store for its iPhone and Wi-Fi-tethered iPod touch media players. Some of the more popular free downloads include access to music discovery site Pandora as well as online radio through CBS' Last.fm and Time Warner's (NYSE: TWX ) AOL Music.
Picky audiophiles may object to the quality of Internet radio streams, but those are also the same people who turn up their noses at the popular MP3 encoding format and the compressed state of satellite radio's own broadcasts as they try to wedge in as much content as is feasibly possible.
So how can you not be scared of Sirius XM? And if you agree with me, head out to Motley Fool CAPS and nail the stock with an underperform rating.
As for roughed-up investors, maybe Sirius XM should follow Dracula's lead and avoid coming out during the day. It's probably the best way to avoid taking another beating in the market.
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