Worst Stock for 2009: Sirius XM Radio

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My worst stock for 2009 is the equivalent of shooting fish in a barrel, except that the barrel's been drained and the fish have stopped flopping.

For me, "worst" translates to "uncomfortably likely to go to zero." That's where I expect Sirius XM Radio (Nasdaq: SIRI  ) to find itself in 2009, through one of two routes. Either its cash burn, and the impossibility of meeting its massive immediate debt obligations, will push it into the embrace of bankruptcy, or it will dilute existing shareholders into oblivion if by some miracle it persuades its creditors to accept increasingly worthless stock in lieu of actually paying them back.

Satellite radio: simply not necessary
Satellite radio competes for my ears with my Apple (Nasdaq: AAPL  ) iPod and its dedicated car jack, my custom-burned CDs, and a host of new mobile applications, including Ford (NYSE: F  ) and Microsoft's (NYSE: MSFT  ) Sync. And with other automakers experimenting with putting routers in their cars that could stream free Internet radio, Sirius' competition for luxury dollars is increasing.

And satellite radio is very much a luxury. A past subscriber myself, I found my use waning in the months following a cross-country trip. As use fell, I found defending the monthly cost difficult -- and that was before the economy cratered, when luxury spending was easier to justify.

Consumer-electronics retail got whacked over the holiday season, and that meant fewer satellite radios being sold through Best Buy (NYSE: BBY  ) . Moreover, new auto sales have imploded and look to get worse still in 2009. A key source of new subscriber growth for Sirius has evaporated at the worst possible time.

Cliche time: cash risk
Sirius' financials are a complicated mess, but we can tease out the key numbers to make the "worthless" case.

At last quarter's end, Sirius had $360 million in cash versus $3.37 billion in debt. In the most recent quarter, which included two months of XM's standalone results, the company burned $86 million of cash on operations and a further $29 million on capital spending. Assuming a steady cash-burn rate, its coffers should be exhausted sometime this summer. Of course, the XM merger is supposed to provide cost synergies to curtail cash burn, but I think it comes as too little, too late. And this ignores how much cash Sirius needs on hand to grease the day-to-day wheels of business -- we assume it's greater than zero.

To offset, Sirius is seeking to drive more near-term cash flow by increasing prices for subscribers with multiple accounts and charging subscribers for the previously free Internet feed. But free Internet radio is widely available -- think Pandora, Live365, and SomaFM. Sirius' new fees could backfire, if current subscribers in our newly frugal world balk at now paying for a previous freebie. This could also turn away prospective new customers.

It's more than just cash burn
There's also a debt sword dangling above Sirius' head. About $1 billion of Sirius' debt matures in 2009. So where will Sirius find the resources to meet these obligations? Management on the last conference call indicated that it anticipates "positive free cash flow of $1 billion in 2012." Nice, but Sirius needs that billion today.

In the current "credit closed" environment, I don't like the company's refinancing chances. Much of this debt already carries a high interest rate -- if the banks do grant refinancing requests, surely they'll demand higher recompense for their increased financial risks.

The most immediate debt matures in mid-February, and Sirius has been desperately flailing to avert disaster. Since the end of the last quarter, it's been steadily issuing shares to its creditors in return for canceling the debt. The company has repaid about $85 million so far, and the effective exchange price of equity for debt has plunged:

Exchange Date

Principal Exchanged (Millions)

Shares Issued (Millions)

Effective Exchange Price per Share

10/20/08

$30.5

67.0

$0.45

10/29/08

$19.5

65.2

$0.30

12/22/08

$15.6

108.1

$0.14

1/5/09

$6.0

45.2

$0.13

1/14/09

$13.0

100.0

$0.13

Sources: Company filings and analyst calculations.

There remains $175 million outstanding, due in less than three weeks. At what share price shall Sirius exchange the remainder? And what of debtholders who don't want shares? Sirius could repay with its increasingly dear cash -- but it might be easier to follow Nortel (NYSE: NT  ) into bankruptcy as a company with significant cash but substantially more significant near-term debts.

The Foolish bottom line
If I'm right, then Sirius has the choice of either bankruptcy or massive dilution to deal with its immediate debt obligations. And shareholders will most likely be wiped out. The broader market will most assuredly not suffer a similar fate. Thus, Sirius is an easy underperformer. If you agree, leave a comment below that rates Sirius an "underperform."

Fool contributor Jim Gillies owns no shares of any company mentioned. Microsoft and Best Buy are Motley Fool Inside Value selections. Best Buy and Apple are Motley Fool Stock Advisor recommendations. The Fool owns shares of Best Buy and has a disclosure policy.


Read/Post Comments (34) | Recommend This Article (35)

Comments from our Foolish Readers

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  • Report this Comment On January 28, 2009, at 2:48 PM, PTURBED wrote:

    That reads like a scared attempt to manipulate a stock that just got good news and some breathing room. tsk tsk, why so nervously overt FOOLS?

  • Report this Comment On January 28, 2009, at 2:58 PM, Nadaq wrote:

    One of these "I'm a legend in my own mind" guys. Just ignore him,and celebrate what's coming! You don't have to be a "Fool" to get what was "telegraphed" with the early news today.

  • Report this Comment On January 28, 2009, at 2:59 PM, shortandlong wrote:

    Could not agree more with the article..

    Sat Radio is an unjustified luxury.

    I signed up in 2006 for Sirius solely to listen to Howard Stern. Most people don't realize that they can get higher quality streaming music (128k+) from internet than the 64K that Sirius sat provides...for free! If you have a PDA..then you have mobile streaming music for free.

    Anyway back to Stern..having signed up just to listen to Stern, the quality of his programming has been in the toilet over the last two years. He takes 10 weeks vacation and takes Fridays off. Do the math and I think you get around 180 of live shows.

    Lets face it, Mel signed up Stern in hopes of boosting revenues, Stern singned up with Sirius to boost his retirement income...nothing wrong with that..just that shareholders are always the ones to get screwed.

    Position: Sold at 15cents

  • Report this Comment On January 28, 2009, at 3:01 PM, shortandlong wrote:

    ..and quit Sirius in 2008

  • Report this Comment On January 28, 2009, at 3:24 PM, tacain wrote:

    Everyone who says satellite radio is "unnecessary" because you can get your music elsewhere doesn't get it and never will. There is no other viable method to distribute live programing, such as sports or news, coast-to-coast. Getting your music via other methods has always been easy. I want to be able to listen to live programming while driving coast-to-coast without hunting across the dial every 20 minutes.

  • Report this Comment On January 28, 2009, at 4:23 PM, crankly09 wrote:

    Jim-You're a moron. Watch as this company announces re-finacing by March 1st and hit's $2.00 a share by 2011. Let' s see.....double digit growth, positive pro forma announced soon, costs have been DRASTICALLY cut and they have a service/name recognition that can be matched by NO ONE.

    Any additional typing will be a waste of my time.

    LONG LIVE SIRI

  • Report this Comment On January 28, 2009, at 4:46 PM, MITSY123 wrote:

    WHAT A JERK! The Fool has really turned to crap!

  • Report this Comment On January 28, 2009, at 5:16 PM, clevethedog wrote:

    What Jim doesn't write about is with his MP3 player, he still needs to pay for downloads (if he wants to be legal). With all hype of internet radio, it's not a good mobile application. WiFi and WiMax are not in too many areas, and with the economy in the tank, not too many communities will be looking at rolling it out in the near future.

    As another poster stated, there is no other way to efficiently broadcast live media over a large area such as the continental US other than sattelite. With the amount of choice available by Sirius/XM, satrad is viable over the long term.

    I do believe there is a lack of leadership at the highest levels of the company.

  • Report this Comment On January 28, 2009, at 5:32 PM, LIKEYOUKNOW wrote:

    Apple Gets Sirius

    Man you must free pretty stupid right now!! You must be saing " why did i post that", "why did I not check the headlines before i posted this". It's ok you went with it. Very wrong, but you went with it.

  • Report this Comment On January 28, 2009, at 5:33 PM, crankly09 wrote:

    Agreed Cleve and most others above.

    Great company outlook, exclusive product and this baby is going up!! True, Mel should be more forthcoming, but he is making things happen behind the scenes.

    Jim the supposed "author" of this idiotic rant, is either: a burned SIRI owner who bought in long ago, works for Goldman Sachs or is sleeping with Jim Cramer.

    Conceivably all of the above.

  • Report this Comment On January 28, 2009, at 5:35 PM, LIKEYOUKNOW wrote:

    Satellite radio: simply not necessary

    Satellite radio competes for my ears with my Apple (Nasdaq: AAPL) iPod

    1: 20 million people would disagree with that.

    2: Now you will be using your APPLE for Sirius Xm anywhere in the world you have service.

  • Report this Comment On January 28, 2009, at 7:27 PM, rockhead96 wrote:

    You guys at The Fool really need to talk with each other a little more. Some love Sirius and some, well, they are just confused. One thing that really does amuze me is the way The Fool covers a stock that is trading for pennies. Kinda makes one wonder if there isn't some crazy hidden agenda in there someplace. I let my subscription lapse for these kinds of inconsistent articles. Both sides, my ass. The Fool is hyperventilating of a 12 cent stock. What's up with that?

  • Report this Comment On January 28, 2009, at 8:20 PM, TMFKopp wrote:

    Jim, you're a glutton for pain aren't you? LOL

  • Report this Comment On January 28, 2009, at 8:34 PM, mogrifier wrote:

    My 81 your old mother has a satellite radio boom box and loves it. Like she's going to find 40's music anywhere else and get it played out over speakers in the kitchen (yes, she could by a Slim Device SliMP3 and use Pandora but most of you have know idea what I just said...). The market is so different than the ipod and frankly, internet radio is a hodge podge of crap. It's mostly terrrestrial- how does putting it on the internet make it better? So you can play it at even worse quality over bad speakers? With extra injected advertising? Yeah, baby.

    BTW, I'm not sure my mom knows what an ipod is but she does know that 10 songs for $10 versus < $10 a month for non-stop music is a real bad deal.

  • Report this Comment On January 28, 2009, at 8:45 PM, LIKEYOUKNOW wrote:

    SHORTNLONG,

    YOU MUST BE KIDDING!!

    I signed up for Stern and now could not ever listen to old radio again. The Stern show has never been better. I do not have the luxury of sitting at a computer all day, so while working I listen to Stern live, along with comedy, buba the love sponge, cnn, and anything else I want to(anywhere in the u.s. i want to, not just at my computer)

  • Report this Comment On January 28, 2009, at 8:50 PM, LIKEYOUKNOW wrote:

    As for Sirius Xm being a luxury,

    It is, but so is the car itself, cable tv, soda, and many other things that we all have and use everyday. The only question is wether it is worth 10 a month? The answer to 20+ million people(as of september) is YES. Matter of fact, in growth terms they are growing faster than any company in the sector.

  • Report this Comment On January 28, 2009, at 10:38 PM, d52z52 wrote:

    What a bunch of bull. What increased risk? It is safer to loan money to sirius now than ever before. If I had a billion, I would loan it to them. Competing with the Ipod? That is to much. Lets see you listen to the Yankees or cnbc on your ipod. I probably spend less than 30% of my time on sirius listning to music. You guys can talk the share price down to 0.5 but you can not talk them into bankruptcy.

  • Report this Comment On January 28, 2009, at 10:55 PM, LIKEYOUKNOW wrote:

    You also can NOT change the fact that people LOVE Sirius Xm. I LOVE SIRIUS RADIO.

    Most all of my time is spent at work where I listen to Sirius. I would sooner cancel my home phone that I hardly ever use, or my tv service that I only get to see a few hours a week, than my Sirius. Matter of fact, I just got another Sirius Xm unit for my car since now the 2nd service is 1/2 price.

  • Report this Comment On January 28, 2009, at 11:11 PM, LIKEYOUKNOW wrote:

    The ipod arguement is a joke too. I have a case in my car that holds 100 cds, SOO WHAT !! When I want to listen to the radio I am talking about Sirius Xm radio, no more of that old radio. If the argument about having ipods/cds made any sense there would not be old radio at all(are you following me? tapes/cds been out forever and still there was radio, ipods have been out for years and still there was radio). Sirius Xm radio is soo great, and people are going to continue to go to sat. radio.

    If you dought me try this test:

    1: get into your car on Sunday(that is a good day, maybe your off).

    2: Turn your radio to any talk station.

    3: sit there and see how long you can listen.

    The point is I can sit in me car and listen to Sirius for hours. I can listen to anything rap, oldies, elvis, cnn, bloomburg, fox, oprah, gospel, christian, really anything and anywhere I go I can listen without loosing my channel while traveling. I live in the metropolitan area, so I am not going anywhere fast. With Sirius I don't even care. I am not a stock person, and I do not know how well or bad the company might be doing. All I do know having Sirius is more important to me than the telephone or t.v., if I have a car I will have Sirius. I am sure others share my opinion.

  • Report this Comment On January 28, 2009, at 11:35 PM, anmi2008 wrote:

    You boys better have a "Come to Jesus" meeting, as 'rockhead96' suggests...real soon like.

    ...picking on a sub-twelve CENT stock? Fishy Fool.

  • Report this Comment On January 29, 2009, at 1:53 AM, jrbatista wrote:

    "Thus, Sirius is an easy underperformer in Motley Fool CAPS. If you agree, head to CAPS and rate Sirius an "underperform.""

    Uhh, you're kidding, right? SIRI has been unratable since last August when the share price dropped below $1.50. (Do you really think it would still earn even two stars?) I'm not even sure why the Fool still reports a CAPS rating for SIRI... rather misleading.

  • Report this Comment On January 29, 2009, at 10:30 AM, PokerRon wrote:

    What a bunch of cr*p. This guy really doesn't get what Sirius/XM is all about. He must be a bit simple-minded to sit and listen for hours to a constant stream of ipod music with no intelligent content - boring, boring, boring.

  • Report this Comment On January 29, 2009, at 11:30 AM, mattz06 wrote:

    Jim -- C'mon... "custom burned CDs"? That just shows you how out-of-touch you are. Have you tuned in to terrestrial radio lately? Oh, and... there's a lot more than your Van Morrison collection playing on sirius -- including exclusive live concerts, live news stations, comedy stations and who could forget the sporting events!

    Keep your CDs, Jim. Enjoy.

  • Report this Comment On January 29, 2009, at 12:24 PM, steviebny wrote:

    To all:

    I myself do not subscribe to Sirus radio, however it is available for me through my satellite television providor, so in essance I am a subscriber.

    I am however a shareholder, purchasing this stock at $1.

    Do I forsee my money ? Possibly, But I can tell you that in today's economic times, subscribers will drop. What we need are auto sales to help us through these times as well as other factors.

    I was at Sirus when it first opened, visited their facility as well as their infrastructure. I was quite amazed at their techology, and still feel confident that they will get another loan which will increase the stock.

    Will we see 3-4 dollars? Not in the near future.

    Who knows, maybe Obama will provide some funds!!

    Heck, there giving money out to everyone else!

  • Report this Comment On January 29, 2009, at 12:33 PM, steviebny wrote:

    I also forgot to mention, all you investment brokers...

    You all thought you knew everything and you all rode on your high horses for a couple of years.Look at you all now, I know a couple brokers personally who now sell items at Flea Markets, and others who became handymen..

    You really don't know whats going to happen, so stop attempting to think you know it all.. Cuz if you did, you'd be on an island sipping tropic drinks rather then writing blogs all day.

    Until then, keep your hammer handy ;)

  • Report this Comment On January 29, 2009, at 3:28 PM, BiffJackson wrote:

    I actually have Sirius in my truck and my house. I couldn't live with out with it. Nothing like drowning out the sound of a video game with your buds, drinking a cold beer, and listening to Sirius radio. (preferably ch.22 first wave) I could not ever listen to regular radio again. It's horrible!!! Hopefully Mel pulls one out of his ass and get this company rolling!!!

    LONG LIVE SIRIUS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  • Report this Comment On January 29, 2009, at 3:56 PM, LIKEYOUKNOW wrote:

    To the last comment,

    You are soo very right. Take a look at motleyfools last ten picks for the week, ALL IN THE NEGATIVE.. I like when they had a monkey pick stocks along side other top investment people and the monkey picked better than most of them.. You are all just guessing. I hope Sirius Xm does well because I love thier service. Other than that not even MADMAN CRAMER really knows. People listen to him and pick stocks he says whichj does what? Thats right it drives the price up, and then Cramer is correct. Understand this, people who pick stocks are not right about the stocks, they are only right if the stock if it happens to go up

  • Report this Comment On January 29, 2009, at 8:00 PM, corelblack2 wrote:

    Motley 'Idiots'... give me a break. I smell a fool.

  • Report this Comment On January 29, 2009, at 8:05 PM, siri4life wrote:

    This might just be my last post on this one way blog.

    They cram siri in every article just to get hits and then preceed to bash the s$%t out of it just to get us all typing.The fool are a bunch of mass media a holes with an effed up agenda. No real stance on the stock just a stanc e to get people talking . I hate you fool

  • Report this Comment On January 30, 2009, at 3:24 AM, LIKEYOUKNOW wrote:

    siri4life,

    I am done with it too. So many people like Sirius that all people like motley dumby have to do is write something negative about it and false by the way, and they get millions of hits. I am done. You can check my name out in ten minutes because I am cancelling this sight and not going to return. We should all do the say. From now on I will never write another artical about Sirius Xm radio.

    Motley Stupid find something new to try and pump up you sight.

    Take care all I am out!!!

    LOVE MY SIRIUS XM

  • Report this Comment On February 05, 2009, at 1:00 AM, codyford1981 wrote:

    You guys are pretty pathetic, who gets this worked up over speculation on some F$#%ing Blog/Message Board. If you believe in SIRI, then good, and list the reasons as to why. If you are a hater, then leave corresponding evidence as to why. But come on guys/girls, don't waste other's time, by forcing them to read weak "attack" posts. There is no room for ego, in a faceless internet environment. Grow up and lets make some money.

  • Report this Comment On February 06, 2009, at 8:16 PM, jren354 wrote:

    just wanted to add my two cents to this one. Since having the radio I have tried to cancel my account no luck!!They keep billing me and everytime they bill you they add $2.50 to your bill just for the paperwork. I have co-workers who have tried to close their credit card accounts just so that Serius would stop taking payment from their credit cards. Seems everything is fine until you try to cancel membership. Maybe thats why they are planning on fixing their money problems by refusing to close anyones accounts!!

  • Report this Comment On February 10, 2009, at 10:17 PM, TMFCanuck wrote:

    Sirius preparing possible bankruptcy filing: report

    http://news.yahoo.com/s/nm/20090211/bs_nm/us_siriusxm

    Amazing the ire that some basic financial analysis can provoke...

    Does this mean I win the contest?

  • Report this Comment On January 08, 2014, at 1:14 AM, Luckygurl wrote:

    I don't have exact numbers in front of me, but something told me to buy at very low around .35 because it was merging w XM which meant still monopoly of sat radio... And well merging companies/changes mean problems and businesses don't do well.. (Mine suffer with big changes) but than it gets organized and builds up... I decided to sell around 3.70 something around there this past summer... Because besides when it initially went public this was its avg... So did pretty well considering I just used logic and don't read anything on stock... Every time I listen to "expert" I lose...

    History repeats itself... Didn't invest until stock crashed than bought what I could.... I actually just found this curious what's happening with Sirius XM and liberty.... But I won't buy again... .40- 3.70 I'm fine with....

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