I'm Bullish on Sirius XM

If you miss Dueling Fools as much as I do, you're in for a retro treat. Tim Beyers and I are dusting off the concept to take a look at Sirius XM Radio (Nasdaq: SIRI  ) from both sides.

I am bullish on the satellite radio company. My friend Tim is bearish. Enjoy these two articles today. Come back Monday, when we'll face off again with our rebuttals.

You go, satellite radio
Why does Sirius XM get such a bad rap? It's mortal, obviously. The company has made some silly decisions that have resulted in losses, major shareholder dilution, gobs of debt, and a miniscule share price. I'm sure Tim will have a field day in that sandbox. However, take the moment to dust yourself off, take two steps back, and take another look at the company.

Sirius closed out 2008 with more than 19 million subscribers. How many premium services do you know with larger membership rolls? There's Comcast (Nasdaq: CMCSA  ) . There's Research In Motion's (Nasdaq: RIMM  ) BlackBerry. I'm hearing mostly cricket chirps after that.

When the company's debt repayments got so burdensome that Chapter 11 bankruptcy loomed, at least two suitors -- EchoStar (Nasdaq: SATS  ) and Liberty Media (Nasdaq: LINTA  ) -- went public with their desire to bail out Sirius in exchange for a piece of the action. The collection basket has come up empty when other household names like Lehman Brothers, Circuit City, and Bennigan's have had a cash crunch over the past year. Sirius is clearly valuable to the media industry. It's no Lehman. It's no layman.

Sirius XM is also valuable to the music industry (with its deep playlists whetting appetites for bands that normally don't receive terrestrial radio airplay), the automotive industry (with its receivers arriving as factory-installed options in more cars, and cash-strapped automakers receiving royalties based on the subscribers they deliver), and just about anyone who needs a little entertainment during routine commutes.

Great concepts aren't always great stocks
Sirius XM was one of the few consumer-facing subscriber services to grow its net usage base during the final quarter of 2008, closing out the period with 82,945 more subscribers than when it started. Again, that places it in limited company, as many popular entertainment providers like TiVo (Nasdaq: TIVO  ) and DISH Network (Nasdaq: DISH  ) actually shed accounts during the period.

Naturally, a business model can radiate with users but still fail on Wall Street. Sirius XM is guilty as charged in that regard. There's an ocean of red ink in its wake. Even when it does something right -- like finding a sugar daddy in Liberty -- it comes at the expense of even larger debt interest exposure down the line.

I refuse to call Sirius XM a fiscal failure, though. It is just way too early to pass judgment. Now that Sirius and XM are one, we can begin to appreciate the synergies that will improve with every passing quarter.

Cash operating expenses were slashed by 22% during the company's final quarter of 2008. Pro forma revenue inched 16% higher. This is really just the beginning. Sure, debt payments alone will likely consume the more than $300 million that Sirius XM is targeting in adjusted EBITDA this year. It should only get better from there, though.

Sirius XM will grow until there is a better mousetrap. Bears may argue that streaming smartphones, Internet radio, and HD Radio will bury Sirius XM, but where's the grave? These technologies have been around for a few years yet Sirius XM continues to grow its subscriber base.

Cynics underestimate the importance of satellite radio to the weary car manufacturers. They also point to the future as problematic, without realizing that many new revenue streams -- like digital video delivery and e-commerce solutions -- will actually expand at Sirius XM in the years to come.

The future will also provide Sirius XM with more attractive opportunities to whack away at its hefty debt, and the flexibility to build on top of its already magnetic offerings.

I am not naive. The dilution that is billions of shares deep that Sirius XM was forced to surrender this year to stay solvent and alive isn't pretty. It certainly lowers the ceiling of what Sirius XM may be ultimately worth. This isn't going to be a $20 or even a $10 stock over the next few years. However, at today's prices, it doesn't have to get anywhere near its old highs to easily beat the market over the next several years.

The catalysts are in place. They just need a little dusting. Step away from the sandbox and try it yourself.

Read Tim's bearish argument on Sirius XM, and come back on Monday for the rebuttal arguments.

More news than static on Sirius XM:

Longtime Fool contributor Rick Munarriz subscribes to both XM and Sirius. He does not own shares in any of the companies in this story, save for TiVo. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (48)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 03, 2009, at 5:29 PM, Cool700 wrote:

    The governments cash for junkers program expects to cause 3 million older cars to be taken off the road and junked.

    Most of those will have SIRIUS XM radios.

    Also 14 Million cars and trucks are junked every year!The NAB does have a churn rate.

  • Report this Comment On April 03, 2009, at 5:30 PM, Cool700 wrote:

    What I meant was after the cars are replaced with new cars. Those cars will have SIRIUS xm radios.

  • Report this Comment On April 03, 2009, at 6:06 PM, sergeant725 wrote:

    So what happens if any car manufacturer replaces satrad with wifi receivers? The ONLY business that Sirius has in cars. They have been a total zero on portable receivers.

  • Report this Comment On April 03, 2009, at 6:31 PM, norenore wrote:

    After reading Tim's bearish column, I thought I'd share these rough numbers, not totally verified.

    Pre-merger, Sirius and XM had 9 million subscribers each. 3.2 million Sirius customers listened to Howard Stern. Post merger, Howard had 3.9 million listeners. Of the 9 million subscribers that "came over" from XM, 700,000 immediately ponied up the $4/mo.? to add Howard on as a paid premium channel. My analysis is that if Howard leaves Sirius, it won't significantly

    reduce subscribers. Sirius listeners love Sirius, not just Howard. XM listeners love Sirius, too. They just don't love Howard quite as much as Sirius customers do, based on the percentages, 35.5% Sirius, 7.7% XM, respectively listen to Howard. Howard's total listeners are 22% of Sirius XM. (3.9 million of 18 million)

  • Report this Comment On April 03, 2009, at 6:54 PM, kikoCornholio wrote:

    norenore "(3.9 million of 18 million)"

    so 3.9mil times 12 months times say a $11 monthly subscription is about 500 million a year in revenue. pretty good ROI for Howad

  • Report this Comment On April 04, 2009, at 12:21 PM, latebloomer100 wrote:

    About the stock price. There has been a sentiment expressed on the MBs that the pps has been manipulated in a number of unlawful ways. One way is through abusive naked shorting accomplished by non other than Goldman Sachs. I have seen no real proof of that but it really makes me wonder if GS was involved. There are other allegations against the MMs, Mel Karmazin (allegations against him center on his cerebral prowess or lack of it), the BOD and on it goes. At first I didn't believe any of it. But I am coming arond. For example, I really do believe that GS manipulated the pps for their own profit motives but, of course, I can't prove that. The SEC could but they still seem powerless. One thing the Democrats do better than anybody is regulate. I hate regulation but maybe it is time to enforce the laws on the books now and toughen them a little. There is room on Madoff's cell for one more.

  • Report this Comment On April 06, 2009, at 9:47 AM, asm610 wrote:

    Rick,

    I think you guys should do this regularly with other stocks as well. It gives EVERYONE the dual perspectives they need to help make informed decisions. I happen to follow your view of things with SIRI as a subscriber...but I certainly keep an eye on some of whjat was pointed out in the Bearish view.

  • Report this Comment On April 07, 2009, at 8:15 PM, foolonthehill48 wrote:

    It was reading articles on Sirius here at TMF that got me interested in this stock a few months back.

    Weighing the pros and cons convinced me that this company was worth a LONG look.

    So far I've made a semi-embarrassing amount of money from this stock, and expect to make a LOT more!

  • Report this Comment On April 07, 2009, at 8:21 PM, joeboo1 wrote:

    Rick, you seem to have hit it spot on! A subscriber based business model is a known success. Heck I think Sirius has more subscribers than Dishnetwork right now (although one is TV and one is radio and some TV. Subscriber models with a large base are known survivors in these tough econimical times.

  • Report this Comment On August 23, 2009, at 9:46 PM, KLLROYWASHERE wrote:

    Rick, I agree with you on this one. I have bought alot of stock in this company already and plan on buying alot more Monday.

    I don't think this will hit $10 a share, but do think it will reach the $3 range in the next 2 years.

    Just kicking myself I didn't buy more when it fell to .12 cents a share last month.

    I only see this stock going up from here.

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