How can Sirius XM
Mac Greer: Let's talk about some of the numbers. Last quarter, Sirius XM reported better-than-expected subscriber growth -- a little over 583,000 net additions -- and it also increased its projections for 2010. Shares trade around a dollar, significantly above their 52-week low, which was around $0.37. But the shares have slipped over the last three months. What do you think is the single biggest question that Sirius XM has to answer if it wants to get more love on Wall Street?
Spencer Osborne: The single biggest question is what is the long-term future of satellite radio, and what is it going to mean in terms of profits and losses. You still have people that have a wonderful and very plausible argument that satellite radio is done growing, and it is going to start to fade off, or it has peaked at what it is going to do. There is also a plausible argument on the flipside that there is a lot of growth still yet to come, and satellite radio just needs to tap into it.
The thing that I think Wall Street needs to see is three or four consecutive quarters of across the board, good metrics, subscriber increases, revenue increases, EBITDA increases, and they are just not able to do that. [Sirius XM] announced 583,000 subscribers, and that was a very lofty number compared to what people were looking for. But on the short-term side of things, everybody knows those subscribers cost money. So suddenly, last quarter they had EBITDA of $158 million; this quarter it is probably going to be less, so everybody is going to kind of look at it and go, Oh, well EBITDA went down. So it is kind of like, there is always something, and everybody waits for the other shoe to fall. All the stars just need to line up for this equity to get more appreciation on Wall Street. Until that happens, you are going to have this tug of war between people that are downers on the company and people that are uppers on the company.
Greer: Now Sirius XM has a net debt load of around $3.4 billion, which is almost as much as their market cap, which is around $3.9 billion. What is the key for Sirius XM to lighten that load?
Osborne: I think basically what the company needs to do, and they are starting to do it, is to pay down as much debt as possible, even if it is $150 million at a time. Investors in this company have seen the debt load pushed out and pushed out and pushed out for a long time, and I think the street is kind of tired of the debt load being pushed out. They want the debt load paid, so the company needs to, on a quarter-by-quarter basis, really work at a strategy of paying down that debt load.
Next year, they have got very little debt that is due, so they have some interest payments on it, but very little of that is due and that should let them stockpile some cash to be able to strategically pay down certain aspects of their debt. And if they can start to accomplish that and announce that quarter after quarter, or every six months, they are paying down some more debt, I think the street would definitely appreciate that.
Greer: And what do you think the biggest misconception about Sirius XM is?
Osborne: The biggest misconception actually is that it is Howard Stern Satellite Radio. He is the biggest name, so he kind of draws the most attention, but I think the biggest misconception is that it is not as multifaceted as it is. It is a very multifaceted service, and I think that the company could do a lot to bring that out. If I can digress a little bit, what I think they should really work on is popping up some billboards in the top 20 markets in order to market their service. Let's say they are in Boston, and they are flipping around the dial, and they say, Wait a minute, terrestrial radio here in Boston doesn't have a jazz channel, let's make sure that we feature jazz on our billboard as someone is driving into Boston. That is something that grabs someone's attention.