Sirius XM: Wall Street's Big Question and One Big Misconception

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How can Sirius XM (Nasdaq: SIRI  ) get more respect on Wall Street? What's the biggest misconception about the satellite radio company? In this final part of our four-part series, I ask Sirius Buzz writer Spencer Osborne. Sirius Buzz covers satellite radio news but is not affiliated with Sirius XM. Spencer owns shares of 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.

Mac Greer doesn't own shares of any of the companies listed. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy .

Read/Post Comments (10) | Recommend This Article (9)

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 July 21, 2010, at 3:33 PM, Fredlee009 wrote:

    Wow Spencer, are you reading the wrong filings? They have had 3 consecutive qs of ebitda growth, 4 soon, 5 consecutive q's of revenue growth, and 4consecutive q's of subscriber growth. They had 3 consecutive q's of FCF growth, huge YTY growth, and only took a hit last Q due to one time charges. This Q will rebound nicely.

    So Spencer, not sure if you are reading the correct filings. The ticker is SIRI. Im sure it was a mistake.

    Not saying wall street doesnt want to see more, but what you said theyve already seen. So... just saying....

    Once again, check ur numbers.

  • Report this Comment On July 21, 2010, at 4:12 PM, paulbverizonnet8 wrote:

    To Fred Lee

    Thank you for doing the research. I wonder if there is anything that we can say, to get the SIRI insiders to start buying this stock. I'd like to see that happen.

    Giordano Bruno

  • Report this Comment On July 21, 2010, at 4:23 PM, Fredlee009 wrote:

    Why buy them when your handed options for free. Especially at these prices. Judging by the number of insiders who have low priced options, and how many they have dont hold your breath. If were looking for that, its not happening.

    Insiders are fully exposed right now. We can complain about it, but its true, and its over. They have them. What Id like to see if more instiutitions stop trading the stock, and start believing in the trends. Some funds just are slow to react and change old tactics on how they treat a stock. Almmost takes a hammer sometimes.

  • Report this Comment On July 21, 2010, at 4:25 PM, Fredlee009 wrote:

    The model is proven and profitable. Now the fun begins. 2010 and on are cash accumulation years to pay off debt. Restructuring, realizing synergies is an ongoing process that probably wont be fully realized until 2015 or later. As OEM contracts come due, they will all be better deals, I.E. like the GM deal. Sirius sees almost 7 million dollars a quarter in savings vs. the old contract.

  • Report this Comment On July 21, 2010, at 6:19 PM, southernbeachguy wrote:

    Why doesn't Motley Fool interview Fredlee009 rather than Spencer, he sure as heck is more informed. I question if Spencer is really a share holder since he doesn't even know that Sirus has had 3 good quarters of financials.Sirus is being held down by the MMs not their financials.

  • Report this Comment On July 21, 2010, at 11:16 PM, dan9812 wrote:

    Sirius just cant get a break, everyone was complaining that they were losing subs and werent gonna make any money. Now that they are adding subs they say well now they all these costs cuz of all these new subscribers. So people are not happy when they lose them or gain them. Yeah it might cost a little of course to get new customers, thats business, but new customers means more income..... at least to me, but im far from an expert on stocks, but to me additional subscribers means GOOD NEWS, not bad

  • Report this Comment On July 21, 2010, at 11:21 PM, WallstreetKnight wrote:

    If cars ever become automated satellite radio is dead. It's a constricted model to begin with.


  • Report this Comment On July 22, 2010, at 10:01 AM, Fredlee009 wrote:

    Dan,the authors/analysts crying over cost increases from adding subs dont understand the new business model Mel and Maffei have worked hard to implement. New subs are no longer causing loss of cash on that quarter, and not really affecting earnings either.15 to 30 million more a Q in costs from adding subs is a non factor now, and a huge bonus 2 quarters out.

  • Report this Comment On July 22, 2010, at 11:30 AM, superdave1459 wrote:

    Wrong freddie

    It costs SIRI over $200 per new gross sub, while only collecting $150. The first year is a loss on all new subs.

    Then there are 1.5 million subs walking away every quarter, that's 6 million+ per year. This trend has been in tact for 2.5 years now.

    You can write "now profitable" all you want but it doesn't make it so. Last Q is the first Q it actually had positive net earnings. This will end with the cost of the new subs plus the interest that is due this Q that was $0 in Q1.

    Keep drinking the koolaid though, you're a seasoned drinker.

  • Report this Comment On July 23, 2010, at 12:14 PM, siriusguy13 wrote:

    superdave must be a short seller. Seems to be a lost of bashers on MF. This company is a cut way above what it was 3 years ago. The stock will jump but not until the shorts are weeded out and the daytraders get burned. Long and Stern Siri Strong

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