Better Bet: Sirius XM or Pandora?

• Report this Comment On July 09, 2011, at 12:03 PM, ATLinvestor wrote:

  I agree that both of these companies will face a challenge in the upcoming months but as Sirius is put in front of more and more used car buyers i think they will reap the rewards of new subscribers. I am not sure a rate hike is going to be all that successful unless they implement it on new customers and allow old ones to stay at their current rates. I would think about dropping the service if they raised it to around $150 a year.

  My prediction is you will see the stock price for SIRI go up to around 2.60 prior to conference call on Aug 8. The downside to this stock increase is that unless the call announces some unexpected positive news the stock will sell off back to the 2.20's. I cant wait for Siri 2.0 and hope it is all that the company has let the public make it out to be.

  I am long SIRI

• Report this Comment On July 09, 2011, at 12:10 PM, ottman1 wrote:

  I believe you are committing a common but profound mistake in thinking that sirius and pandora are merely two different methods of delivering music where one is 'free' and and the other isn't.

  First, while Pandora is indeed, music, Sirius is music, news channels, talk, major city road conditions, comedy, and more. Go to Sirius.com to see their channel line up.

  Second, while Pandora controls the intellectual property and infrastructure that allows music to be queued to you, it doesn't own or control the transmission infrastructure; and is dependent on compatible apps installed on smart phones, computers and so on. It's also dependent on subscribers' data subscription plans. In other words, there are multiple players involved in the end to end link. Sirius' major revenue source, on the other hand, is based on infrastructure and intellectual property owned or controlled along the entire pathway from studio to receiver; and is not dependent on others to enable subscriber access to content. This gives Sirius the ability to manage/adapt/enhance offerings in a way that Pandora can't.

  Thirdly, Sirius has mutually beneficial agreements with all the major auto manufacturers; Pandora is only marginally integrated into one or two auto lines.

  Fourth, as you have noted, Sirius is making money, paying down debt, increasing free cash flow, and on a net basis, increasing paying subscribers. Can't say that about Pandora; nor can I see, given Pandora's revenue model, any pathway to profitabiity. These are reasons why Pandora's initial analyst recommendation was sell with a price point of $5; and Sirius analysts have increasingly issued buy recommendations.

  Fifth: There appears to be a significant demographic difference between between the two communities of subscribers; Pandora's being younger (and perhaps, presumably with less discretionary income); and Sirius' older with presumably greater discretionary income.

  Sixth: The methods of counting subscribers is wholly different. While there is much more to it, the simplified version is that Pandora counts somebody who logged in and listened to music sometime in the last 60 days as a subscriber. Sirius counts a subscriber as somebody who has paid for an account.

  Seventh: Liberty Media owns convertable preferred stock worth about 40% of Sirius. The possibilities of content and other integration between Sirius and Liberty are significant.

  There's more, and I know that no matter what might be said, there will be those who will disagree. The point, though, is that the two companies are not two sides of the same coin.

• Report this Comment On July 09, 2011, at 12:17 PM, doubting wrote:

  Anand,

  "Music slingers Sirius XM Radio (Nasdaq: SIRI ) and Pandora Media..." is a very wrong way to refer to Sirius XM. This is what you guys are not getting. Sirius XM is a bonanza for a radio listener with a galore of choices whereas Pandora and the likes are just juke boxes. You keep comparing apples and oranges making a gross mistake. Their listenership is quite different and hardly overlaps. These are distinctly different audiences. Pandoras are mostly for kids, students and people who cannot afford a subscription service. There is also a distinct group of cheapskates that are used to going to a five buck buffet and stuff themselves to a point of throwing up. They will never ever pay for anything as long as there is a so called free alternative. You are right that their business models are quite different. However, when Pandora switches to a real sub model, and this will certainly happen, or it will go under, there will be at least one similar aspect is subscription. Then, we will see how may actual subs Pandora is going to have. Unless Pandora starts charging across the board, it will never be on the same level playing field with siri. Then it might be able to expand its content. What we know now for certain is that Sirius XM is already profitable and will be getting more profitable with each and every passing quarter reaching 40% plus margin. We do not know if Pandora will ever be profitable even if it switches to a subscription model because we do not know how many people will stay with it. What we do know is that Sirius XM has a phenomenal future due to its unique competitive position in the auto. Sirius rules the auto virtually uncontestedly, whereas Pandora has a ton of real competitors on the internet where, incidentally, Sirius is also present. We do not know if and when Pandora might get out of the woods that reminds me of the siri situation eight years back. Sirius will do extremely well and will make its investors rich. These times are around the corner. You will see this stock at $4 or higher as early as this year. Mark my word.

• Report this Comment On July 09, 2011, at 12:32 PM, beensirius wrote:

  1st off, you use trailing when you should be using forward looking P/E. 2nd, you compare SIRI and P by mixing your apples & oranges. How can value one using P/E and the other using EV/Sales multiple. Since you didn't do it, I will do it for you Mr. CFA.

  SIRI EV = V - cash = E + D + Pref. - Cash = 17.25B - 0.45B = 16.8B for Enterprise Value of SiriusXM.

  Now, SIRI EV/Sales = 16.8B / 2.9 = 5.79 multiple.

  Compare that with Pandora at 18 multiple and you tell me if Sirius still looks "in the triple" digits with you fuzzy math. Siriusly, you can fool ppl who are not skilled in finance and M&A, but you look like a fool (no pun intended) to ppl who do know how to value a firm. SiriusXM is a $3 stock by the end of this year.

• Report this Comment On July 09, 2011, at 2:23 PM, TMFBomb wrote:

  @ATLinvestor, ottman1, and doubting,

  Thank you for the well-thought-out responses.

  @beensirius,

  Pandora doesn't have earnings, so there's no P/E...I italicized the word "sales" in the article to highlight that Pandora has a sky-high price/sales ratio (one that would be a bit on the high side even as a price/earnings).

  Fool on,

  Anand

• Report this Comment On July 09, 2011, at 3:01 PM, Rut67 wrote:

  No competition...

  The CEO of Pandora says he "Respects margin and cash flow" but he doesn't understand how to get there and Pandora will never make a profit because the business model is unworkable.

  Sirius has one of the smartest CEOs and is making money. The debt problem is a result of the cost of sophisticated satellites and the US government playing a stupid game with the merger.

  Sirius is a $20 stock in a couple of years. Pandora is ultimately a 50 cent stock on the direct route to bankruptcy.

  Unbelieveable that you would even compare the two.

• Report this Comment On July 09, 2011, at 6:29 PM, esxtarus wrote:

  You guys tell them Im all with you been with siris 5 years and the next five will be great

• Report this Comment On July 09, 2011, at 6:47 PM, DNAstock wrote:

  I think it's very dangerous for people who don't fully understand how Sirius' offerings compare to Pandora's to be writing articles that are published on the internet for the purpose of educating investors.

• Report this Comment On July 09, 2011, at 7:33 PM, beensirius wrote:

  I don't why these "internet writers" insist that Sirius has high debt. At 2.7B, it is only a drop in the total Enterprise Value of 16.8B.

  Now, lets do some real ratio number crunching. Lets use the D/E ratio to see how levered (or indebted) Sirius really is. Debt = 2.7B Equity (common shares) = 8.2B (yahoo has 8.76 but I calculated it & trust me more).

  So current D/E for Sirius = 2.7B/8.2B = 0.33. In English, for every $1 dollar of Equity (owners money), Sirius owes $0.33 cents.

  Compared to extremes like Lehman Brothers when they existed who had a D/E of 37, or $1 of Equity for $37 of Debt.

  So really, to say oh $2.7B is so much debt is BS because its a fraction of the total companies worth of $16.8B. Compare that to a Lehman Brothers who had just 3% of their total value of $696B in actual Equtity & 97% of $696B in debt related instruments.

  In another worlds, of the entire value to buy Sirius today, a company would have to fork over at least $16.8B (w/o a premium). Of that, they would assume $2.7B of debt. And how much debt is that? 16% of the entire firm value.

  Sirius is in very good shape. $3PPS is my target for end of this year.

• Report this Comment On July 09, 2011, at 9:14 PM, jekoslosky wrote:

  "Bottom line: It's much harder to get people to pay for music than it is something like cable TV. And the competition for each is only getting tougher."

  This is one place where I see Sirius having a big advantage. It has great original programming, whether it's Stern, sports talk, or B.B. King's weekly show on the blues channel, it's stuff you cannot get anywhere else.

  I sold out of my SIRI position a while back, but I still love the service. Best $10 I spend every month.

  See my holdings here: http://bit.ly/mBbsyP

• Report this Comment On July 10, 2011, at 6:58 PM, baldheadeddork wrote:

  It depends on your horizon. Right now they're both hugely expensive by any rational standard. I wouldn't invest my lunch money in either company.

  SIRI will likely outperform P in the short term, say the next year to eighteen months. But beyond that, I think the advantage shifts to Pandora.

  SIRI has two major issues facing it. First, if the company continues to be successful current owners will get hit with a massive dilution of their shares value when John Malone redeems his 2.4 billion warrants. Buyers of SIRI now are signing up for a 38% haircut (not including market reaction) when Malone cashes in. I've never actually written down the reasons I won't touch a stock with a ten foot pole, but if I do that kind of known dilution event on a stock already carrying a 200:1 P/E will be pretty high on the list.

  The second problem facing SIRI is that we're just beginning to see the integration of broadband wireless into cars. Ford, GM, Hyundai and Toyota have all announced integrated broadband packages that will roll out over the next 18 months. Broadband service will be priced into buying or leasing the car, and you'll be able to access apps like Pandora from the dashboard.

  When that happens, I think life becomes a lot more difficult for SIRI. They're never going to have the flexibility that apps offer and Sirius is going to remain a one-way street. They can offer hundreds of channels, but you can't program what you want to hear or see like you can with Pandora and Netflix.

  Pandora needs to turn its first arrival into this space into dominance as apps move into the car. I don't think the company will ever be hugely successful on its own, but like Hulu the business model could be very attractive to a larger company looking to buy a dominant player in that space (a la YouTube and Skype) a couple of years from now.

• Report this Comment On July 10, 2011, at 8:17 PM, motleymarty wrote:

  baldheadeddork: What makes you think Malone will redeem his warrants?

  As re "integration of broadband wireless into cars" and then a sentences later "you can't program what you want to hear or see..."

  What planet are you from? When you drive a car you're NOT supposed to be fiddling with programming radio stations or watching music videos...or looking at CD/album jackets...

• Report this Comment On July 11, 2011, at 10:13 AM, joemarine99 wrote:

  ok just let this play out. i think a lot may depend on if our govt decides to implode on us. there are signs of life in this economy, look at new car sells. Amen. Up again, that means Sirius numbers will be up again. yeah it is not much, but everytime car sales jumps, the subs jumps. i wish they would just do an add on feature for a lifetime sub for say $1000. in new cars. you get all the channels. but as long as we keep creeping along we should come out looking pretty good!

• Report this Comment On July 11, 2011, at 2:51 PM, baldheadeddork wrote:

  @motleymarty: I think Malone will redeem his warrants because he would like to get paid something for the half-billion dollars he put into Sirius.

  Maybe I'm wrong and he gave SIRI the money out of the goodness of his heart, but since he asked for the warrants it's probably a good bet that at some point he'll want to make good on them.

  About programming Pandora or Netflix in the car - lighten up, Francis. I'm 99.99% certain these systems will have interlocks to prevent accessing anything other than channel selection when the vehicle is in motion.

• Report this Comment On July 12, 2011, at 7:52 PM, baldheadeddork wrote:

  Not to say I told you so but...ah, to hell with it. Told you so.

  http://www.autoblog.com/2011/07/12/pandora-comes-to-scion-mo...

• Report this Comment On July 25, 2011, at 2:12 PM, hockey33 wrote:

  For a consumers point of view, not investor -- I use both Sirius and Pandora .. I use Sirius for listening to Stern and CBNC and Pandora for music. It's pretty easy to plug my smart phone into the aux jack of my car and listen to Pandora, they do not need to be integrated into the cars. New friend got a new Ford truck and Pandora can be played over the Bluetooth connection on the Sync system. Sirius has a lot of music stations, but nothing I really like. It's like a normal radio station, they play a couple songs an hour I REALLY like and the rest I can do with out. I can put on a Pandora station that learns the music I like.. and I'll enjoy 90% of the music played on my Pandora stations.

  I have use for both.. but once Stern is gone in 5 years.. I'll be gone, unless something else I really like comes along. Not worth the cost just for CNBC.

  I'd have no problem paying for anything that plays music I enjoy 90% of the time. So If Pandora starts charging a fee, I will pay, unless its unreasonable.

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