How well do you know Sirius XM Radio (Nasdaq: SIRI ) ?
You may know a lot about the history of satellite radio and the merger that stitched XM to Sirius in a company that now combines for 21.9 million subscribers. However, I still see a fair deal of misinformation out there put out by investors, analysts, and financial writers from both the bullish and bearish camps.
I figured I would go over a couple of the things that irk me. Here are two myths that are often said about Sirius XM that are just not fundamentally true.
1. Sirius XM is an $8.5 billion company.
It is way too easy to pull up a quote -- see a market cap -- and assume that it's accurate. Financial websites aren't supposed to have a bias. They're just crunching numbers.
Unfortunately, way too many of the leading stock quote engines claim that Sirius XM has less than 4 billion shares outstanding. It's true -- if you limit yourself to the number of basic shares outstanding. It's just not accurate. For some reason or another they ignore the fact that Liberty Media (Nasdaq: LMCA ) owns a 40% preferred share stake in the company.
The reporting disparity may trace back to the days when Sirius XM wasn't profitable. Liberty Media's stake -- which can be converted to more than 2.6 billion shares -- isn't included in the diluted share count when Sirius XM posts a loss. That doesn't mean that the stake doesn't exist. It certainly doesn't mean that the value of Sirius XM should be understated from a valuation perspective.
In its latest quarterly report, Sirius XM did have a full 6.5 billion fully diluted shares outstanding. Given yesterday's close, we're looking at a market cap closer to $15 billion. If we adjust for the company's net debt position to arrive at an enterprise value we're actually topping $17 billion. Yes, that's double the $8.5 billion price tag being bandied about elsewhere.
The amusing thing about this little nugget of misinformation is that it's often misused by bears trying to argue that Sirius XM is overvalued at $8.5 billion. Oh, if they only knew...
2. Apple and Pandora are killing Sirius XM.
There's always a bogeyman. A few years ago, when automakers began adding audio input jacks in cars, Sirius XM bears argued that Apple's (Nasdaq: AAPL ) iPod was going to kill satellite radio.
Who said that growth for Apple and Sirius XM had to be mutually exclusive? Save for the first half of 2009 -- when the recession was starting to lift but car sales stalled -- Sirius XM has always continued to add to its subscriber count.
It's worth pointing out that iPod unit sales have actually fallen by 21% over the past year. Does that mean that Sirius XM receivers are flying off the shelves? No. It was never about one or the other.
Cynics point out -- and rightfully so -- that the drop in iPod sales is being replaced at Apple by iPhones and iPads that double as iPods. This is even more daunting because Bluetooth-enabled smartphones can beam iTunes playlists and other streamed content directly through newer model car audio systems without having to worry about plugging in cables.
It's here where the folks that used to say that the iPod will kill Sirius XM now claim Pandora holds the smoking gun.
Well, Pandora (NYSE: P ) is definitely growing quickly. Pandora and Apple have both been growing at faster top-line clips than Sirius XM for ages. However, Sirius XM's own guidance for 2012 calls for revenue growth to accelerate.
How can that be, if Pandora's eating its lunch? Skeptics will point to Sirius XM's recent rate hike as the main reason for the pace of revenue growth picking up, but why would Sirius XM be raising its rates if the typically free Pandora is a problem?
There may very well come a time when Sirius XM's popularity peaks, but it didn't happen during the iPod's heyday and now even Pandora is projecting a sequential decline in revenue for the current quarter.
Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.
XM Satellite Radio was a Rule Breakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next rule-breaking multibagger, a free report reveals all.