Sirius XM Is Insatiably Cannibalistic

Mom, Sirius XM Holdings (NASDAQ: SIRI  ) is gnawing on itself again! 

The satellite radio giant announced Tuesday afternoon that its board is approving the purchase of $2 billion worth of stock. If the authorization sounds familiar, it's because this is the third time that Sirius XM has gone this route. 

It's been 19 months since Sirius XM turned heads by announcing that it would be buying back $2 billion worth of its stock over time. Just 10 months later, its board gave the green light to snap up another $2 billion. The new announcement, made shortly after the market closed Tuesday, brings us up to a whopping $6 billion in planned buybacks. 

Now this doesn't mean that Sirius XM has to buy all of the stock. It's merely an authorization. However, history shows us that it's not just lip service when it comes to Sirius XM. By the time it announced its second buyback in October 2013 it had already eaten its way through $1.6 billion of the original repurchase. This time around, Sirius XM isn't telling us how deep it has gotten into its efforts, but back in late April it did reveal that it had purchased a cumulative tally of $2.3 billion -- out of what was then $4 billion in authorizations -- after taking a $340 million chunk of shares off Liberty Media's hands. 

Liberty Media continues to hold a controlling stake in the satellite radio darling, but as Sirius XM buys back its stock, it has the flexibility to also whittle down Liberty Media's total share count. 

Sirius XM is good for the money. It's making a ton of dough these days. It expects to approach $1.1 billion in free cash flow. It has also borrowed money to assist in its buyout efforts, but everything appears to be under control. Sirius XM's target is to keep total debt at less than four times annual adjusted EBITDA, and as of the end of the first quarter that leverage ratio was clocking in at a modest 2.8. 

The market hasn't necessarily rewarded Sirius XM for eating its own cooking. The stock has risen just 22% in the 19 months since the day before it announced its initial buyback through Tuesday's close. That's not bad, but it's a little more than half of the S&P 500's 40% return in that time. 

This is still something that's important to Sirius XM's ability to move its stock higher in the long run. Sirius XM has printed a lot of shares over the years. Doubling its share count to bring on XM Satellite Radio makes sense, but the 40% preferred share stake it handed to Liberty Media when it was on the brink of bankruptcy was more predatory than payday loans at check-cashing outfits. It was also liberal with stock and option grants to attract and retain talent when its stock price was trading a lot lower than it is today. 

In the end, Sirius XM is doing the right thing. Its fully diluted share count was down to 6.1 billion as of the end of March, and the lower that figure gets, the better its chances of appreciation will be as its growing revenue and profitability gets divided into fewer shares. 

Keep gnawing away at yourself, Sirius XM. Enjoy the buffet, and don't worry about what the market thinks about your table manners.

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  • Report this Comment On July 16, 2014, at 5:09 PM, sirifair6 wrote:

    Rick,

    Great overview. I wish every company were an insatiably cannibalistic as sirius xm. Fortunately for them sirius is prospering and can devour a lot.

    What I like about the new announcement that it gave some mid-term clarity about company's (and naturally liberty's) priorities.

    Reducing the obscene amount of shares that siri has should be number one priority for the company for now along with growth. The environment is 100% conducive for that, with interest rates being low and siri's cash generation growing at great margins plus the saher price is ridiculously low. Now, we have certainty and cannot claim any more that liberty will eat siri alive.

    As I have been saying for years, siri and liberty are much more aligned than not in their pursuit of wealth. It appears the interests of long-term investors are also aligned with both companies. I do not mind going for this fun ride with them. Fewer shares along with continued revenue and fcf growth equals higher share price… eventually. I am not in a hurry and want them to do it right.

  • Report this Comment On July 16, 2014, at 7:34 PM, CaribouPaku wrote:

    this is garbage and you know it. Only one making money here is Malone and Liberty! 6.1 billion shares and how many options are out their and how many more will they provide. This company is here for Malone and Liberty and this is a laugh. This stock hasn't returned to its high of $4.18 after all the swirl around the attempted buy out by charter and the use of Sirius as a pawn by Liberty. No this stock keeps stepping back to much. There are to many other good buys out there that will make you more money in the next couple of years than this dog and pony show!!!!

  • Report this Comment On July 19, 2014, at 3:59 PM, sirifair6 wrote:

    Carubou,

    Garbage is exactly what you wrote without a clue of what is going on with the company and scared herd-type baseless statements.

    Buy wnatever you want and have it as long as you want. Today's siri is apple of 2003. Retruns are going to be stellar as in the case of any monopoly

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