Should Fools Believe in Sirius?

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Shares of Sirius XM Radio (Nasdaq: SIRI  ) hit a five-year low today, joining foreign provider 1worldspace (Nasdaq: WRSP  ) on Wall Street's dollar menu.

Sirius shares haven't traded this low since way back in May 2003. To put this in the proper-time machine perspective, back then:

  • Sirius had just more than 68,000 subscribers on board.
  • The big goal at Sirius was to hit 300,000 accounts by year's end.
  • Howard Stern wouldn't arrive for nearly three more years.

Sirius has come a long way, baby, even if the stock has gone full circle.

This doesn't mean that Sirius is worth as much today as it was more than five years ago. Beyond the XM deal, which essentially doubled the size of the company, Sirius spent the past few years reworking its financial structure at the expense of diluting its shareowners. The company had just 327.9 million shares outstanding at the time of its 2003 low -- a fourfold increase from where it had been a year earlier. Today, the share count stands at 3.2 billion.

All of this girth doesn't mean that Sirius is flush with cash from years of manning its stock-certificate printing press. Sirius XM Radio is saddled with plenty of debt, which is due next year.

If you think that this dire setup is my way of gradually building up to the mother of all bashes on the stock, you're wrong. I'm actually a fan.

It sure is lonely at the bottom
I know I'm one of the few who still believe that Sirius has what it takes to succeed. Shares of Sirius have shed more than 20% over the last two days, with Mr. Market concerned more about the slow growth at the top than what's happening on the way down.

Since I haven't seen any of yesterday's bearish perspectives break down the company's beefed-up $425 million in merger synergies, I may as well do so. This isn't some number that Sirius XM Radio is merely hoping for. It showed its math for the first time yesterday in an SEC filing, breaking the advantages down line item by line item.

The synergies:

  • Satellite and transmissions - $20 million
  • Programming - $60 million
  • Customer service and billing - $20 million
  • Sales & marketing - $150 million
  • Subscriber acquisition costs - $50 million
  • G&A - $50 million
  • R&D - $25 million
  • Revenue synergies - $40 million
  • Capital expenditures - $10 million
  • Total - $425 million

These savings are real, typically from scaling back headcount or eliminating redundant programming and marketing overhead. The end result is that Sirius XM Radio should incur just $2.4 billion in cash operating expenses, in the shadow of $2.7 billion in revenue. Some analysts may have been looking for as much as $3 billion, but the bigger point here is that Sirius can be a self-sustaining company at this point, as long as it gets past the tricky debt obligations that it will need to tackle throughout the year.

Back to the future
I can't see Sirius failing. Keep in mind that its creditors include organizations like General Motors (NYSE: GM  ) , which relies on the company for incremental revenue streams. With shareholders like Howard Stern and the 32 NFL teams on board, do you really think that antsy debt holders will take the company down next year? They can all see beyond the speed bump.

One of the slides during the company's presentation yesterday pitted the company's subscriber base -- 18.6 million and growing -- against smaller, slower entertainment subscription services.

  • DirecTV (NYSE: DTV  ) - 17.2 million subscribers
  • Dish Network (Nasdaq: DISH  ) - 13.8 million
  • Time Warner Cable (NYSE: TWC  ) - 13.2 million

True, those companies are profitable. However, Sirius XM Radio is growing faster even in this cruel climate, in which sluggish auto sales and a retail freefall should make any growth applause-worthy.

In short, there are too many interested parties to let Sirius XM fail next year. More importantly for patient investors, there are too many catalysts to prevent Sirius XM from succeeding in 2010.

It may be lonely here among the bulls, listening to that raucous shindig going on over in the bears' den. Have patience, Fools. Sometimes it pays to be fashionably late to the party.

Stay tuned for further Foolishness:

Longtime Fool contributor Rick Munarriz is such a big satellite radio fan that he subscribes to both XM and Sirius. He does not own shares in any of the companies in this story. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.

Read/Post Comments (9) | Recommend This Article (31)

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 September 10, 2008, at 2:57 PM, Matt8265 wrote:

    Rick, you like XM at 32.00 also.. remember?

  • Report this Comment On September 11, 2008, at 10:27 PM, Fredlee009 wrote:

    Thats the same as liking Sirius at around 7 dollars. It will get there before you know it. So thats not too bad. No one could have predicted the FCC to take that long to decide, and you cant predict what shorters who have the fun of a stock can do to it for a short period of time. Knowing its a good company and a good product doesnt help your immediate balance sheet. Let me ask you this, would you rather be AMD going forward or Sirius? Well, AMD's balance sheet is worse than Sirius's, there in a fiercely competetive market and there stock is at 6 dollars. Go figure.

  • Report this Comment On October 07, 2008, at 12:16 PM, beemr wrote:

    So, if I read this right: Sirius is too big to fail? I've heard that before, you may be on to something.

  • Report this Comment On October 18, 2008, at 12:49 AM, bdsace wrote:

    Since Sirius acquired XM, it's only competition, is the dismal offering of Regional Radio Free America, & according to Mr. Munarriz ,..Dish TV (?) I've yet to see a Dish on any Hybrid, the intrinsic threat is really his (and my) dismal iPod or CD collection of Bruce, ASFTT, Wheezer, Mozart and Jewel. Competition with XM allowed the marketing creative fools to over spend on "has been shock jocks".All that is needed is quality music to segment the demographics of a varied market. So with a monopoly on moving music satellite technology, and the ability to be retro fitted into older vehicles, SIRI can almost stumble to God like status using ..pardon the pun, a KISS approach.

    Rule #4 of BDS, first one on the block SHOULD be the winner.

  • Report this Comment On November 09, 2008, at 10:00 AM, 9622C wrote:

    1999-2000 XM <$2 and in pretty much the same situation as Sirius is now (but was first in the door). At this price how can you go wrong? even without the major auto makers. First heard about "selling" radio first thoughts were "who's going to PAY for what you can get for free?" and I'm in the business. People who like it "love" it and are the best word of mouth advertising. Subscriber base will continue to grow as with DTV and DISH. It's becoming one of those things that people will pay for even in bad times. Can't see how this will fail...maybe bought out down the road.

  • Report this Comment On December 19, 2008, at 5:20 PM, Royals1985 wrote:

    I've been a Sirius subscriber for a year and a half and I love the product but when I've had to call them for issues with the radio, I have had the worst service imaginable. I was hung up on more than 5 times!!! It took 5 weeks to fix a broken radio. If I didn't like the product so much, I would have quit the service. Where is customer service training in that line item break down??

  • Report this Comment On December 19, 2008, at 9:17 PM, TheAbbevilleKid wrote:

    I've been with Sirius since Stern came along and I have had only one (pardon my pun) serious issue with a receiver I had. It took one phone call and 15 minutes and I was offered not only a new radio receiver for my trouble...but a 3 month paid slice for my troubles. I have called Sirius customer service a total of three times in two years and I can say I love it. Yes I am one of those subscribers who will find a way to pay for it even in hard times. I'm still waiting to get in on the stock if it goes down to a dime.

  • Report this Comment On January 08, 2009, at 8:40 PM, trimap wrote:

    bought siri 4 years ago for the price of a a good cup of coffee have you seen what coffee coast now siri is heading up to have faith

  • Report this Comment On January 26, 2009, at 10:26 AM, rmy wrote:

    I'm reading this 1-26-08 and the stock is at 0.11--it must really be a bargain, now!

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