The Signal Fades at Sirius XM

Another day, another belly-flop at Sirius XM Radio (Nasdaq: SIRI  ) .

Shares of the satellite-radio company fell 5% at this morning's open and traded as much as 12% lower during the day. Skepticism is mounting over the company's ability to stay afloat, even after the successful merger of Sirius and XM.

Unless the tide turns in the market's waning minutes, this will be the fourth consecutive day of sharp losses for Sirius XM investors.

Radio isn't a very glamorous business these days, but did anyone expect Sirius to join its overseas peer WorldSpace (Nasdaq: WRSP  ) -- and even struggling terrestrial-radio specialists such as Citadel (NYSE: CDL  ) and Westwood One (NYSE: WON  ) -- in trading for pocket change?

It's bad news when a money market fund breaks the buck, but what do you do when Sirius XM Radio is falling through?  

Let's scare Sirius investors to death
Cheaper than a lottery ticket but just as feast-or-famine, Sirius XM will either make its freshest investors ridiculously wealthy or excruciatingly poor.

The problem for those who prefer to have more money than less is that a freefalling share price can turn into a self-fulfilling death prophecy. If a stock tanks, not only does retaining desirable employees and attracting on-air talent become all the harder, but creditors and investors start getting nervous, too.

The timing couldn't be any more problematic for Sirius XM as it bumps up against three key tollbooths next year:

  • In February, a $300 million Sirius convertible is due.
  • In May, $350 million in XM bank debt must be repaid.
  • In December, a $400 million XM convertible is due.

Refinancing is easier said than done these days, even for healthy companies. With a sub-$1.00 share price, the market isn't going to warm up to a secondary offering. What started earlier this week simply as a slower growth outlook has snowballed into a situation where folks are bunching up at the exits.

First aid is not the last resort
If CEO Mel Karmazin has any rabbits he can pull out of his hat, now would be the time. Telling investors that the company will generate $300 million more in revenue next year than it expects to incur in cash operating expenses sure didn't do the trick.

It's also not much of a consolation to point out that Sirius XM, with its 18.6 million users, is second only to the 24.6 million Comcast (Nasdaq: CMCSA  ) subscribers in terms of stateside media subscriptions.

Of course, today's Wall Street dud can be tomorrow's darling in a world that loves story stocks with happy endings. Karmazin simply needs to hitch his wagon to better stories. Something as simple as an iPhone app -- which is just about the only thing on Tim Beyers' wish list that Apple (Nasdaq: AAPL  ) didn't grant this week -- would go a long way toward consoling those who have lost faith.

Yes, there are already ways for Sirius and XM subscribers to play select streams through their iPhones and Wi-Fi-tethered iPod Touch devices, but the process is cumbersome. An official solution would not only tie Sirius XM to the hot App Store, but it would also be likely to result in revenue-sharing streams on iTunes purchases.

If that didn't do the trick, then Sirius XM would need to establish more talent syndication deals, in which it gets paid to provide content for other broadcasters. That's not an ideal solution, because it devalues the Sirius XM product to have it available elsewhere. However, it would lock in a steady trickle of revenue that would help persuade creditors to stick around next year.

In short, Sirius XM needs to get the market excited again as if its life depends on it. Because, quite frankly, it does at this point.

More news than static on Sirius XM:

XM Satellite Radio is a former Rule Breakers stock pick. A free 30-day subscription will shed some light on why the satellite-radio company made the cut before being cut. Apple is an active Motley Fool Stock Advisor recommendation.

Longtime Fool contributor Rick Munarriz subscribes to both XM and Sirius. He owns no shares in any of the companies in this story and is also part of the
Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (4)

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 11, 2008, at 3:16 PM, MitziY wrote:

    The real problem with Sirius/XM is that the business plan is flawed. Over-the-air radio still works for most. Digital radios now provide even more options/channels. Not clear how Sirius/XM can offer something new/different enough to warrant vast numbers of subscribers.

  • Report this Comment On September 11, 2008, at 7:02 PM, DavisFreeberg wrote:

    I expect a lot of the market commentators to fall for it, but am surprised to see rulebreaker Rick focusing on the sub $1 stock price. Just because it's under a buck doesn't mean that the potential for gains is any more significant. It doesn't matter if a stock is trading at a penny if there are billions of shares outstanding. Warren Buffet gets this which is why he doesn't split his stock. The focus should be on the market cap and the enterprise value instead of the sub $1 price. Pointing out that it's a penny stock might make for good buzz, but their equity is still firmly in midcap territory which is quite a bit different then most sub $1 stocks. I'd rather see you focus on whether the actual value makes for a compelling investment, instead of focusing on the price per share.

  • Report this Comment On September 11, 2008, at 10:01 PM, Fredlee009 wrote:

    Dont expect educated commentary from the Fool about this stock. THey havent provided it all year. Any market watcher knows that Sirius did the only thing it could do while the shorts are strangling the stock right now, a conservative or outright lie guidance to send it down now, rather than after they announce refianacing which will help lift it. If they give a realistic guidance, and barely miss it, it could hurt the stock more then than at these levels now. Good move by Mel, he pulled "an Apple"(grossly understating guidance, and crushing their quarter reports). Remember, XM focused on retail sales and cars, Sirius mostly cars. They did this as a preemptive agreement maybe so post merger they are already handling both ways equally. Big jump will come in the retail sector, and cars next year as TOYOTA is added to the list of car makers with Sirius product. Yes, the largest car maker in the world will be ADDED to the exisiting list.

  • Report this Comment On September 12, 2008, at 11:20 AM, Matt8265 wrote:

    The Fool like XM @ 32.00. Once again, it ain't about financing... it's about making money. No one hesitates to loan to companies that can pay the debt back. The media all chimes in, and are all wrong again.

    It's about making one thin dime.

    Plowboy

  • Report this Comment On September 12, 2008, at 5:37 PM, McNabRanch wrote:

    No problemo! All the money NAB spent, and are still spending in case you haven't noticed, to work the FCC just shows their fear which I see as value that's just not on Siri's books....at this price they are probably even shorting it big time....but, they are coming up against a lot of folks who will go for that 86 cent lotto ticket. I couldn't resist buying a little more.

  • Report this Comment On September 13, 2008, at 11:50 PM, FeastOrFamine46 wrote:

    "...Cheaper than a lottery ticket but just as feast-or-famine..."

    Good word choice, I'd say. Keep up the good work!

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