5 Reasons Why Sirius XM Is at $0.23

What do blitzing outside linebackers and Sirius XM Radio (Nasdaq: SIRI  ) have in common? They all want to get the quarterback. Get it? Quarter back?

Unfortunately, this is no laughing matter to suffering shareholders, now coping with a stock that closed yesterday below the $0.25 mark.

Since the shares have been roughly halved since last month's "5 Reasons Why Sirius XM Is at $0.43" article, I figured I would revisit those five reasons. Are they still valid? Is the company really half the company it used to be?

The answer to the last question is "of course not." The company's market cap may have been sliced in half over the past five weeks, but it's actually a much smaller fraction of the company's enterprise value once you tack on the long-term debt.

Now let's get back to the first question. Are the five reasons for the company's slump still valid?

1. It's the shares outstanding
The completed merger between Sirius and XM is beneficial in many ways, but not to fans of lean financial statements. With roughly 3 billion shares outstanding, it's going to take a lot of revenue and earnings to divide into that gargantuan sum to justify a price back in the double digits, and maybe even the single digits.

Naturally, before you even begin to brush up on the long division, you also have to factor in the $3.4 billion in long-term debt.

There aren't too many stateside companies with more shares outstanding than Sirius. The bluest of the blue chips like General Electric (NYSE: GE  ) and Microsoft (Nasdaq: MSFT  ) may have roughly three times the number of shares outstanding as Sirius, but it's hard to justify a high share price when you have more shares out there than auto partner Ford (NYSE: F  ) or cable giant Comcast (Nasdaq: CMCSA  ) .

A reverse stock split is a zero-sum game. It is a desperate move that has often backfired. However, when you factor in the likelihood of even greater dilution if Sirius XM has to recapitalize next year, the glut of shares outstanding is an albatross anchoring the stock to its pocket-change price.

2. The FCC did it in
There is no denying that the FCC is dragging its feet -- taking a year and a half to approve a merger it should have killed or passed last year -- and that this is weighing heavy on the company. It finally allowed the merger to go through, but with little time to get its synergies to simmer ahead of next year's debt-repayment deadlines.

Things would have been materially different if Sirius and XM had been shacking up since last year. 2008 would have been a breakthrough year of operating-cash-flow goodness. Instead, regulators played hard to get, and now the market is pricing Sirius XM as if bankruptcy is inevitable.

For the sake of regulators, they better hope that Sirius XM makes it. With their fingerprints all over this crime scene, it's not just Sirius XM shareholders that will be wiped clean if the company files for bankruptcy reorganization.

3. It's a lousy time for automakers to go weak
If Ford and General Motors (NYSE: GM  ) had it bad a month ago, that's nothing compared to today's potholes. Not only are cars not selling, but now Detroit is at the mercy of an unlikely $25 billion bailout to stay afloat through the holidays.

If Sirius XM partners are selling fewer cars, that means fewer drivers being treated to free trials on their satellite radio receivers.

4. The alternatives are real
I've been a Sirius subscriber since 2004. I added XM when it came with my new car in 2006. The aural options were crummy at the time. With little interest in commercial-saddled terrestrial radio and tiring quickly of my CD and iPod music collection, it was either satellite radio or a portable music subscription service like Best Buy's (NYSE: BBY  ) Napster.

It's a different playing field these days. I can fire up my iPhone for free Internet radio. The quality is iffy, but audiophiles are rare these days in a world where inferior-to-CD MP3 files and even compressed satellite radio signals will do. GM and Ford have new models with built-in hard drives for uber MP3 storage. Chrysler finally rolled out the UConnect Wi-Fi routers this month, opening up the Web radio option to folks with laptops, iPod touch, and other wireless devices.

Since last month, Sirius XM has actually lowered its subscriber targets. The souring economy and lackluster new car sales are the likely culprits, but it's hard to ignore the evolving line of eardrum magnets. 

5. Separating the stock from the sector
Investors need to realize that they are not in the same boat as subscribers. If Sirius does file for bankruptcy next year, it will be for the long-term benefit of its listeners. Common shareholders will get wiped out, but the company will continue to broadcast as it straightens out its balance sheet.

Sirius XM shares are cheap enough to bring out the riverboat gambler in all of us. I am certainly tempted to nibble at these levels. However, it's a pretty big gamble at this point. It's a race of the improving fundamentals against a capsizing balance sheet.

Shares of Sirius XM are unlikely to be at $0.23 at this point next year. They will either be worthless or substantially higher. If you own Sirius XM, it should be the riskiest stock you own. It's a long-shot race ticket. It's a lottery ticket. It's a slot machine.

Yes, a slot machine. One that takes quarters. Get it?

Some other tales of low-priced stocks on the move:

Microsoft and Best Buy are Motley Fool Inside Value selections. Best Buy is a Motley Fool Stock Advisor pick. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz is such a fan of satellite radio that he subscribes to both Sirius and XM. He does not own shares in any of the stocks in this story. He 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 (16) | Recommend This Article (8)

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 November 18, 2008, at 2:35 PM, DemianBohemian wrote:

    Were you calling it a slot machine when the Motley Fool recommended XM as a stand alone company to their paid subscribers at over $30 a share? The Motley Fool has been bashing the combined company down in the pennies day after day. What kind of pump and dump operation are they running? It's quite amazing that they release so many articles day after day with the SIRI ticker symbol in them. They have lost all credibility and are now fishing for hits...

    The Motley Fool is a joke.....

  • Report this Comment On November 18, 2008, at 3:08 PM, alongshot wrote:

    Motley doesn't get it. There is $2.7 bil revenue. Almost a third of

    all film box office for a year. Entertainers only get high salaries if

    the company makes money. SIRIUS is in trouble not because

    it's not making money it's because they can't stop spending wastefully on talent fees, and bosses salaries and overhead.

    Why should Stern, Oprah, Martha, Mel and others be taking out money when the Corp. is bleeding. There are people just sucking

    money out of the revenues. Cut the cash flow to these cash

    sucking greedy management and talent and there's some money

    to start paying down debt. $100 mil a year to Stern. Is that realistic. Come on Motley show some knowledge about cash flow

    and outlay expenditures. Do you realise how many company's would like a $2.7 stable cash flow, much of which is spent on

    people resources that can be cut back. Crazy, everyone misses the picture. It's going down because we are being ripped off, not

    because of all the other BS.

  • Report this Comment On November 18, 2008, at 4:03 PM, MikeRehling wrote:

    My god get rid of the cliche clown!!!! Canceling my subscription! Not to SIRI, but the FOOLS!!! GOD I HAVE LOST MONEY ON MOTLEY FOOL PICKS THIS YEAR!

  • Report this Comment On November 18, 2008, at 4:12 PM, MikeT38606 wrote:

    Are the changes at XM/Sirius acceptable to listeners?

    Are the changes advantageous to advertisers?

    Are the changes tolerable to stockholders?

    Are the changes in line with the expectations made by the FCC?

    Advertiser-supported media, offered at no charge to users, is responsible to its clients for attracting the quantity and quality of audience required to meet their marketing objectives.

    Subscriber-based media, though obligated to meeting the necessary requirements to maintain advertisers, also has an obligation to meet and maintain the standards expected by its subscribers. I believe the XM/Sirius merger and their subsequent business tactics have compromised the performance expected not only by its subscribers and advertisers, but also by its stockholders.

    I believe the integration of Sirius into the XM service is an insult to all parties involved, but especially to its listeners. Personally, as a long-time XM subscriber, I believe the integrity and ingenuity of some of the XM concepts have been terribly compromised; the XM service has lost the vitality, variety and value provided when originally conceived and offered to subscribers. And I am under the impression that subscribers who preferred and originally chose Sirius also feel that some of the compromises made by the merger lack the original expected standards promised to them when they originally signed up with the Sirius service.

    What will happen to Sirius if subscribers become as disenchanted as their stockholders have already become and do not renew their subscriptions? Will the service need to be offered to listeners at no charge and be completely advertiser-supported? Can Sirius afford and support such a model?

    If XM or Sirius subscribers had wanted standard broadcast radio formats, they possibly would not have subscribed to XM or Sirius in the first place. I subscribed to XM after being disappointed and dissatisfied with how CBS/Infinity led by Mel Karmazin (now CEO of Sirius XM Radio) was compromising the resources and programming offered by their radio stations which for the most part had previously offered superior content, better execution, respect for their audiences and consistent results for their advertisers.

    I suggest Sirius learn from the mistakes made by CBS/Infinity during Karmazin's tenure. I suggest Sirius not repeat the same types of strategies and tactics implemented by Karmazin which seem to disregard what is best for listeners, advertisers and stockholders. I believe CBS might still be trying to catch up due to mistakes made during Karmazin's tenure at their company; trying to catch up on quality of product, competitive position, revenue, value of equity and overall profitability.

    I understand the need to eliminate redundancy. I do not understand anyone (including the FCC) tolerating Sirius' complete disrespect of subscription contracts. Maybe the current leadership is making the same type of mistakes they made in the past. Now that's the type of redundancy that should not be tolerable to anyone, especially to Sirius stockholders.

    Maybe Sirius needs to bring back some of the original XM Radio management and eliminate the current leadership. Not all of the previous XM management led with integrity or honesty; but a new board of directors could be careful and perform their proper due diligence and assemble a team of managers, programmers and talent along with sales and marketing personnel to rebuild a superior product.

    The unfortunate truth to Mr. Karmazin and his stockholders is that listeners and advertisers could all live without XM or Sirius, unless of course the product is made to be unique and relevant, and therefore possibly irreplaceable.

    As far as investing in Sirius, I believe further investments should not be made until a new business plan is made public. As the company is now a monopoly within its own specific industry (satellite radio, not including broadcast and internet competitors), I believe the business plan must be shared with investors, the government and subscribers and then followed to the letter.

  • Report this Comment On November 18, 2008, at 4:17 PM, buzzltyr wrote:

    Sirius does not need to borrow money, they already have the money. The question is do the lenders extend the deal at a higher rate, or do they call in the loan and lose everything in bankruptcy. Geeeee I wonder what they will do.

    Bankruptcy is what happens when you can't make payments, that has never been a question with sirius, the have revenue of 50 million per week and are nearly cash flow positive.

  • Report this Comment On November 18, 2008, at 4:46 PM, leva008 wrote:

    Here are my reasons why 4 of your reasons are wrong (in reverse order of importance):

    (1) Dividing earning by the number of shares can hardly be a problem when you don't have anything to divide. In fact, the only thing that can be divided are the losses--and having more shares makes those look less painful.

    (2) GM, etc., problems--true, but I have not heard other media companies (including radio) complain too much. If the only way you can sell your product is as a tag-along, that your problem. Don't blame the car companies for your failures.

    (3) A company loaded to its ears with debt in a credit-tight market can expect its shareholders to flee the ship. Unfortunately for the debt holders there won't be much to fight over when this boat sinks--too bad.

    (4) The future was here 7 years ago. Anyone who thought that receiving free music wirelessly, over the internet, in your car or wherever you feel like it was far away 7 years ago is a fool. The technology is here now (e.g. iPhone) and will only get better. Those without content will be left holding their you know what in the wind. A starting a company that has a maximum lifespan of 10 years, due to upcoming technological changes can work only if you can come out of the gate making cash. These twins, now joined at the hip, were, and still are, losers. Hence, it's a loose-loose proposition. Unless ...

    (5) Well, here's unless. Unless you short the damn thing. It made me smile when I read "... suffering shareholders ... ."--ha. I shorted xmsr on multiple occasions for the past 3-4 years; thanks to those who made this possible by bidding up this worthless stock. Motley fool writer got one thing right--alternatives are here. Unfortunately for those who thought this company could be worth anything, thought wrong. Alternatives where "here" 7 years ago in a sense that any reasonable person would have known that the alternatives are the future. So these twins were dogs from the start; poor economy, etc. will only accelerate their demise.

  • Report this Comment On November 18, 2008, at 5:26 PM, buzzltyr wrote:

    Iphone is real great at $70/ month with no NFL, NBA, commercial free music

  • Report this Comment On November 18, 2008, at 11:10 PM, FoolNHisMoney wrote:

    To MikeT38606

    Are the changes at XM/Sirius acceptable to listeners?

    I've checked out the new offerings and find nothing unacceptable, as I'm sure the vast majority of subscribers have. Sure, there's a vocal minority complaining that their favorite channet is gone . . . but is it really? As Brandon rightly points out is that this has not been an "elimination" of services, but rather a consolidation of the best of both services. Read that again: a consolidation of the best of both services. How is that bad for the consumer to receive in one service the best programming offered by the two individual services?

    Are the changes advantageous to advertisers?

    Yes? Advertisers now have access to 19+ million subscribers where they only had half of that with the two seperate services. Furhtermore, advertising is not a huge revenue generator and is only found on the talk format stations . . . which again, we get the best of both. Music remains commercial free.

    Are the changes tolerable to stockholders?

    Again, yes? Remember the boon of reduced operating costs resulting from the merger? We see even now in the 1st quarter of combined operation that these savings are real. How is that bad for shareholders? Think of that word synergy here if you can.

    Are the changes in line with the expectations made by the FCC?

    What expectations (in terms of programming changes)? To my knowledge the channel consilidation violates nothing in the FCC's approval and in fact has been known since day one in the merger talks.

    As to your bashing Mel Karamazin: Mel has been an unqualified success at any company he's headed - CBS, Infinity, Viacom - all grew leaps and bounds and made record profits under Mel. Try doing some research and backing your claims . . . but then again, you probably don't care to do that, but you can start here: http://www.answers.com/topic/mel-karmazin

    Thanks for twice posting a longwinded diabtribe (well, counting this same post on TMF) . . . on nothing relevant and in fact inaccurate. Clearly you were against the merger to begin with.

  • Report this Comment On November 18, 2008, at 11:11 PM, FoolNHisMoney wrote:

    I meant "SeekingAlpha" not "TMF" in that last line.

  • Report this Comment On November 19, 2008, at 10:23 AM, nosferatublue wrote:

    "Shares of Sirius XM are unlikely to be at $0.23 at this point next year. They will either be worthless or substantially higher."

    What a joke.

    I've read several of your articles on Sirius XM. I don't own the stock, so I like to think of myself as objective. Here's my conclusion: You guys are experts at explaining the obvious.

    The closest thing I've seen to a prediction in your recent articles was the prediction that Sirius stockholders would pan your article. I can give you credit for a good call there; keep giving articles with no useful information, and you'll keep getting panned.

    Here's an idea for you; instead of rehashing the obvious, try making a useful prediction. And if the best you can come up with is "Sirius will do either really good or really bad" try to disguise it as something more intelligent.

  • Report this Comment On November 19, 2008, at 10:57 AM, Hartleib wrote:

    Sirius Shareholders Sue

    Click Here to Watch the Video of Michael Hartleib on Fox News

    SIRIUS Shareholders File Suit Against SIRIUS XM Radio Management

    LOS ANGELES, Nov. 3 /PRNewswire/ -- The following is being issued by

    "Save Sirius":

    A group of incensed shareholders, over 500 strong and growing, have

    banned together and accused SIRIUS XM management of unjustly enriching

    themselves at the expense of shareholders.

    A derivative suit on behalf of shareholders has been filed in the

    United States District Court, Central District of California, Southern

    Division. Case number SACV08-00790CJC

    The case accuses management of violations of the FEDERAL RACKETEER

    INFLUENCED AND CORRUPT ORGANIZATIONS ACT (RICO), BREACH OF THE FIDUCIARY

    DUTY AND THE SHERMAN ACT.

    This suit seeks to prevent management from further damaging its

    shareholders with massive amounts of additional dilution (8 billion shares

    in the fully diluted float) and as much as a 1 for 50 reverse stock split.

    "We are working to gain control of our company by seeking to remove

    current members of the board as well as top executive Mel Karmazin," said

    Michael Hartleib on behalf of Save Sirius and its members. In a September

    15th 2008 Wall Street Journal article written by Sarah McBride, she states,

    "Given Sirius XM's low stock price, Mr. Karmazin said he would love to take

    the company private. But given the state of the credit markets, 'How do you

    find [the money] today?' If the company were generating positive cash flow,

    which he expects it to do for the full year in 2009, privatization would

    become much more feasible, he says."

    It is clear that management under Mr. Karmazin's leadership has an

    agenda to steal this company from its shareholders.

    Given Management's history of:

    -- Locking their shareholders into the longest merger delay in history;

    -- Preventing the Corporation from seeking alternatives or potential

    suitors;

    -- Failing to commercially introduce interoperable radios;

    -- Their insistence on going forward with the merger at any and all costs;

    -- Consummating the merger issuing 300 million shares to the financiers of

    XM's debt to be sold short on the open market

    Mr. Karmazin and the board have severely damaged shareholder value in

    violation of their fiduciary duties. Shareholders have lost over 90% of

    their value under Mr. Karmazin's leadership.

    "In light of the aforementioned, it is clear that they have lost sight

    of their obligations to shareholders and have breached and will continue to

    breach their fiduciary duties in the future. We, as a group, will not stand

    for this and will use any means possible to prevent and preclude them from

    stealing this company from its rightful owners -- we the shareholders,"

    said Michael Hartleib, on behalf of Save Sirius and its members.

    Contact:

    Michael Hartleib

    (949) 795-0580

    savesirius@gmail.com

    SOURCE Save Sirius

    SIRIUS Shareholders File Suit Against SIRIUS XM Radio Management

    LOS ANGELES, Nov. 3 /PRNewswire/ -- The following is being issued by

    "Save Sirius":

    A group of incensed shareholders, over 500 strong and growing, have

    banned together and accused SIRIUS XM management of unjustly enriching

    themselves at the expense of shareholders.

    A derivative suit on behalf of shareholders has been filed in the

    United States District Court, Central District of California, Southern

    Division. Case number SACV08-00790CJC

    The case accuses management of violations of the FEDERAL RACKETEER

    INFLUENCED AND CORRUPT ORGANIZATIONS ACT (RICO), BREACH OF THE FIDUCIARY

    DUTY AND THE SHERMAN ACT.

    This suit seeks to prevent management from further damaging its

    shareholders with massive amounts of additional dilution (8 billion shares

    in the fully diluted float) and as much as a 1 for 50 reverse stock split.

    "We are working to gain control of our company by seeking to remove

    current members of the board as well as top executive Mel Karmazin," said

    Michael Hartleib on behalf of Save Sirius and its members. In a September

    15th 2008 Wall Street Journal article written by Sarah McBride, she states,

    "Given Sirius XM's low stock price, Mr. Karmazin said he would love to take

    the company private. But given the state of the credit markets, 'How do you

    find [the money] today?' If the company were generating positive cash flow,

    which he expects it to do for the full year in 2009, privatization would

    become much more feasible, he says."

    It is clear that management under Mr. Karmazin's leadership has an

    agenda to steal this company from its shareholders.

    Given Management's history of:

    -- Locking their shareholders into the longest merger delay in history;

    -- Preventing the Corporation from seeking alternatives or potential

    suitors;

    -- Failing to commercially introduce interoperable radios;

    -- Their insistence on going forward with the merger at any and all costs;

    -- Consummating the merger issuing 300 million shares to the financiers of

    XM's debt to be sold short on the open market

    Mr. Karmazin and the board have severely damaged shareholder value in

    violation of their fiduciary duties. Shareholders have lost over 90% of

    their value under Mr. Karmazin's leadership.

    "In light of the aforementioned, it is clear that they have lost sight

    of their obligations to shareholders and have breached and will continue to

    breach their fiduciary duties in the future. We, as a group, will not stand

    for this and will use any means possible to prevent and preclude them from

    stealing this company from its rightful owners -- we the shareholders,"

    said Michael Hartleib, on behalf of Save Sirius and its members.

    Contact:

    Michael Hartleib

    (949) 795-0580

    savesirius@gmail.com

    SOURCE Save Sirius

  • Report this Comment On November 19, 2008, at 11:10 AM, JavaChipFool wrote:

    My question is this. And I will put it in shouting mode so maybe someone at Fool will notice.

    WHY IS THE SIRI DISCUSSION BOARD CLOSED?

    So the share price is under the limit. The value is way over the limit, it is a Fool pick, and obviously of some interest since articles are still appearing. I count three reasons to one arbitrary one to close it. Its not like there's only a million shares out there for someone to pump and dump. Trading at an average 42 million shares a day, out of 3.5BILLION, I doubt anything we say there will move the price very much.

    WTF? Get the board back up until we are in bankruptcy or laughing at the shorters.

  • Report this Comment On November 19, 2008, at 11:20 AM, JavaChipFool wrote:

    Egg on my face. So soorrrry. Haven't done anything like that for a few years. Hope I can go as long again before my next one.

  • Report this Comment On November 21, 2008, at 1:59 PM, georgeman7 wrote:

    Gee - Sirius in trouble?? It wouldn't of course have anything to do with an outrageous contract of hundreds of millions with some off the wall radio personality- Would it? NAW-

  • Report this Comment On November 22, 2008, at 10:14 PM, nogodforme wrote:

    The reason no one cares about Sirius is because they removed my favorite channel

    #70 - Planet Jazz

    When they removed that channel, the removed 1/3rd of their jazz lineup. You're saying so what, no one cares. Well, I did.

    They've got 20 rock channels, and 3 jazz channels is too many.

    They added single artist channels I don't care about.

    What they're doing is the same thing cable did. It started out great with unique programming, then turned commercial. You can bet it won't be long before Sirius has commercials on their music channels. They already play a promo in between each song, which sounds like a commercial.

  • Report this Comment On November 24, 2008, at 3:05 PM, harryouch wrote:

    I am beginning to think that regular street "investors" are just a necessary part of a mechanism to help the select few get richer and richer. Be on the inside or be on get flushed down side. See you on the way down the pipes. No more stocks for me, this is worse than LasVegas!

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