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Why SiriusXM's Bond Offering Is Troubling

By Chris Hill – Jun 9, 2020 at 2:54PM

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These Fools discuss whether bonds are the right way to raise money for Sirius.

In this episode of MarketFoolery, Chris Hill chats with Motley Fool contributor Dan Kline about the latest news from Wall Street. There is encouraging news from the RV industry. They put some perspective on a recent announcement by a major restaurant chain. They talk about some entertainment news and much more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on June 8, 2020.

Chris Hill: It's Monday, June 8th. Welcome to MarketFoolery. I'm Chris Hill, with me today, our man in Florida, it's Dan Kline. Dan, good to see you.

Dan Kline: Hey there, Chris. It's 89° and muggy today; not the most pleasant day ever [laughs] in Florida.

Hill: Good to be indoors doing a podcast then?

Kline: It is, in my tin box that gets slowly hotter as the show goes on. So, less than ideal conditions, but I will soldier through. We're building a studio here at my coworking space, so eventually better working conditions ahead.

Hill: Alright. We will try to make this efficient then. We've got some entertainment news, we've got some restaurant news, but we're going to start with RVs.

Shares of Thor Industries up 7% this morning, hitting a 52-week high, because recreational vehicles are hot right now. And this was interesting because this was a third quarter report that they really crushed expectations on.

Kline: Yeah, Chris, I have to admit, I hadn't really heard of this company, I had no idea who made RVs before all of this. And I will tell you, I've been looking a little bit at purchasing an RV, though, not a new one; it seems like a really foolish purchase new, when basically once they are purchased, people seem to sell them pretty quickly at 50% or 60% off, if not much more. But this is a company that's taken advantage of the fact that we can't vacation like we normally do. So, for people who've been stuck in their house, the idea of taking an RV and going somewhere, anywhere and being with your family or maybe just by yourself [laughs] in a different place, seems very appealing. I know my wife would enjoy it if I took an RV and went by myself someplace else. [laughs]

Hill: Well, and I don't know about you, but I absolutely have friends and coworkers who, just in the last couple of months, have either, for the first time, rented an RV just to sort of try it out or are planning to do so later this summer. So, I think, you know, last week one of the things we had talked about was video conferencing and how, because of the pandemic, we're in this situation we are all kicking the tires on video conferencing as a nation. I don't think recreational vehicles are quite as ubiquitous, but they're definitely having a moment in terms of people who really hadn't considered this purchase or rental before are very much doing so now.

Kline: Yeah. I think we've also, sort of, reset our expectations on vacation. I mean, there are a lot of people who didn't spend money on trips and that money that they didn't spend, for those of us lucky to still be working, you know, that money, it might go to an in-ground pool. Well, pools are really hard to come by. The backorders are really, really long, so you're probably not going to get one even if you want one. But there are RVs available.

And you can take your RV and you can go a lot of places. There's obviously RV campgrounds, and some of them have pools and tennis courts and other things, but there's also services that let you park your RVs at wineries and other places, and it's a sort of portability. And I don't know about you, Chris, but I think we've all realized that our houses are pretty luxurious, even my 1,300 square foot downtown apartment really has a lot of excess when it comes to space. And the past three months have, sort of, taught me that some things I really thought I needed maybe I didn't need quite as much.

We've definitely reevaluated some of our possessions and, you know, some things that were getting in the way that we wouldn't let go of, we've donated, we've let go of.

Hill: It'll be interesting to see, sort of, how this carries out. And add Thor Industries to the list of companies who, when they came out with their quarterly report, one of my first thoughts was, "Wow! I can't wait to see what happens in three months!" [laughs] I really can't wait to see. Because I think, as interesting as this report is for Thor, the next one could be even more consequential.

Kline: Yeah, I also think, Chris, that this is maybe a one-time demand, that once you buy an RV, you probably hold that RV for eight to 10 years or you decide you don't like it and get rid of it pretty quickly, which floods the used market. This is going to be a very up-and-down business to follow, it's kind of a risky play as a stock. They do have a lot of debt, though, they retired about $550 million of that last quarter. So, it's one to look at, it's not one I would consider putting my money in.

Hill: Dunkin' Brands is out with a new ad campaign, it is not for coffee or donuts, it is for hiring. Dunkin' intends to hire 25,000 workers. This is in the wake of businesses, like, Taco Bell, Papa John's and Domino's, all of which recently announced plans to be hiring tens of thousands of people.

Shares of Dunkin' up about 3%, 4% this morning. And this is, you know, we can get into last Friday's jobs report in a minute, but this is one of those small encouraging signs of an economy getting back to life.

Kline: Yeah, Dunkin' has done a pretty masterful job of keeping their business afloat during this. It was interesting that they said in the earnings call that the pattern of buying had changed. They didn't make as many sales in the morning, because people didn't have a reason to go to work, instead they were taking, like, an 11:00 AM coffee break and going and waiting in the drive-thru.

The 25,000 people is very encouraging. What's interesting here is, Dunkin' Donuts is fully franchised. So, this is Dunkin', the brand, advertising that its franchisees need workers, that's a really, really good sign. But as a worker, you have to be a little more wary than if you went to work for, say, Starbucks. Because Starbucks has, sort of, a uniform code of how they pay people, whereas you might walk into one Dunkin' in Connecticut owned by one guy, and he pays minimum wage and isn't that nice and doesn't treat you that well. You might walk into a different Dunkin' down the road owned by a different franchisee and he might pay $13/hour and have a great reputation for promoting people internally.

It's a really hard company as a worker to get a handle on, other than literally talking to the people who work at that store you're considering, but as an investor, they make their money when their stores do well, taking a cut of sales. If they're hiring 25,000 people across the country, that means they expect their stores to do better and that's really encouraging.

Hill: Well, and it's a great point, Dan. And we talk all the time about founder-led businesses. And when you're in a franchise model, it's really all about, well, who is that person? Who is the person who owns that franchise, how many do they own? We've talked before about Chick-fil-A and, sort of, part of the success of Chick-fil-A is, if you want to own a franchise, you have to be all-in as an owner of that business. And the number of things you need to do to become a franchisee of Chick-fil-A is probably more stringent than any other franchise, you know, fast food or coffee franchise that you can think about. And so, it really is one of those things where, from the worker side of it, you're absolutely right, you almost want to [laughs] figure out, well, how many locations does this person own, what is their reputation?

But from a stock standpoint, yeah, I mean, this was, sort of, eye-catching that it's not Starbucks saying, "Hey, we're committed to this." It's the national business saying, "We're supporting our franchisees."

Kline: Yeah. Starbucks is actually doing the opposite, they've gone to workers and said, "Hey, look, now that we see what normal is, it's a little slower, we'd like people to take vacation time, voluntary short-term layoffs, work less hours." So, this is a good sign that Dunkin' is going to ramp up very quickly.

Starbucks has also been very hesitant to reopen dining rooms. I think Dunkin' -- in smaller Dunkin's don't have this, but in New England many of the larger Dunkin's have a small private meeting room, they could distance a little bit more easily than Starbucks can. They also don't have the business model that involves you sitting up with your laptop and being there all day. So, I think they're, sort of, well-positioned for this.

And, again, we're going to see a lot of hiring in the restaurant space and that's really encouraging, because obviously, that industry was hit as hard as any.

Hill: The last thing and then we'll move on to the next topic. Years ago, I remember interviewing Morgan Housel, and it must have been just a couple of days after whatever was the most recent monthly jobs report. And I asked him, "What did you think of the report?" And he said, [laughs] "Here's the one thing we know for certain about the jobs report that just came out, the numbers are wrong." And what he meant by that was, every job report comes with, here are the jobs added or lost in the past month, and, oh, by the way, here are the revisions to the report that we did a month ago and two months ago. In the wake of the one we just had last Friday, it is going [laughs] to be interesting to see what sort of revisions we get, now that we've got these reports that some of the people may have been misclassified by the workers at the Bureau of Labor Statistics. Again, just one more thing to watch, but it's going to be interesting to see where it goes.

Kline: So, Chris, let me jump in quickly here. I've been a big believer that as journalists, we overcover the jobs report. Right now, it's a little bit different, but for the past few years, we've had roughly six million job openings. How relevant was it, when the economy added 135,000 new openings or 200,000, when there were 6 million unfilled jobs? We should be looking at the quality of the jobs available, why jobs are going unfilled, instead of reporting, sort of, a pretty arbitrary number on job listings, you know, it doesn't necessarily translate to work.

And, you know, a bad company -- no, not a bad company, but a company paying minimum wages that doesn't treat workers well, adding 100,000 workers, isn't as good as Google [Alphabet] saying, "We're going to hire 15,000 highly paid people in all areas of the company." So, you really have to get into the nuance on this.

Hill: I think it was about a month ago, that one of the things we had talked about on MarketFoolery was, the market was down on a day when there was no real consequential business news, there was no real consequential economic statistic that came out. What was driving the market down on this particular day was two well-known largely successful money managers, David Tepper and Stanley Druckenmiller, both of whom had come out on the same day and basically [laughs] said, we're not buying this rally; you know, any combination of bearish comments.

And the reason I bring that up is, because this morning Stanley Druckenmiller [laughs] went on CNBC and admitted, "I was too cautious. I have sat out this rally and I look back on what I did and I was too cautious."

And you know, look, Stanley Druckenmiller, he's going to be fine. [laughs] His portfolio is going to be fine, maybe not as robust as it would have been if he had been buying into this rally, but it's just another reminder that trying to time the market, on balance, is not a great strategy.

Kline: I don't worry about anybody's short-term sentiment, because I could be wrong, they could be wrong, what you do with your money, my strategy doesn't change based on where the market is. That said, in this case, I always believed we had, sort of, an artificial recession. We chose to close our doors and send people home. At some point, whether we figured out the virus or flatten the curve or whatever it was going to be, people were going to go back and, oh, were they going to want Frappuccinos and they were going to need haircuts and they were going to go to Universal Studios, whether that's a good idea or not, and that's what happened.

There was only going to be so long that people were going to "do the right thing," nothing has really changed other than hospital bed availability, and we've gone back, at least here in Florida, to pretty much normal, normal with the masks and tables farther away from each other than they used to be, but a lot of people are acting like nothing has happened. So, I always, sort of, believed in either the resilience or stupidity of the American people; you can use either one. That we were going to go back pretty quickly.

And when we were saying 40 million people were unemployed, an awful lot of those people were furloughed and they were going to get called back. We've talked about this before. A company like, say, Macy's, might not bring 100% of their workers back, but they're going to bring somewhere between 80% and 90%, maybe even more, depending on what the volume is of the recovery and what shopping looks like. So, I was always pretty bullish that there was going to be a recovery, whether that be a few months.

Now what happens is, what's that going to look like long-term? Is the economy going to sputter, are we going to have a wave of expenditures and then people are going to still be worried and be careful because they don't know what the virus is going to do? I don't think we know that. So, when you're investing, you know, just buy some stocks every month, buy some stocks once a quarter, whatever your pattern is; you're not bound by the rules, we are, we can't buy things if we talk about them. So, don't time the market, don't worry about it.

Druckenmiller said he could have participated in a 40% gain, instead his portfolio was up 3%. And I would say, "Hey, your portfolio is up 3%, that's not that bad." [laughs]

Hill: Not that bad, but you know, nice that he came out and had a slice of humble pie this morning.

Kline: I love when anyone admits they're wrong, because the entire broadcast, finance world is based on making bold calls and then just forgetting about them when you're wrong. You know, there will be another housing crisis as bad as the one in 2008. Say that enough times out loud in public and they'll put you on CNBC. And if it turns out you're right, you can eat off that for the next five years. That's not what we do here at Motley Fool, if we tell you something, it's because we believe it. And when we're wrong, and, oh, I'm wrong a lot; boy! have I been wrong on Shopify, MercadoLibre and lots of other companies I don't particularly believe in. But that said, I'll tell you, we'll tease each other. That's how it works here.

Hill: Let's wrap up with SiriusXM making headlines today, because SiriusXM is looking to raise a little money. They're offering $1 billion worth of 10-year bonds. For this business, is this the best way to go about raising money, do you think?

Kline: Well, they're using the bonds to pay off some short-term debt, so that's not a terrible idea. But, Chris, would you loan money to someone who you weren't sure was going to be here in 10 years? Because I'm a Sirius XM subscriber, largely because I never think about maybe I should just get rid of it. I would say, nine times out of 10 in my car, I'm listening to a podcast. Now, I have a one-mile commute and I'm not in the car very often, so it's really pent-up when I'm taking a long trip from, say, like, here to our place in Orlando. So, I always have shows I want to listen to, things saved up.

Does the average person still need SiriusXM? You have Apple Music, you have Amazon Music, you have Spotify, whatever it is, you have podcasts like this one; you know, there's probably podcasts in other spaces, but I only know these. No kidding, I listen to lots of other podcasts.

I don't see the marketplace, once Howard Stern retires, for SiriusXM. I don't see the proposition making any more sense. This to me seems like something that either becomes part of Apple or goes away by ten years. And I don't know how bonds work when that happens.

Hill: Yeah, I had the same thought when I saw the news, I just thought, "Boy! 10 years, what is SiriusXM going to look like?" And it's not to say they can't survive, it's not to say they can't adapt, but I think you're absolutely right, you know, on the risk side of things for SiriusXM is, what does Howard Stern do? Does he decide to retire and essentially take his content with him, is it a scaled-down version of that show? You know, I know people who bought SiriusXM simply to listen to Howard Stern, and they've essentially moved off [laughs] from both that show and the platform.

So, you know, as you said, not the worst way for them to raise money, but -- I don't know -- it's hard to look at SiriusXM as an entertainment business with tremendous growth potential ahead of it, unless they start making some serious moves. I mean, certainly we've seen Spotify make some acquisitions on the content side of things, maybe SiriusXM goes that route as well, but until they do that, you know, among other things, it's a nice reminder of how technology changes. How 25 years ago, Sirius and XM Satellite Radio, which obviously ended up merging into SiriusXM, were the cutting-edge technology and they did pretty well for a long time and ultimately decided they would be stronger together than apart. But now, they're looking down the barrel of streaming music services and on-demand podcasts and unless they evolve over the next five years it's hard to see this business growing in a meaningful way.

Kline: It feels very dated. Obviously, they have a niche sports market. As someone who doesn't live in the same market as the teams he follows, I can use Sirius to hear the New York Rangers or New England Patriots game, Boston Celtics, whatever it happens to be. There is some audience for it, but its core thing used to be, we're a music service. We give you music that's more like what you liked than local stations. I don't need that anymore. [laughs] All the music I have is in my phone, pretty much every song ever recorded is available on my phone.

And this is really one where, I look at the landscape and I say, "Well, who could replace Howard Stern?" And the logical people, Joe Rogan was just signed by Spotify. The people at The Ringer, Bill Simmons, also Spotify. Adam Carolla, I mean, he's not Howard Stern. He proved when Howard Stern left terrestrial radio that he's not Howard Stern. I don't know who else is out there.

So, can you aggregate a bunch of smaller players, can you have a Motley Fool channel, can you have, you know, 10 other brands with our level of reach? They've kind of tried that too in the past and it hasn't really worked. There was Maxim Radio, there was Cosmopolitan Radio. Now, those brands were paying SiriusXM, so that's different than finding a brand with a following to lend them credibility. But I think it's a very difficult road for them to go down.

Hill: Although, if they do want to make us an offer, they can drop an email to [email protected] and we are happy to have that conversation.

Kline: We would love to have that conversation; we will bring a million people with us. [laughs]

Hill: Exactly. Dan Kline. Always good talking to you. Thanks for being here.

Kline: Chris, thanks for having me.

Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.

That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd, I'm Chris Hill, thanks for listening, we'll see you tomorrow.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon and Starbucks. Daniel B. Kline owns shares of Apple and Starbucks. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, MercadoLibre, Shopify, Spotify Technology, and Starbucks. The Motley Fool recommends Domino's Pizza and Dunkin' Brands Group and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$138.20 (-3.00%) $-4.28
Alphabet Inc. Stock Quote
Alphabet Inc.
$95.65 (-1.82%) $-1.77, Inc. Stock Quote, Inc.
$113.00 (-1.57%) $-1.80
Starbucks Corporation Stock Quote
Starbucks Corporation
$84.26 (-2.67%) $-2.31
Macy's, Inc. Stock Quote
Macy's, Inc.
$15.67 (-1.07%) $0.17
Dunkin' Brands Group, Inc. Stock Quote
Dunkin' Brands Group, Inc.
Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
$827.78 (-0.23%) $-1.90
Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
$310.20 (-1.94%) $-6.15
Papa John's International, Inc. Stock Quote
Papa John's International, Inc.
$70.01 (-2.41%) $-1.73
Thor Industries, Inc. Stock Quote
Thor Industries, Inc.
$69.98 (1.57%) $1.08
Alphabet Inc. Stock Quote
Alphabet Inc.
$96.15 (-1.98%) $-1.94
Shopify Inc. Stock Quote
Shopify Inc.
$26.94 (0.64%) $0.17
The Liberty SiriusXM Group Stock Quote
The Liberty SiriusXM Group
$39.09 (-0.27%) $0.10
The Liberty SiriusXM Group Stock Quote
The Liberty SiriusXM Group
$37.71 (0.75%) $0.28
Spotify Stock Quote
$86.30 (-0.62%) $0.54

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