Sirius XM Radio (SIRI +0.00%) established a new five-year high last week. Yesterday, it barreled through that high-water mark to set a new six-year high.
You have to go all the way back to February of 2007 to find the last time that shares of the satellite radio provider were trading this high, and this was a much smaller company at the time. Sirius XM commanded a much smaller market cap before the merger between Sirius and XM that doubled the share count a year later. A year after that, some desperate panhandling found the share count increasing by 60% when Liberty Media (LMCA +0.00%) was given a 40% preferred share stake in the company.
Pandora Media (P +0.00%) also hit an all-time high yesterday, and the most surprising aspect of two of the most recognized names in new radio moving up is that both companies moved to raise money this week.
Sirius XM issuing new debt, and Pandora going through a secondary offering, may seem to be odd events to inspire confidence. Who wants more debt? Isn't a secondary stock offering dilutive? However, each move is brilliant in its own way.
It's hard to argue against Sirius XM's strategy. Yes, it's raising $650 million in senior notes that will need to be repaid by 2020. The notes bear an annual interest rate of 5.875%. However, it also happens to be raising the money to pay off the outstanding 7.625% notes due 2018.
Lower interest rates, and another two years of breathing room? That's a no brainer!
Explaining why Pandora took off after announcing a secondary stock offering earlier this week is a little trickier.
Pandora is selling 18.2 million shares, and it's only receiving money for 13 million of those shares. The other 5.2 million shares came from a selling stockholder. The stock priced on Wednesday night at $25, a discount to the stock's close that day of $25.64. Underwriters also have the ability to buy an additional 2.73 million shares to cover over-allotments, and since the stock is now trading well above that, it's practically a given that the over-allotment shares will be tacked on.
Some view secondary offerings as sell signals. If a company's raising money at these levels, surely it may think that the stock's peaking. If not, it could wait to raise more money, or get away with fewer shares at higher levels. The insider selling wrapped into a secondary is another warning sign.
However, Pandora's at a point in its growth cycle where it can use the money. Deep-pocketed competition is coming. Apple (AAPL 1.44%) introduced iTunes Radio on Wednesday with the iOS 7 rollout, and the iEverything company even called Pandora out by name in describing the free ad-based music discovery service last week. Whether Pandora uses the money to snap up smaller companies, beef up its programming, or arm itself for legal battles to drive down the music royalties that it has to shell out, it's clear that you can't have enough money. Over the past year alone, three of tech's richest companies, with tens of billions of dollars apiece, have fortified their streaming music platforms. Pandora may be the audience fave at the moment, but it can't go into the future empty-handed.
It's the right move. It's not the no brainer that Sirius XM may have had in its move to raise new money, but it's a good reason to bid both stocks up to fresh multi-year highs this week.
