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.
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