Skip to content

(B)(N) SIRI Sirius XM Radio Incorporated

October 24, 2013

Drama. Analysts are getting nervous about high stock prices and 70× PE-multiples and are wondering whether Sirius XM Radio will be able to continue the +6% annual revenue growth that, allegedly, supports the stock price (The Street, October 23, 2013, Time to Get Serious, Sirius). They don’t own any of the stock so they must be concerned about we who bought the stock for 30¢ to 40¢ per share in 2009 and are still holding it at $4? Or those of us who bought it for $2 last year and still can’t let it go for $4?

Prairie Road - Sirius XM Radio

Prairie Road – Sirius XM Radio
Everywhere, All of the Time

Not to worry. The stock has never paid a dividend and probably never will in the intensely competitive entertainment business and Pandora, Apple and Google are also trying to enter this market with vehicle on-board radio streaming services (ibid, The Street).

While they’re doing that, perhaps they’d also like to give us the “(really) smart phone” that we’ve always wanted – the one that works everywhere, all of the time, and never needs re-charging. Sirius, of course, has a leg up on that and could modify its satellite signals to carry other voice traffic on demand, we suppose.

The company currently has a market value of $25 billion and is 50% owned by Liberty Media and another 20% is owned in blocks of 2% or less by about forty institutional investors, some of whom have made large purchases of the stock this year (in the tens of millions of shares) and others of whom have lightened up in similar amounts.

Nevertheless, although we might be complacent about volatility in the stock price or the earnings reports, neither of which we have any insight into or relation to the stock price, we cannot be complacent about “surprise” which could be either good (a takeover offer) or bad (a market or business failure) (Forbes, October 27, 2013, Sirius Whiffs On Earnings But Raises Subscriber Outlook).

No Need To Worry

No Need To Worry
Just Take Care of Business

One of the things that keeps a stock price up is that if it were low enough, it might become the object of a takeover by an entrepreneur with deeper pockets and a better idea of how to run the business, which is what happened to the former Sirius Satellite Radio Incorporated which was a $60 stock in 2000 before plunging to a less than $1 stock in 2002 and a 60¢ stock in 2008. In our case, the stock has a zero cost basis because we sold 25% of our holdings at $2 in 2011 and could take either capital gains (over 40¢ a share) or a return of capital investment for tax purposes (for example, Reuters, October 22, 2013, Carl Icahn cuts Netflix stake, pockets $800 million profit).

Our estimate of the downside in the stock price due to the demonstrated volatility is minus ($0.40) or 10% of the $4 stock price in the next quarter. We can afford that paper loss but because the stock is trading well-above the current Risk Price (SF) of $2.30 and rising (please see Exhibit 1 below), we would probably buy it back at a lower price if we’re sold out on a stop/loss at $3.60. We could also buy the December put against our long position at $4 for $0.20 per share today by selling five shares ($20) to protect the price at $4 on a hundred.

In any case, it’s not the “high prices” that bother us. It’s the selling price that we are concerned with and it’s always below the current stock price as long as the stock price appears to be trading above the price of risk.

Exhibit 1: (B)(N) SIRI Sirius XM Radio Incorporated – Risk Price Chart

(B)(N) SIRI Sirius XM Radio Incorporated

(B)(N) SIRI Sirius XM Radio Incorporated

Sirius XM Radio Incorporated broadcasts its music, sports, news, talk, entertainment, traffic and weather channels in the United States for a subscription fee through its proprietary satellite radio systems: the SIRIUS system and the XM system.

(Please Click on the Chart to make it larger if required.)

From the Company: Sirius XM Radio Incorporated provides satellite radio services in the United States and Canada. The company broadcasts music, sports, entertainment, comedy, talk, news, traffic, and weather channels on subscription fee basis through two satellite radio systems. It also offers music genres, such as rock, pop, and hip-hop, as well as dance, jazz, Latin, and classical music; advertising on non-music channels; and applications to allow consumers to access Internet services on mobile devices. In addition, the company sells satellite radios, components, and accessories; designs, establishes specifications, sources or specifies parts and components, and manages various aspects of the logistics and production of radios; and licenses its technology to various electronics manufacturers to develop, manufacture, and distribute radios under various brands. Further, it provides music services for commercial establishments; satellite television services; Backseat TV, a service offering television content designed primarily for children in the backseat of vehicles; Travel Link, a suite of data services that include graphical weather, fuel prices, sports schedules and scores, and movie listings; and real-time traffic and weather services. The company’s satellite radios are primarily distributed through automakers, retailers, and through its Website. As of December 31, 2012, it had 23,900,336 subscribers. The company was formerly known as Sirius Satellite Radio Inc. and changed its name to Sirius XM Radio Inc. in August 2008. Sirius XM Radio Inc. was founded in 1990, has 1600 employees and is headquartered in New York, New York. SIRIUS XM Radio Inc. operates as a subsidiary of Liberty Media Corporation.

For more information on the Chart Elements, please see our recent Post, The RiskWerk Company Glossary.

For more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: