Sirius Finally Provides Wall Street the Clarity It Demanded

by: Brandon Matthews November 13, 2008 | about stocks: SIRI    

Brandon Matthews

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I’m beginning to wonder if my vacation was a good thing or bad. Having taken a sabbatical from all things Sirius (SIRI), I feel like I’ve come back to absolute confusion among our readers and colleagues. Everything I’ve read regarding the recent conference call led me to believe it was another awful show on the part of Sirius XM management. I reluctantly decided to listen for myself.

I have to say that I was pleasantly surprised and I do not understand the negativity surrounding the call! I have followed Sirius for many, many years now, and unlike a lot of people, I have made a lot of money with the stock. None recently of course, but I’m well in the black nonetheless.

This conference call was by far one of the best in years, possibly the best I’ve heard under Mel. Special consideration should be given to David Frear. For years, I, like most of you, listened to Mr. Frear lay out the numbers on a quarterly basis in a monotonous, matter-of-fact manner that lacked any humility whatsoever.

Think back and you may recall waiting as I did for Mel to read his prepared statement and wishing David would stop talking. David was much more interesting this time around. This call was different. David was much more confident in his tone. He was also much more open to visibility, and offered to work with analysts on their models. This has never happened before. It would seem the street has finally beaten Sirius XM into submission. That is good for investors, and is what Wall Street has been asking for since the inception of satellite radio…CLARITY!

Mel Karmazin also did an outstanding job and clearly demonstrated to me that his intent is to bring Sirius XM to its goal of achieving cash flow breakeven in 2009. His willingness to answer questions relating to the 2009 debt refinancing indicates to me that he is fully aware that the current stock price is absolutely dependent on Sirius XM concluding its refinancing needs prior to February.

As an aside, one issue that came up in my absence is the potential for a reverse split and potential dilution. I have read a lot of comments opposed to these issues. For starters, let me assure you, that dilution is already priced into the stock and it has been for months. Analysts have been warning of it in every report for nearly a year now. The market looks forward. The only way Sirius XM could have avoided dilution was to have exceptional sales in the third and fourth quarters of 2008. The auto manufacturing outlook made it clear that this is not going to happen.

That, my friends, is the very reason the stock is trading at a quarter. Speaking of that fact, have you looked at your position in SIRI lately? Not wanting a reverse split now seems ludicrous to me. Sirius has too many shares outstanding which allows the naked shorts to run rampant all over it. Sirius is the most shorted stock on the NASDAQ and also had the greatest increase in its short position than any other NASDAQ listed stock.

The reason that Google (GOOG) for instance, will not split its stock is that a high stock price gives the appearance of greater value. The same goes for Berkshire Hathaway (BRK.A). It is for that very reason that Sirius should do a reverse split. It would also allow hundreds if not thousands of mutual funds to purchase Sirius shares. I would personally rather own 10000 shares at 10.00 a share than 400000 shares at 25 cents. As shareholders, we have to support the company in its decision making or dare I say it, risk going the way of Lehman Brothers.

Position: Long SIRI

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This article has 118 comments:

  •  
    Nov 13 02:38 AM
    I totally disagree with your analysis. You don't seem to realize that the Short Sellers will jump on SIRI immediately after a reverse split and drive the stock right down. A Reverse Split will wipe out long term investors especially those that bought well above $2 or $3. If SIRI does a 1:50 R/S these investors will never recover their losses because SIRI would have to go to $150 which will never happen. What is more likely to happen is the short sellers will rush in and short it back down under a dollar, it's like ringing the dinner bell especially an already heavily shorted stock like SIRI. If R/S occurs then long term investors will have their losses compounded and locked in PERMANANTELY. Anyone that has been investing or stock trading for a while know's this. Get real man.. wake up. A R/S is almost as bad a bankruptcy for long term investors. The stock price is this low and can't move up because a R/S is in the plans and long term investors are very fearful of buying more because of this potential poisen pill. You can't fool us by trying to promote a reverse split. We know it will wipe us out. Enough of this B.S. The facts are SIRIUS needs to complete a successful refinancing of their debt with little dillution, no reverse split and through regular bank financing. If their business model is strong as it appears to be and the synergies of the merger are truely being realized then it will be no problem. They need to get the stock over a dollar by their own merits. A R/S will not do it and will only dig themselves an even bigger hole when they completely lose all support from their long term shareholders which are also your clients. You burn them you hurt the company more then you think. WAKE UP.
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  •  
    Nov 13 02:50 AM
    Hahaha great response to the blog. Sirius investors just needs to wait for financing information. The auto industry will receive a huge bailout which is good for investors. Paulson has just stated that the $700 billion will not go to purchase mortages but to the banks themselves to open up credit. Next week should be good.
    Reply | Link to Comment
  •  
    Nov 13 03:15 AM
    Good article. People need to understand that a company's valuation is based on market cap, not stock price. The stock is trading at nearly a third of its foward sales, boasts excellent growth, and is a genuine market changer.

    It would be a good thing to issue a reverse split, espeically once SiriusXM starts posting positive EPS as growth will be more visable on an earnings per share basis.

    Also, all this nonsense about dilution of shares if they do not get the refinancing done is a non-issue. In the long run, it doesn't matter how the `09 debt gets settled, it just determines where the liability shows up on the books. (In other words, future cash can be used to pay off debt or buyback shares)

    Finance 101 tells you it's all about cash flow. That is the only metric long term investors should be concerned with. The latest conference call suggests SiriusXM is very close to being operationally cash flow breakeven.

    There is alot of emotion and price manipulation surrounding this stock, patience will reward the long term holders.
    Reply | Link to Comment
  •  
    Nov 13 03:22 AM
    Long term shareholders will get the royal shafting if there is a reverse split. IT WOULD NOT BE A GOOD THING!


    On Nov 13 03:15 AM User 297255 wrote:

    > Good article. People need to understand that a company's valuation
    > is based on market cap, not stock price. The stock is trading at
    > nearly a third of its foward sales, boasts excellent growth, and
    > is a genuine market changer.
    >
    > It would be a good thing to issue a reverse split, espeically once
    > SiriusXM starts posting positive EPS as growth will be more visable
    > on an earnings per share basis.
    >
    > Also, all this nonsense about dilution of shares if they do not get
    > the refinancing done is a non-issue. In the long run, it doesn't
    > matter how the `09 debt gets settled, it just determines where the
    > liability shows up on the books. (In other words, future cash can
    > be used to pay off debt or buyback shares)
    >
    > Finance 101 tells you it's all about cash flow. That is the only
    > metric long term investors should be concerned with. The latest conference
    > call suggests SiriusXM is very close to being operationally cash
    > flow breakeven.
    >
    > There is alot of emotion and price manipulation surrounding this
    > stock, patience will reward the long term holders.
    Reply | Link to Comment
  •  
    Nov 13 04:14 AM
    This was a really good article ...well for the most part. Till when you decide to say Reverse split. Come on......why should i allow that to happen? so the company can kick the ones that held ground and decide to fight all the way to see things pull through, and at end, the management says ..SCREW u long termers....nothing personal just business?

    Come on...you wouldn't want me to marry your mom and say after 30 years..."hun...i gotta split now....times are hard, i'm low on cash, the kids all grown up and working, you're old and ugly,...thanks for the memories"...what kind of signal are we sending to the markets? f#!@$#^%^% the long term boys?

    Realise the importance of long term holders please.
    Reply | Link to Comment
  •  
    Nov 13 05:58 AM
    Stocks are valued by market cap not share price. Long term share holders lose nothing in a reverse split. In fact a RS allows some larger players to get into SIRI. Most Mutual Funds and Broker/Dealers can't buy nor solicit stock <$10/shr to clients.

    The bottom line is if SIRI RS's 1:100 then the market cap is the same at $3 as it is at $300. People buy value not stock price and right now people are afraid that there will be no value in SIRI going forward that is why it is trading at $0.25.

    Paul
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  •  
    Nov 13 07:21 AM
    Sirius will survive. In a year from now, the comments will be a lot different that what is being read today. Patience is a virtue.

    Long Sirius
    Reply | Link to Comment
  •  
    Nov 13 08:18 AM
    The answer to avoid delisting on Nasdaq is a lie. They will have a very long time to get over $1. SO basically that means Sirius doesnt think they can do it. Which means that the debt refinancing really isnt an issue(be resolved long before NASDAQ removes them). SO why the RS? Why mention it right after the merger? To show that see, we didnt even want it, but were forced too. Ya right, and Im a monkeys uncle. I dont hear any other $1 and under companies thinking about a RS right now. Why doest SYMN or COSI R/S? Because its a joke too. And its only done when your company is going bankrupt(to delay the inevitable).
    This companys SP didnt like the quarter report. In fact, id say it hated it. So that news doesnt help. If a good quarter doesnt help , what makes people think resolving debt will? Im not convinced anything will help this stock. Never seen a stock with such high volume behave the way this stock has at these prices.
    Reply | Link to Comment
  •  
    Nov 13 08:27 AM
    With the proxy vote, Sirius is basically assuming they wont get refinancing. They say they are, yet their actions dictate otherwise.
    Reply | Link to Comment
  •  
    Nov 13 08:33 AM
    I must have to agree that a reverse split logically will do nothing to harm the value of the stock based on the company merits. If one share is trading at .25 and is reverse split to 25.00 per share, technically there should be no harm done to the actual value. In fact, in any normal circumstance, this may be beneficial. What is absolutely damaging is the addition of more shares into the stock pool. If this is combined with a reverse split, well then, there it goes. Also we must add the emotional factor into the equation. That will also cause great harm. There is also the the reputation looming. A .25 whore by any other name is still a .25 whore. So, all things considered, if a reverse split is absolutely necessary to keep Sirius from becoming delisted, so be it. But wait until the very last most desperate moment to do so. Buy as much time as possible. And what if Sirius becomes delisted? Does anyone know of such a case where a company had been revived after being pulled? Did it all work out? Did their stock soar? Did they have a billion dollars of debt? Lets show some true logic here. Any thoughts?
    Reply | Link to Comment
  •  
    Nov 13 08:55 AM
    I noticed you failed to mention that Sirius XM wants to oncrease shares after the rs. How appropriate that they want to negate naked short sells by decreasing shares, but in the same breath they want to increase shares. They want their cake and eat it too. Just face it, the management created this mess and now they want to screw the "unsophisticated investor". If you remember, Mel allowed those shares to be shorted and look what happened. As a leader, Mel should have been prepared for XM debt. Sirius could have done quite well by itself, rather than being sucked into a bk bound XM. He had plenty of opportunity over the year to pull out rather than extend the time to merge. He looked at what they owed in debt and when it was due. He knew, but he does not care because we little guys will get screwed and he will make back all of his losses and a heck of alot more.
    Reply | Link to Comment
  •  
    Nov 13 09:08 AM
    I am heavly invested in Sirius at approx $5 share (ouch) and have held on for several years to this stock. A reverse split would wipe me out. Several months back Mel himself commented a reverse split would not be good for the company, now it would be? If they are confident in obtaining financing why the push to approve a reverse split? As soon as financing is announced, and it will be, then we will see the stock take off. Delisting is several months away and even then, because of the current financial climite, that may be revised agan.
    Reply | Link to Comment
  •  
    Nov 13 09:14 AM
    MARCH 3 2003 SIRI .47, IT CAME BACK W/O A RS. LOOK IT UP PEOPLE!!! VOTE NO TO THE RS!!! 1:100 LEAVES MORE ROOM FOR THE SHORTS TO FEED ON THIS STOCK. THE LONGS LIKE MYSELF STAND TO LOSE. BUY SOMEONE A SUB FOR X-MAS, CHANUCHA QUANSA OR WHATEVER. MAYBE 3 MILLION NEW SUBS WOULD HELP IN Q1 09. I ARGEE WITH RELMOR, WE HAVE PLENTY OF TIME TO TURN THIS AROUND. CAN'T WE HAVE A SPECIAL VOTE IN Q2 IF A RS IS REALLY NEEDED. I DONT SEE ANY OTHER COMPANIES DOING A RS. STAY LONG, DRIVE SLOWER, SAVE GAS AND LISTEN TO SIRIUS. VOTE NO!!!!!!
    Reply | Link to Comment
  •  
    Nov 13 09:30 AM
    Scot here. I'm just another Joe Schmuck out here who holds 5000 shares of Sirius stock in one hand and a limp wiener in the other. And with those facts known, I don't understand what the big deal is regarding a reverse split. At a 10 for 1 split this gives me a reduced holding that equals 500 shares. This would also reflect a new stock price of 2.50 per share. So today, while my stock is worth $1250, am I being lame to think that after a split the stock will be worth less? I don't get it -- a reverse split does not equal a loss in value....

    By the way, there is one more thing: where is Vicar of Value? I miss him;
    if nothing else, he was amusing as he did offer comic relief....

    Scot's Slant



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  •  
    Nov 13 09:34 AM
    Jobocop-
    I understand Sirius' historical rebounds, however, there has never been an instance where they were in the midst of a total economic meltdown. Don't overlook this very important factor. The only thing worse is total global annihilation by an alien attack from outer space.
    Reply | Link to Comment
  •  
    Nov 13 09:48 AM
    relmor

    I am not for the RS but I don't have a problem with them having it their tool box of items the company through 2009. Mel said it would be to avoid delisting and that is importan. Mel state earlier that he does not see any value added to just doing a RS and I agree. A buy back program would be better announced and then implemented in 2010 when no debt is due.

    Resolving debt in 2009 is the "Only" issue keeping the price of the stock under $1. Questions like how much dillution? Will their be another Convertible Bond with Arbitrage (shorting shares) done? How much will it cost to move the Bank Facility and $350 out in May 09? How are they going to get rid of the $400M Convertibles in Dec 1, 2009? Are they going to push out the Launch of the Satellite due in Sept, 09, which still needs additional cap ex funds? These are serious questions regarding this company's ability to perform and meet its pre cap ex FCF guidance of $300M in 4Q 2009. Along with a host of Partner Questions about the Auto Industry is their any question, with a forward looking Wall Street, that dilution of this stock's price isn't taking worst case into consideration? I think not.

    Relmor my friend using COSI as an example to compare, with less shares outstanding than SIRI trades in 1 day is not a good example. If COSI did a 1 for 10 their would be 4M shares left to trade. The other symbol I'm not sure of, if it is Sanmina Sci, they have .5 B shares outstanding, also not a good example and Symantec is trading at $12 and change so why would they?

    The issue is DEBT and ability to maintain Revenue Growth. With both these issues answered, the company resolving debt and the auto makers getting a bail out, The Street will look differently at this company. IMHO
    Reply | Link to Comment
  •  
    Nov 13 09:54 AM
    A year ago Conexant did a 10-1 reverse split from .50 to 5.00 a share

    It steadily continued to go in the toilet , and is now @ 1.29 or a before split price of .12 cents

    So Brandon , please don't spew non-sense about Siri will be harder to short after a R-S

    However , turning a profit is key at this point .......get out of the red , and investors may jump in and Siri climbs

    The ONLY thing that matters now , is to stop losing money .....and if Siri continues to lose money , it will continue to get shorted into oblivion ...no matter what .....

    Sell / Lease the government 2-3 channels for a billion bucks , and end this nightmare once and for all , with NO RS , and NO DILUTION needed

    THIS IS A NO - BRAINER
    Reply | Link to Comment
  •  
    Nov 13 09:55 AM
    In any other economic climate this Sirius discussion is not relevant. The climate will change, and if for the better, most stocks will follow for the better, including Sirius, despite the naysayers negativity. Every wart is amplified in this crummy enviroment, as every pearly white tooth appeals in good times.
    Reply | Link to Comment
  •  
    Nov 13 10:01 AM
    I'm sick of hearing how a higher stock price will attract mutual funds etc, where where the mutual funds when siri was over 5.00 on it's own without a split? they sure weren't rushing to buy, and if they did, they would be in the same boat as everyone else!
    Reply | Link to Comment
  •  
    Nov 13 10:06 AM
    Enough of the "No reverse split" chanting. I think we all get the point. Think beyond that. What will happen if there is no refinancing, no reverse split, and the inevitable delisting. What would be the likely scenario following these events?
    Reply | Link to Comment
  •  
    Nov 13 10:11 AM
    Ok , A lot of you people are buying into this mess , that Mel will ONLY do a reverse split to avoid delisting , and that if a RS is authorized , he may or may not do it .....ditto for issuing new shares ..........poppycock

    If it gets authorized ....it's a done deal

    Whether or not the outcome is good or bad for us is debateable .....but , it WILL happen because it is a means to raise new capital ......ya think Mel's gonna pass on some new money comin' in ???????
    Reply | Link to Comment
  •  
    Nov 13 10:18 AM
    shure46

    To be fair in comparing companies that have undergone RS's, conexant also is not a good example. It has had declining revenues for the last 3 years and has 1/3 less cash on hand than it did 3 years ago. Also after the RS it has 50M shares outstanding and SHORT position of .74% of its float. Again this is not a good comparison. This is a semiconductor company with declining market condition (small margins), cash, and business advantage. The stock is not going down because it is being Shorted again, its going down because it has a bad business model and no value. Again I am not saying I am for the RS, but these examples need to be truly comparative. We could just take a list of BK companies and work our way back through the process and a RS will probably be what happened right before the filing for protection.
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  •  
    Nov 13 10:24 AM
    On a lighter side:
    Apologies to Paul Henning!


    Come and listen to a story about a man named Mel
    A rich CEO, who watched as his stock price fell,
    Then one day he was shootin at a split,
    And up through the stockholders came someone screaming “BullS4it”.

    Hartleib that is, Crazy Uncle, First name Michael.

    Well the first thing you know ol Mel's a Plantiff in a suit,
    Kinfolk said "Mel, We think the point is moot"
    Said "Dilution is the best to put us in the black"
    So he let out little hints that got to Goldman Sach(s).

    Wienkes, that is. Office pools, Comparing Sirius to Cars.
    . . . . .


    The song's not over, Until the Fat Lady sings!!
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  •  
    Nov 13 10:25 AM
    The best idea I have read is Sell/Lease of channels. Brilliant!

    SIRI-XM can afford to lease a few channels without affecting its normal programming. Surely there are some companies/entities there that want to broadcast on satellite but don't have the financial capability.
    Reply | Link to Comment
  •  
    Nov 13 10:31 AM
    A very serious issue with this company is the complete and justified lack of Investor Confidence in this company's Management after being thrown under the bus in order to get the Merger done. Until Mel announces a Debt Refinancing package, that is agreeable and benefits the common shareholder, he is fighting a losing battle. In the mean time, we investors argue back and forth about the benefits of a RS or lack thereof. There is No Benefit to a RS unless it is used to prevent the company from being Delisted, period. A healthier company can deal with the outstanding share issue by buying back shares over time.
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  •  
    Nov 13 10:37 AM
    Bababooie

    Now I can't get that tune out of my head.... thanks a lot.... LOL
    Reply | Link to Comment
  •  
    Nov 13 10:37 AM
    Hi, OK I am aware of the nearly 300 million shares currently being sold short. But doesn't that mean some where in the near future 300 million shares will need to be bought? Am I missing something?
    I'm new to all this (deployed soldier) I figured I'd put some money into market after it fell down to help it get back up. I intend on holding my shares for a few years.
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  •  
    Nov 13 11:16 AM
    Relmor, it is always good to have options. The option to dilute, however distasteful to the shareholders, of which I am one, is one of the few arrows in Mel's quiver. It gives him negotiating leverage.

    De-listing is always a possibility down the line. A reverse split while it may have generally negative connotations may be needed. It should not be a problem if they can avoid it before they have better financials to report. A rising company will likely be forgiven more than a declining company.

    Sirius was caught in a "Perfect Storm" of the Hell of FCC approval, the shorts running wild and now horrible market conditions. To my way of thinking they are trying to thread not just one needle but a moving line of needles. I think that they are doing as well as anyone possibly could under the circumstances.

    I'll hang in there beacuse I love the product and, at this point have little more to lose. Relmor, Why are you still in there?
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  •  
    Nov 13 11:41 AM
    Mogambi 99, people who sell a stock short are betting the share price will go down. They must borrow the stock to sell. If the stock performs better and begins to rise in price, they will be forced to buy stock on the open market to replace what they borrowed. I do not know under what terms they borrowed so I don't know when or at what price they will feel compelled to buy back at.

    SIRI has debt refinancing issues to deal with and the lending market is difficult right now. Will it get better before they need to re-fi or not? Who knows. SIRI will hurt the share price if they are forced to sell more shares because they can't get attractive financing terms. The terms they can get are affected by company performance. They are starting to demonstrate that their financials can and are getting better, even in this dreadful economy, assuming that things don't get much worse.

    There is also a danger of NASDAQ de-listing as the share price is under $1.00. A reverse split is one solution and some people are quite agitated about it thinking (I believe) that it will raise the share price only to be driven down again by the shorts. I doubt this will happen (opinion). A reverse split does not affect the value of your investment but often has a negative connotation because is always pursued by companies with share prices "in the toilet", so to speak.

    Diluting of the stock by the company issuing more shares does hurt share price but some think that this is inevitable and, therefore already priced in to the current stock price. Being able to sell more stock does give the company more leverage in it's upcoming debt refinancing discussions.

    This is my understanding of the basic SIRI situation. I hope it helps. If I am wrong, please correct me.
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  •  
    Nov 13 11:55 AM
    I agree with all the comments that are opposed to a reverse split. I do believe that CEO Mel was forced to mention to us stock holders the possibility of a required stock reverse split. But that it is his desire to do that only as a last resort. Hopefully the reverse split never occurs since there is that possibility that after the reverse split the stock price could go right back down under $1.00 a share. Shareholders once again would be the looser.
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