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ouarmy2012 (63.99)

Not very Serious about Sirius XM



May 11, 2013 – Comments (2) | RELATED TICKERS: SIRI

   I  know super clever title...Right off the bat lets get something straight, satellite radio and regular radio are quite different. The only similarity they have is the use of a radio receiver/transmitter. The frequencies that they use are widely different terrestrial (meaning earth) radio being much lower and satellite being much higher. The problem with terrestrial radio is that it is generally used as a line of site transmission, meaning as long as the receiver is relatively in the line of site of the transmitter the person next to the radio will get an okay signal and be able to jam to his or her choice music. The use of Satellite radio and their higher transmission frequency allows for a much clearer signal that can be received in a larger area. This is because the high freq can penetrate through the earth's atmosphere to reach radio receivers where as low freqs cannot. Right off the bat satellite radio has an advantage over terrestrial radio. However the use of satellites creates and immense start up cost. When Sirius XM first started they had an approximate cost of $2 billion to begin operations, that's astronomical (get it?!? HA)!

   Sirius now Sirius XM was founded by Martine Rothblatt, David Margolese, and Robert Briskman, Originally bye Martine Rothblatt in 1990 under the name Satellite CD Radio Inc. and became fully operational in 2002. Then in 2007 they merged with XM Satellite Radio creating the only satellite radio business in the U.S.

   The current CEO is Jame E. Meyer who has extensive experience in the electronics industry and has been with Sirius XM since 2004. Nine years is a pretty good stint for a CEO and with current upturn i don't see him leaving. Their #2 Scott Greenstein also has quite the extensive resume of past experience with the entertainment industry. Their upper management has the experience necessary to run such a company successfully.

   When satellite radio first surfaced as a product the FCC was so scared that it would run regular radio out of business that they were hesitant to allow it to come to fruition. David Margolese, one of the original founders badgered the FCC for five years to allow it. In its early days it had secured deals with 3 major automakers, Chrysler, Ford, and BMW. Little did they know that their expansion of automaker deals would eventually create a large part of their revenue stream.

   What satellite radio provides is a much clearer radio signal anywhere in the U.S. with over 140 different channels to choose from. If you think about it, it's a lot like what cable is to regular TV programming. Among the added bonus of selection you also get a much lower commercial content or no commercials at all. You also get to embrace your Hedonistic side by listening to uncensored content like Howard Stern's show. To further make things easier you can listen to Sirius XM radio on basically any device that has a radio receiver and speaker, they even provide pandoresque internet radio and subscriptions for businesses. This however all comes with a price tag, from all the channels and internet radio it will cost you $21.49 a month or $199 annually. They also have other packages like family friendly versions or an A-La-Carte package. The product that Sirius XM provides is great, there is just one problem, you can get it for free with regular radio or free internet radio like Pandora.

   What advertising you ask do they have? Good question because i have not heard or seen a Sirius XM advertisement in quite some time. Getting more people to subscribe isn't a major issue since they have around 24 million current subscribers. They may not even have to advertise since most cars actually come with free trials installed in them already which come subsidized by the car manufacturer. This is in hopes to convert the new car drivers to satellite radio once the free trial is up. Unfortunately Sirius XM still faces the problem that their service can be obtained for free for many people with current mobile phone technology. They may also run into the problem of car companies no longer wanting to subsidize their services to new vehicle buyers if the price of technological advancements continues to grow, this is actually beginning to happen in the mobile phone industry with service providers. However with the improving economy consumers may be more willing to spend that extra money for that added clarity and options of programming.

   Almost immediately after their 2008 merger with XM Radio now Sirius XM was close to filing Bankruptcy. I am not positive but I would be willing to bet it was partially due to the financial bubble collapsing and people canceling subscriptions to save money. The company was saved by a loan they took from Liberty Media in exchange for 40% stake in Sirius XM. Their first profitable year was 2010, 8 years after they started operations, in which they made $43 million. From 2010 to 2012 their income jumped a whopping 8,064.79% to 3,472,700,000 billion. I believe a lot of this change has to do with the improving economy and the increasing amount of deals they are making with automakers.

   Sirius XM has an adequate Asset to Liability ratio of 1.8 to 1 at 9,054 mil to 5,015.28 mil at first look. So yes it seems Sirius XM can cover a melt down with their assets, however a large chunk of their assets is in 9 satellites in the earth's orbit. If Sirius XM where to sell a satellite to cover liabilities it could potentially degrade service and lose customers from such a sale. Because of this we should take out their net assets in property, assuming the majority of it is in their satellites, which equal about 1,571.92 mil. This brings the ratio to 1.49~ to 1, which is less favorable. Sirius XM is not like a large Manufacturer or Chain restaurant in which they can sell off portions of their assets without degrading service and thus revenue stream. Another caveat to this is that there is no other satellite radio company in the U.S. that would be able to purchase their satellites if they were to sell off their assets to cover their liabilities.

   Bottom line is I do not have enough faith in this business that it will continue to grow and be profitable year after year. It is entirely too dependable on the fluctuating economy, car sales, and the ability of consumers to afford luxury items. The first thing to go when consumers are strapped for cash is things they can do without and consumers can definitely live without Sirius XM radio and so can I.  

2 Comments – Post Your Own

#1) On May 12, 2013 at 7:25 PM, ikkyu2 (98.14) wrote:

Assets are a funny thing.  I don't see Sirius' satellites as "fixed assets."  I own a corporation.  An expensive desk, or a medical exam table, is a fixed asset.  If my corporation goes bankrupt someone else can buy it and use it.  There are always people using desks and exam tables.  They are fungible commodities.  Same goes for a mountain of coal.  Folks always want coal - to make steel, to make power, whatever.  If my company goes out of business my mountain of coal can be put in railroad cars and sold at market price.

I do not really see a radio-delivering satellite in geosynchronous orbit quite the same way.  People want satellite radio.  That gives SIRI's satellite value.  But it has value as long as people want satellite radio, which not incidentally is SIRI's business plan.  If SIRI fails, it is more likely because people are *not* willing to pay for satellite radio; and in that scenario, SIRI's satellites do not have much value.  That scenario is more like a gold miner.  They may list the mine on the books as worth $450 million due to the gold that they believe is in it, but if it turns out there is no gold in the mine, not only will they go out of business, but their "fixed asset," the mine, will not have any value either.

A more reasonable metric for SIRI is debt to equity, or debt to income.  Look those up yourself, and compare them to other companies - you wouldn't believe me if I told you. 

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#2) On May 12, 2013 at 9:36 PM, ouarmy2012 (63.99) wrote:

   I guess my reason for not liking their assets was a bit different than yours but that makes alot more sense now that i think of it. But also now that i think about it more the satellites can be used for any radio receiver and transmitter function as long as the function operates in the frequency band that the satellite uses. So they might have some value to a company or government that needs to make long distance radio frequency communications.  

   But also i am extremely new to this whole investing thing. So any advice i can get is great. Siri's debt to income isn't too great since their debt is much more than the income, which is another reason i do not like Siri. I have used that example in my past two reviews and found some good results in sbux and bwld. 

   I guess i just need to rework my bottom line basis for why i do not like Siri.  

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