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May 12, 2013 – Comments (3) | RELATED TICKERS: SIRI

Originally posted as a comment to this blog, in which it was proposed that Assets to Liabilities was a reasonable way of valuing SIRI, the Sirius XM Corporation.

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.  

3 Comments – Post Your Own

#1) On May 13, 2013 at 9:57 PM, Varchild2008 (84.59) wrote:

Completely disagree.

If people decided they don't want Satellite Radio, it isn't the fact that it is a Satellite that is to blame here.  It would be lack of interesting content that people are willing to pay to get (that they can't get elsewhere for free). 

So, therefore, the Satellite is indeed a fixed asset.  Another company decides to buy SIRI and take over those Satellites, they can then put up their own content in hopes to attract customers and make a profit off of them.

The satellites are very much the same thing as if  CEDAR POINT was sold to another company...  Those Roller Coasters better be new and exciting to attract customers, or they will stop going and start going to other amusement parks.

The rides are the attractions much like the CONTENT is the attraction for SIRI.

The land space available to build roller coasters is the Satellite.

i.e.  they are both the means to a profit.

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#2) On May 14, 2013 at 3:37 AM, ikkyu2 (99.10) wrote:

Another company decides to buy SIRI and take over those Satellites, they can then put up their own content in hopes to attract customers and make a profit off of them.

You've missed my point.  There's nothing wrong with SIRI's management - probably couldn't find a better team in fact.  So if they fail, there's something wrong with their business model. 

Now there's only one way to value a fixed asset - how much money can you make off it.  Everyone knows how much money you can make off an amusement park - folks been doing it for years.

But what are SIRI's satellites worth?  No one really knows.  There haven't been satellites like that before.  No one really knows how much money, if any, you can get out of them.

Remember, the Iridium satellites were really neat, but the company that put 'em up went bankrupt and they sold for very little in an auction to a government-private joint venture.  Those guys found out how much 66 satellites were worth - the hard way. 

So if SIRI can't make a go of it, there's suddenly a very compelling argument that that whole kind of satellite is worthless.  Sort of like a fetid, polluted Superfund site in a swamp where nothing grows and gators eat the visitors.  Try building your rollercoaster on that.  No one will come to your park.

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#3) On April 06, 2014 at 1:46 PM, ikkyu2 (99.10) wrote:

Well, I've missed a two bagger on this.  So much for fundamentals.

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