Cowen Slams Goldman on Radio Stocks Analysis
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In a note issued Friday, Cowen analyst Tom Watts was very pointed in his disagreement with Goldman’s Wienkes.
“We disagree with competitor’s negative view,” noted Watts. He also stated that investors could, “Expect a rebound.”
Yesterday, Outperform-rated Sirius (SIRI) ($2.13) traded down 13% and XM (XMSR) 18% ($8.61). A competitor’s note (with which we disagree) contributed and technicals may have widened the arb spread. We expect FCC approval and the debt restructuring to drive a rebound of both stocks in the near term.
Watts cited several factors including: increased OEM installations (penetration rate) that would offset slowing car sales, substantial merger synergies of $5 billion, FCC approval in July, the debt issue being closed not as big a hurdle as some anticipate, and the arb spread to begin to narrow again as anticipated merger closure draws near.
While Watts did not take on specific aspects of the Goldman report, some obvious factors that I note are that Goldman states that “young people” are buying MP3’s. This is not real news. The “young people” have not been the largest contributor to SDARS subscriber-ship since the beginning. Additionally, the A-La-Carte pricing may make subscriber-ship something that is more budget friendly to the younger crowd. Combine MP3 capability with the “music discovery” allowed by satellite radio, and there could be a winning combination. The MP3 crowd is often music centered. A satellite radio service at $6.99 per month that enables fans to get only what they want may well carry more appeal.
Additionally, Goldman cited that ARPU would be impacted with the new pricing plans, and mentioned an OEM take rate of 50%. What it would appear Wienkes did not consider was that more attractive pricing points may increase subscriber-ship, thereby offsetting a lower ARPU (oversimplified example):
CURRENT TAKE RATE 50%
100,000 cars turn into 50,000 subscribers paying $12.95. 50,000*12.95 = 647,500 - ARPU of $12.95
TAKE RATE OF 50% Full Price, and 10% AT $6.99
100,000 cars turn into 50,000 @ $12.95 and 10,000 @ 6.99. 50,000*12.95 + 10,000*$6.99= $717,400 - ARPU of $11.96
While the ARPU is indeed almost $1 lower, the revenue coming in the door has increased. The ability to capture additional subscribers at the lower price point represents more dollars. ARPU is an average metric of revenue per subscriber. Simply stated, the business model will shift a bit more towards volume, something that it appears Goldman’s analyst has not fully considered.
With no company guidance and no real certainty, it becomes hard to know what analysis to count on. There simply is nothing for anyone to hang their hat on. Goldman is the “golden child” of the moment, but how long will that last? SDARS is quickly approaching a level where Wienkes will need to come out with yet another opinion. Will he “upgrade” from “convicted sell” to “sell”, or adjust his target further down? Only time will tell.
Position - Long Sirius , Long XM
This article has 170 comments:
Down side from here should be limited,but you never know.
The other station is geared more toward the 90's and later. There I get a steady diet of Nirvana, STP, Disturbed, Chili Peppers, Nirvana, Guns and Roses, Metallica (no complaint there), sprinkled in with some 80's stuff, Linkin Park, Kid Rock (gimme a break), and of course before I forget, Nirvana. And I get the commercials as a free bonus! Guess what? These days I drive in silence 50% of the time.
And some idiots actually think SatRad will fail? SatRad will be a luxury that will turn into a necessity. Remember the cell phone folks? How many of you had one in 1990? Now people aren't even having home lines anymore. I know I don't. Terrestial radio will join the T-Rex and the 8 track in the annals of history once people get a taste of it.
We need to look at the forest and not the trees here folks. Yes there are some chinks in the armor that need to be patched, but they WILL be patched. The forest is rich in nutrients and very arable, and soon the crops will be planted correctly.
One thing, they need to stop giving away monster contracts when renegotiation time comes around because this time they will have more clout. Seriously, where is Stern gonna go if he doesn't retire? No one can pay him what SatRad can. And I'm sure this time around, he will be a little more lenient, concientious if you will, to the fact that Siri has suffered immensely due to astronomical spending and maybe he'll turn into a team player. After all, he already made his killing.
On another note...why are some of you buying SIRI when you should be buying XM? You get more bang for your buck with XM right now due to the wide conversion spread.
AND AFTER HURRICANE KATRINA.One form of communications that continued to operate without interruption during the
storm was satellite technology. Satellites are located thousands of miles above the Earth and are
thus able to operate even when disasters occur on the ground. With that in mind, when Hurricanes Ivan and Jeanne hit Florida in September 2004,XM launched a new channel -- XM Emergency Alert, Channel 247.On this channel,
listeners can receive key survival information such as evacuation routes, shelter locations, and
updated weather emergency information for impacted areas.During Hurricane Katrina, XM also established an additional public safety channel, Red
Cross Radio, XM Channel 248. This channel provided information pertinent to Red Cross
workers in the Gulf Coast region, as well as Red Cross aid stations in Houston and other cities, as they assisted in the relief effort.
Again, as with XM Channel 247, Red Cross Radio was available to anyone with an XM receiver without the need to pay a subscription fee.
These words were copied and pasted here from a Letter to the FCC from John Archer
Vice President, Operations
XM Satellite Radio Inc.
www.fcc.gov/pshs/docs/...
Another reason for the prompt approval of the Merger.
m
See: http//Forecasts.com
Sykes
I'll be selling half my stake and waiting on pins and needles to see what BOLD moves Sirius is able to pull off this year!
They better sell their souls to Apple or Zune to make things start happen! It would be nice to see Zune add a new element to their MP3 players to compete with Apple!
Why not build the subscrpition costs of satellite radio into Zune and include this service for free?
Just a thought!
Merger coming soon a quick in and out.
Now as for Mark W. And the example that Tyler has given I think what Mark is talking about, is that what will bring ARPU is that more of the 50% will go for the 6.99 package then the extra subscribers that would join at the 6.99. Or that more of the original 7.6 million subs would switch to the 6.99 and that would bring the ARPU down and the total revenue down. I personally dont think everything Mark W. is saying will happen and I suspect what Tyler is saying in a simple form is that the ARPU may come down but revenue will go up in general and that is a more reasonable conclusion. This was my thought from another article:
Here is a thought, How many subscribers do you think hold both SIRI and XMSR right now, and are paying the 25.9 each month for both. I have to say, I think the percentage is very very low. Now how many subscribers do you think that have had all the content that they have been exposed to from ether SIRI or XMSR would go down to the 6.99 subscribtion that really only offers music channels. I think that percentage is very very low, as a matter of fact if they would go for that package then chances are there is a big percentage of those that would have (churned out) left anyway. Now how many people that pay 12.95 a month to get one would not mind paying 2 or 4 dollars more to get the SIRI/XMSR you have now plus the best 13 channels from the other. IMO, The al la cart will not only lower churn, but may actually bring up the ARPU. Give them a year and then you will have another price point that will offer, access to both full services, for some higher price.
Here is an example I think we all can agree with: How much did you start paying for your cable/satellite tv when you first got it. Now how much are you paying. I would be willing to bet most have upgraded to the extra package and are now paying more then they did when they first started it.
All I am saying is when you here analyst say the al la cart is going to bring ARPU way down think about what happen to your cable/satellite tv bill. Just a piece of common sense. I also believe Mel Karmazin has thought about it to.
My point to that is that while there will be other options open, that they have been made so limited that most will find that they will be better off, staying with the 12.95 package if not moving to the more expensive package for the limited extra cost. Just as most have found in their cable/satellite tv options.
Analysts at this point in time, as Tyler and others have reiterated, have no real guidance from the companies or metric to measure the possibilities post merge. At best, cost savings synergies, debt reconfiguration, capital expenditures and depreciation savings, are what they are looking at with revenue remaining a relatively fixed ratio to these expenses. Post merger upside surprised in revenue with new product releases, additional unanticipated subscribers, and the release of "pent up" retail demand will move the revenue side beyond analysts current projections. Mel and his team will also be reselling this company and providing concrete guidance, which I am sure he will make sure he beats every quarter for the next year or two. When all you can look at is managing expenses and attributing no real growth in revenue, the picture is grim, and is being presented in that light in current analyst projections. At these stock price levels for both companies you can't go wrong with the risk reward ratio given the pending merger approval.
three gallons of gas: $12.20
a date at Wendy's: 14.50
four movie rentals: $16.00
a month of staillite radio: priceless
The young people will come around.
Tyler, nice work on the coverage. Is a MP3 / SDARS device a solution? Also, can internet operate off current satellite signals, or would they have to integrate WIFI into those devices? After the merger, what's next for Satellite Radio?
after the merger,and doesnt happen.
Lofrano
Plowboy....this piece considered the "cut" by the example given. ARPU is a metric that is not the whole story. Increased revenue with decreasing expense is not ARPU. ARPU is not a GAAP metric. It is an operating metric for benchmarking the business. SAC is another example of an operating benchmark. As a number it will increase with 6.99 subs and decrease with 14.99 subs but gross revenues will still be going up. In the end the number that matters is EPS, EARNINGS, and they need to be positive. All the expense synergies of the merger are not part of the ARPU, go figure. By the way, when it comes to SAT RAD what is "SUBSTANTIAL"... % of the gross ARPU anyway.
Plowboy, while I know I am no Mark W or Tyler S. look at the second paragraph of my June 22nd statement it gos into that. I know I ramble on. It is just common sence, and it will take you far in life.
GABES, As to why Mel Karmazin has not spoken up about this is simple to me. It is first of all as cos100 has put it. second reason is It has been said by many in the press and analyst, of which I will give the best one; You dont want to make alot of noise as you are tring to sneak across the boarder (Motley Fool, Mark M.) Simply put you are not going to say to the world that you are going to crush Terrestrial radio once this merger is approved, that just will not help your case with the FCC. On top of that Mel karmazin has always been known to, under estimate on over achieve.
If the radio's are already in the cars, no additional cost to Sat Radio. Right? And when Mel sees cancelations of car radios and the reason being given is the sale of the car and purchase of a new car. How much less will it cost to advertise to the 'new' owner a thirty day free trial when they call up and activate it with their credit card?
Sixteen Three, it just strikes me that there is a lot more money in those cars than first appears. And, as the price of the car falls, it brings in another demographic of buyer.
What are your thoughts in this area? Thank you.
Killerkaul, I never get tried of hearing that Chuchill quote. As you know I say it a little differently.
eley
Who's stock price cause quite a fuss,
By the comments of a clown
the price went down,
which made it more affordable for the rest of us.
is that it will come out alright,
so, don't rush to sell
just wait for a spell,
and the price is sure to change in a fortnight.
Killerkaul, I just like the more insulting way. " If you are not a liberal by 20 you dont have a heart. If you are not a conservative by 30 you dont have a brain.
1. I "jumped into" to Sirius and XM at levels well below the price of today. How do you come up with me being down 40%? Where do you see me recommending a buy or a sell? I do not do that. You may have me confused with someone else.
2. I do not disclose how many shares I own. I do not ask you the balance of your checking account. I have stated that the shares I own will not change my lifestyle even if Sirius went above $10 and XM above $30. I have disclosed that I sold most of my holding prior to writing about the sector.
3. I am bullish on SDARS as a concept long term. How the equity will perform is yet to be seen. I have stated that I am rather neutral during the merger process, and stated several times that these equities are locked into a channel until a merger decision is made. I have spoken of a limited upside even with approval, and that the street will need to see concrete guidance as well as results prior to any large movement in the stock.
Thanks!
Thanks
I also really hate it when people try to blame others for their losses in the stock market. NO ONE MADE YOU BUY THE STOCK! You may have chosen to rely on what turned out to be a poor prediction... but it was YOUR CHOICE!
User 202507 - I am interested to hear your analysis of the SIRI/XMSR stock. Where do you think they will go from here? Believe me I am just as frustrated as you are with my SIRI position. Are you going to wait it out?
And then maybe Tyler or Killer or 163888 will respond with agreements, disagreements, points and counter points, and then the discussion will continue. Maybe we will be better for it, maybe not... but a discussion is better then a message board shouting match.
I for one am confident that the stock is undervalued, has great potential vs. very small downside, and a great high-risk/high-reward addition to any portfolio.
I did stop watching the SIRI during the day... Down to $1.92 now?!?!?! Predictions anyone as to the bottom of this slide??????
Are you affiliated with the NAB????