Where’s the Bottom for Satellite Radio Stocks?
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With Sirius (SIRI) and XM (XMSR) at long term lows, the natural question is, “where is the bottom?”
The answer to that question can take many forms, but something we need to consider is how it is that we got to where we are now.
- The merger process has taken quite a long time, and the uncertainty associated with the long wait has caused the equities to suffer, and the confidence of investors to erode.
- The Wienkes analysis (Goldman Sachs) set a low target for Sirius and XM, and the street reacted by selling off in a substantial manner.
Wienkes carries a “Convicted Sell” on Sirius, the lowest rating offered by the firm. When Wienkes issued his note, he set a $1.00 price target on Sirius as a stand-alone company, and a $1.75 target as a merged company.
Most seem to feel that the merger will pass through the FCC process, so what we are dealing with is the $1.75 price target. Sirius is very close to that target right now. So close, in fact, that we should hear from Wienkes soon. The question is what his opinion will be.
If he wants to keep a “Convicted Sell” on Sirius, then he will have to lower his price target. This puts him in a position of establishing a merged company price target that is getting quite close to his stand-alone target. Most people believe that the merger will deliver synergies, and even Wienkes himself sees synergies. This fact, in my opinion, would limit the level to which Wienkes can maintain a “Convicted Sell”. If he were to maintain that rating, any price target under $1.50 would likely begin to be questioned by the street.
Thus, one possible bottom is $1.50 in my opinion.
The other choice that Wienkes has is to “Upgrade” Sirius to a “Sell” rating. Yes, that would actually be an upgrade from Wienkes. He could establish a lower target with such an upgrade, but at that point the “conviction” of his sell rating would lose some of its power.
Whether people believe it or not, it is clear that Wienkes has the ear of the street. Whether his opinion is truly believed, or simply used by the bears to drive the price down can be debated, but at this point that debate is almost immaterial. This is because it seems likely, and perhaps even logical, that these stocks are near their bottoms.
Now, before people run around thinking that the bottom is in, I would offer a few cautions. Until the merger decision is rendered, there is limited movement in these equities no matter what Wienkes' opinion is. Additionally, these equities seem to be trading on emotion. Certainly there is no guidance yet, and until there is guidance, assumptions can and will be made.
Thus, while we may get an answer to the Wienkes saga, there is still a big factor in that a merger decision has not yet been reached.
If we have seen one thing in SDARS, it is that swings are possible with these stocks. Good news tends to drive things higher than they should, and bad news drives the prices lower than they should. Investors are at a point of deciding what speculation and assumptions to follow, and goals need to be established for short or long term. Investors' strategies need to consider both aspects. There are investors who are in for a long term, and investors that are playing the merger on a short term basis.
What to do???
Watch the sector closely. Watch the merger process. Watch the volume. Establish your goals, and try to understand the volatility that short term traders (buyers and sellers) will bring to these equities.
At this point try to consider WWWD (What Will Wienkes Do) and WWFCCD (What Will The FCC Do).
Position - Long Sirius, Long XM
This article has 143 comments:
Good things come to those who wait !!!!!!!!!!!
Today the combined SIRI/XMSR has mkt cap --even at these PPS--of $5.28 BILLION. This is an astronomical # for a combined co that has (as of 12/31/07--figures now are about the same, I'm too lazy to do the arithmetic for 3/31/08) ttm bottom line loss ($1.247 BILLION), deficit net worth ($1.777 BILLION), long term debt $2.760 BIILION, cash in bank $596MILLION and wasting fast, and upon merger will have over 2.9 BILLION shares over which any profits (when and how?) will have to be spread.
Just some other thoughts: when Mel said SIRI 4Q06 and 4Q07 were cash flow positive, that was a scam---accts payable zoomed both times and next quarters adjusted bigtime.
Then a gigantic challenge to refinance over $1B LTD in this credit mkt fot an entity with these pitiful metrics.
Then too growth in total subs is a decreasing percent---1Q06 for SIRI was +761K, 1Q07 was +557K, recent 1Q08 was +323K.
Churn is every quarter worse--in1Q06 SIRI needed 1.26 gross sub adds to get one net new sub. In 1Q08 the figure was 3.11 gross adds needed for one net add.
THESE NUMBERS DO NOT SUPPORT $5.28 BILLION market valuation. Add in the LTD and enterprise value is about $8 BILLION. This is ridiculous!!! SATRAD is not EVER getting to critical mass!
I not only support the GS price targets but would forecast bankruptcy for both companies as standalones, maybe $1.00 --$2.00 trading range for a few years if merger goes ahead.
YOU JUST MAKE EXCUSES AND NOONE ON THIS BOARD IS GOING TO BUY THAT OK
As far as picking where this stock will go after the merger announcement, what the day of, the week of, or two weeks out, strap on your seat belts because its going to be a "whip lash of a ride". I don't understand how anyone can anticipate the relief to investors who just want to get out breaking even, and all the day traders who will be buying and selling this stock trying to make a buck. With the merger 3 - 4 weeks out, and after the company resells itself to the investment community, with "CONSERVATIVE&quo... company guidance, this stock will move to a 3.50 - 4.0 trading range. This range could easily go to 4.0-4.5 if the refinancing is settled out during the "reselling" to the investment community blitz. 3rd Quarter results, regardless what they are, will probably disappoint and over exuberant investor base and cause a pull back. Its the fourth quarter that I believe this stock starts to move solidly forward, with analysts breaking out all of their best guesses, manipulating new metrics, and touting the wonderful job Mel and the boys are doing in moving the company forward. End of the year could easily be in the 4.75-5.00, breaking 5.0, and then easily going to 6-6.50 when all the big investment folks can buy in to this company with their mutual funds. Just this investors foolish opinion.
Prophecy
Now I get here and I see the message board morons found us again. I was afraid of that. Even though I try not to respond, it ends up being to hard not to.
BURTBECK, I am sure that everything you where saying then held true, as you "shorted" and got your "PUTs" in the stock all the way from 1 to 9 as you were losing your ass every time you had to cover or your options expired worthless, you said that cant be, it should not happen. All I can say is I sure am glad I did not listen to people like you when I bought DISH, and DTV. I would still be working now. I heard you people back then saying the same shit.
202507, Hey speak for your self. I like all the information Tyler gives. By the way it is information. I cant count the times he has said I am not an analyst, financial planner, ect., ect., get a grip. My god were else are you going to get somebody going through the FCC comments to break down a percentage on the people FOR, and AGAINST the merger, to track how the NAB scam was effecting the percentages (He also updated it every month). If you dont like it dont read his articles, it is that simple DHAAAAA.
cos1000 got DSX for 31.4 god dam it should have bought Tue. By the way, I answered your post on the other article. I am also going to be pissed if SIRI does not stay down through at least today.
202507 Hold your shit for one more day ok. That is unless you are in the margin then cover it.
163888....I think your right on the mark that the awareness level, investor or not, is on the rise and will continue. When people start to really understand the "second chance", used car market, and the growing subscriber "fish pond" that it will become, this company will really be able to post solid results. That's when people will look back at weeks like this and celebrate their tenacity or lament their weak fortitude.
I'm surprised Mel and Co. haven't looked into this. If they don't, someone should...
It should read: Michael-Moore-let's-ex... type production.
I have followed dsx for quite some time. Love the dividend and growth. It is a cheaper DRYS
"The merger is expected to be approved by the FCC within weeks, and by the end of X at the latest". Since DOJ approval, X has equaled April, May, and June. Now I'd say its at July.
What is everyones opinion as to the absolute latest that we will see final merger approval (an FCC vote) and the closing of the deal? And I mean your absolute, "i'd bet my families lives on it", no way it wont be done yet date... If you asked me back in March, I would have guessed May (and my family would be no more...). I anticipated some political and beaurocratic crap, but this is ridiculous. I'm no Washington insider, but I thought the Department of Justice's decision would send a message to the NAB lobbyists and the FCC that Uncle Sam was actually in it for the people, and this was about more that corporate titans and politicians wheeling and dealing behind closed doors.
Am I still naive to think that it will be done by the end of July?
I'll still be amazed if this merger happens before 2009 ;)
second............Have sirius reinvest in it's own stock " a buy back",
Offer a very basic "student package" at $3.99 geared to young adults by broadcasting college radio stations and other music at a deep discount by making it affordable by off set this with advertising. In the mean time Email the FCC and tell them to stop bleeding these stocks and vote on the merger.
"i'd bet my families lives on it"
I believe the merger will be approved by the 22nd.
BTW:
You've been adopted :)
of Value
of Value
This author's reports tend to parrot Wall Street research and media reports, with some benign commentary and speculation thrown in for good measure. I'd like to hear some real insight from this self-appointed satellite radio "expert":
What is this author's upside price target on SIRI? What is his "sell" price?
At what point does he think SIRI will be overvalued, and what is his basis for coming to that figure?
I hear the sizzle, but I don't see the steak. If the Goldman analyst is so inaccurate, let's hear the author's rationale and alternative target price, and how he arrives at it. What discount rate does he apply in his DCF analysis?
If $1.50 is the bottom, then where is the top?
As they say prior to takeoff, "keep in mind that the nearest emergency exit may be behind you."
of Value
of Value
This company would have to grow its subscriber base substantially - 50% per year or more - reduce its churn below 1% - improve its conversion rate to 60% or better, and stave off the third-parties who are already getting in line for a piece of the profits.
Let's not forget shareholder dilution from stock options and stock-based compensation. Its only growth driver is the auto industry now. Even if they can manage to get the credit to buy a new vehicle, the interest rate will make them think twice about springing for a satellite radio subscription.
An irrational market could potentially push this stock's price to $4 per share, but even if it gets there (it won't), keep a firm grip on your ripcord.
Instead this board is like a wake---thanks to the following and others not named:
1. Goldman Sacs and Winkie
2.. Georgetown Partners and Mr. Jackson
3. NAB
4. Other lobbying groups against the merger
5. Congressman who delayed the process with opinions that belong to the FCC to make and not to Congress as it is only the DOJ and FCC that have a vote on the merger
6. Hedge funds and short sellers
7. An FCC that did not take a firm stand from day one by establisihing a deadline for making a final decision and staying with it.
Just as when Rome burned Nero fiddled---- the FCC bowed to all of the naysayers and oh so politically correct factions as the stock collapsed.
FWIW forget the chat boards; demand quarterly and annual reports from the companies you invest in and not on the internet and do your own analysis whether it be technical or fundmental.
Roxieanne
Q, if you mention Michael M. one more time I am going to puck.
heynow913, If you recall I mentioned that I thought you already knew about DSX sense you already invested in it I was just trying to make a point to 202507. By the way what to you think about that call we made. Vigar of Value (Dave) would call that luck but for most who follow this board, know I have been making a lot of lucky calls like that, what are the odds of that.
jimmydasaint, The problem you are going to have is that when The merged company shows what they need to it will be to late. The metrics will have a sweeping change. After 2009 sometime early 2010, I think the stock will take off. Mel has always under estimated and over performed. I believe It is going to be like a light switch. Like I have said, it is not the price of today we are buying it is the price we dont want to pay tomarrow.
202507, I believe it is because of GS did not get nailed by the sub prime mess like everyone else. So they are now considered to be the Streets golden child. Plus like I have said before the whole market is down.
cos1000, god dam it I was going down the blog reading and was going to call a duck a duck (Dave) but you beat me to it. As Dave would say that that was just a lucky guess though.
Also understand that what he is calling conversion rate is known in the industry as "Take Rate", currently running at about 50%, This rate represents of all the autos with factory, OEM, installed radios, the percentage of owners who subscribe beyond the free trial period included in their new car purchase. This "Take Rate" could actually go down, but not likely, if OEM penetration with each auto manufacturer went up significantly, but less owners converted. The thing is, even with this condition, subscriber growth and revenue from paid subscription would most probably go up.
This is a complex company, that contracts with most manufacturers. Most analysts don't really get into the numbers and folks like Vicar want to overlay the financial industry's formulas for investing in mature companies to assess this new technology / media company.
Even GS Weinkes used the reduce YOY subscriber growth, for the quarter, and the fact that "Younger People" are not buying SAT RAD in the retail chain as to why SAT RAD is loosing it's shine with consumers to competitive options. No Numbers, supposition. Also to say that SAT RAD is to dependent on the Auto Manufacturing industry for growth, like that is a revelation, is to state the obvious and then "spin it" like that's a bad thing. The auto industry is and will be their market, new cars significantly at first, but the used car market will be even bigger over time. The "Take Rate" of 50% needs to go to 60% in order for these companies to succeed is a naive understanding of what the SAT RAD industry will become. My example in simple numbers would be: 2008 say 12 mil cars with SAT RAD installed, 50% take rate = 6 mil new subscribers, now we also have 6 mil autos that have not had their radios turned on. Each year that happens, and it already is but is not being reported or assigned a meaningful metric to date, the used car market will increase. Now as a used car buyer, there are 6 mil used cars each year that have SAT RAD installed and you won't have to pay extra for the equipment. That means if you subscribe, Sirius' subscription acquisition cost goes to its partner agreement cost (OEM subsidy) and you become a "Second Chance" subscriber for the company. The increase revenue and resulting CASH FLOW on what is now being considered a lost opportunity falls to the bottom line and is not in any analyst number to date.
So as I, and many here have said before, information and how it is applied is critical. I have not bought a STOCK, I have invested in a COMPANY. For all you stock investors or not, Have a Nice Day. For fellow COMPANY OWNERS tomorrow will be a good day to strengthen your ownership position.
I don't know how you do it, continually rehashing the facts, but my hat is off to you. By the way: A celebration at 75 mil subs in Vegas sound great.
Let me clarify a couple of things:
First, Howard Stern was not actually given $500 million. He signed a contract for 5 years which included compensation and STOCK OPTIONS which, at that time, were VALUED at a total of $500 million. He's taking it on the chin as much as the rest of us, albeit to a greater degree than most, which would explain his obvious frustration along with the rest of us.
Second, it is highly unlikely that some "small start up competitor" is going to come on the scene in SATRAD, since it would require them to launch satellites of their own, at a cost of about $500 million apiece. Space flight is not cheap. Clear Channel has had problems of its own lately, and the prospect of a combined SIRI/XMSR turning a profit is terrifying to them, which is why they've spent so much money attempting to kill both of these companies.
Most of us on this board have seen the value of our shares tank in the last 2 or 3 years, but in the immortal words of Warren Buffet, "If you wouldn't own a stock for 10 years, don't own it for 10 minutes!"
shure46, I cant believe I have to say it again. First SIRI did not just spit out a figure of 500 million (plus about 240 million in options 740million total) and Stern took it. That is most likely what he was bidded up to, just like how most content on satellite radio was over paid for. Second Stern was still well worth it. SIRI had just over 2 million subs that it took almost 2 years to get. In one quarter SIRI got 1.1 million subs and in the next year went from 3.2 million to something like 6 million. Most of that was due to Stern not the OEMs which were just starting to ramp up in satellite. Add to that that Stern gave SIRI a second chance to make it in the sector. Stern almost alone gave SIRI top market share over XMSR for the first time and for the next 10 quarters. Why for so long after the "Stern Effect" was over, well because from that point on SIRI was the house hold name not XMSR.
Next as to why wont a new competer come in this sector, that is simple as *Sirius Fan* put it cost for one Satellites cost around 900 million after launch and insurance. Plus all the OEM contracts are tied up. Then think about it, why would they, they have seen how difficult it has been for SIRI/XMSR and the new company wont have the OEM market to help.
Thanks for the comment. The answer to some of your questions have been written about or discyssed in the past, but here is a very brief synopsis:
1. While I do post information about what analysts are saying, I am not parroting them in my own opnion. There are many anaylysts that I disagree with in several ways, inclusive of Goldman and CITI (the most bearish and most bullish).
2. I have never appointed myself as a "satellite expert"
3. I have stated many times that the upside is a long, that there would be heavy selling on the way up, and that it would take a "perfect storm" to get to pre-merger levels. That taskis even more difficult now. I do not give "buy prices" or "sell prices".
4. This article was not about the accuracy of Goldman, but rather the attention he has received from the street, and will recieve again with his next report. Some of the items i disagree with Goldaman about I have expressed in the past.
5. $1.50 is a possible bottom, but it is also possible that the bottom has already happened. A lot depends on the FCC news, as well as what Wienkes does with his next report. He does have the ear of people, so even if someone disagrees with his thoughts, they should listen to what he says, and when he says it.
6. The top. As I have stated in the past, this equity will have challenges getting through the $3's even with everything going swimingly. Longer term, we will need to see the terms of the merger, how fast synergies acan be realized, a few quarters of joint performace, and get guidance.
cos1000, killierkaul, just got my last 3,000 at 2.86. We will see what happens from here.