To add to the debate, on street.com today.
Why Sirius Shapes Up as the Next HBO
By James Altucher
RealMoney.com Contributor
Why am I not buying Sirius Satellite Radio (SIRI:Nasdaq - commentary - research) stock right here at $5.17? Because I'm an idiot.
I'm just too afraid to break my discipline and buy a stock that's up 100% in the past few months and up massively on the basis of just two news events, Howard Stern's move from traditional radio to Sirius, and the hiring of Mel Karmazin, former president of Viacom (VIA.B:NYSE - commentary - research) as the company's CEO.
I'm late to the party and I just can't get myself to pull the trigger, but that doesn't mean I don't like the stock. And I don't believe the rantings of the stock's short sellers. In summary, here are the shorts' four main arguments:
# Sirius is trading at a massive 137X over revenue.
# Sirius is trading at 12X cash.
# The company is going to lose money for the foreseeable future. According to analysts, it will lose 51 cents a share this year and 45 cents a share next year.
# Satellite radio is this year's fad. What if the fad goes away?
But to me this is like looking at eBay (EBAY:Nasdaq - commentary - research) in 1999 and saying, "But it only earned $3 million last year." Or dissecting IBM (IBM:NYSE - commentary - research) in 1952 and saying, "But it's trading at a 100X P/E ratio."
The Next HBO
I spent a few years in the 1990s working at HBO, and after I left HBO, it was the biggest client of my first company. Sirius reminds me of HBO in a lot of ways.
Subscriber base model. HBO has approximately 30 million subscribers paying $30 to $40 per month, and it has always been one of the most profitable divisions of Time Warner.
Forget all about current numbers and subscribers for satellite radio. Eventually Sirius and its competitor XM Satellite Radio (XMSR:Nasdaq - commentary - research) are going to divide up the cars in the U.S. and claim their rightful number of subscribers. There are about 200 million cars in the U.S. and within the next 20 years all of them will have satellite radio. Any reasonable market share allows one to do the math.
Aggressive pursuit of talent. There's a reason HBO beats every other network year in and year out in the Emmy awards, and it's the same reason that Sirius is going to start beating out all traditional radio. Everyone is looking at Howard Stern and saying, "Yeah, he has 13M subs but what happens if he loses them?" My response to that is, Who cares? First off, he probably won't lose them. He's the most talented voice ever on radio, as demonstrated by his popularity. But more importantly, Howard Stern is not the last talent Sirius is going to acquire; he is the first of many.
In the early 1980s, when Michael Fuchs had the genius to acquire original talent and start creating original programming for HBO, everyone thought he was wasting money. Now, several hundred Emmy awards and 20 million more subscribers later, HBO is laughing all the way to the bank.
Talent loves management. When an HBO show wins an Emmy, almost the first thing they say is, "Thank you [HBO CEO] Chris Albrecht for providing the best creative environment." HBO knows how to treat their talent, and the talent then delivers and remembers. The only executive I can think of who has commanded similar loyalty from his talent is Karmazin. Once he left Viacom it didn't take long for Howard Stern to make the jump. More talent is going to follow.
Talented management. This goes along with the last point but it's interesting to me how the talented executives at HBO continue to resurface all over the entertainment world. Former HBO managers often end up running the major entertainment companies. Examples include Time Warner (Jerry Levin was CEO of HBO in the 1970s), Viacom (Frank Biondi was CEO of HBO before Michael Fuchs), Universal (Biondi), Showtime (CEO Matt Blank was once head of marketing at HBO), FX (FX President Peter Liguori was once HBO's youngest VP ever), and the list goes on and on. Jeff Bewkes, formerly CEO of HBO, is now second in line at Time Warner. The point being I expect that Karmazin will bring talented management and adopt a management culture at Sirius that I suspect will rival the culture of HBO.
Again, I will stick to my stock-buying discipline where I tend to buy only stocks that are having a massive dip in price. I seldom buy stocks that are cruising to 52-week highs, 100% higher than where they were eight weeks ago. But I wish I were smarter than that. I think Sirius will sport a $30 billion market cap sometime over the next five years. Any basic calculations based on potential subscribers suggests that much or higher. |
