Friends, the short argument for CDRD is: its a lame-brain idea, with no revenues or earnings for years and the financing is destructive to shareholder value.
From a purely technical perspective, this private placement is horrible for shareholders. The potential dilution, especially considering the deep discount and variable conversion rate of the preferred stock, is enormous. CDRD trades with minimal daily volume - so the private placement investors can destroy the stock price IF they are inclined. But, with the low volume, they have not been able to heavily short the stock. Therefore, they are not motivated to drive the price down. That said, I'm sure their selling will put some pressure on the stock.
With regards to the "lame-brain" aspects: I read the FCC rules regarding this spectrum and CDRD is not required to sell subscriptions. They can change over to an advertising based model if they desire. The technology is simple (and cheap to install in future car radios) - so this is essentially 50 nationwide radio channels. Something like 18% of radio advertising is nationwide and CDRD could compete for this business. So CDRD has the potential for significant advertising revenue in the future. (You may want to review the selling price of single area radio stations - its unbelievable!)
IMO, they way underpaid for the 12.5 MHz of nationwide spectrum they received. This is an extremely valuable asset - and, if CD Radio doesn't work, they may be able to transfer (petition the FCC) the spectrum for other uses.
The other problem with going short is the time frame. CDRD has said they expect to be online in late 1999, so you will have to live through serious hype for two or three years (satellite launches, demonstrations on CNBC, etc.)
In conclusion, as a short seller, I like the terms of the private placement and I like the hype aspect of the Company - but I am wary of the upside risk. You will probably do well - but there are other levitating pigs that are begging to be slaughtered!
Best regards, Bill |
