If you look at a pro forma balance sheet for SIRI, you're going to see debt approaching the level it was at before the refinancing. You're going to see fully diluted shares of 1.6B, probably 1.75 or more before CFBE. Yes, they'll have > 750M in cash. But the also have $500M in future commitments to Stern, as well as a good $300M in future commitments to the NFL deal (including nonoptional advertising expenditures). Even with 700M in cash, they may not be fully funded. They're surely going to have to give Ford something to get them off dead center.
Bottom line: SIRI's financial situation is worse today than it was a year ago. They have more cash, but net assets have declined (meaning, they have increased debt by more than they have increased cash). This time last year, I had estimated SIRI's CFBE at late '06, early '07. Today, it is late '07 or early '08 IMO. Plus, there are $800M in financial commitments between Stern and the NFL that they didn't have last year. While SIRI *DID* have some advantage in their cost structure, the overspending for NFL, Stern, DCX, and RSH revenue share, have brought its business model roughly into parity with that of XM. Yet, XM continues to be more in control of its finances and XM's management continues to make superb decisions.
SIRI's management, which was horrible a year ago, has only gotten worse. Unfortunately, the large cash balance and the capital markets' willingness to keep throwing money at the business has obscured the deterioration of the their overall financial condition. SACs continue to be out of control. XM continues to dominate the market.
So, fair value, as of now? I would say $2.00-2.50 a share. The markets have consistently overestimated the value of Sirius and undervalued XM. The same is true today. Sirius is running on hype, and has been for the last couple years.
I never thought they would hit 1M subs this year, I'll admit it (and they still may not). But I didn't think they'd be willing to stand back and throw money they way they have. But we're already seeing price cutting on XM's Roady2, and by the Christmas selling season we may well see a R2 with 3 or 6 months of service bundled for its current list of $130. This, NOT STERN, and NOT THE NFL, is going to determine retail market share over the next few months. XM will be announcing a new wearable device (the "MyFi"), complete with car and home kits, and will begin delivering it in late November, apparently. If XM can provide these in quantity, they will DESTROY Sirius between now and year end.
Finally, you could read my previous posts on this thread or the XMSR thread and get my view, *OR* you could read the article in Barrons from this week -- because it pretty much says precisely what I've been saying for a year or so and totally sums up my views of these two companies.
All my 2c worth... |
