Sirius XM (NYSE:SIRI): Is this a buying opportunity?
Today's Financial News - Posted November 25, 2008
Sirius XM Radio (NYSE:SIRI) is one of the shakiest companies out there. It is covered in debt, has huge fixed costs, and subscribers are fleeing in droves. Shares are hitting new lows as investors bail. Could this be a buying opportunity?
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): For satellite radio investors, these are the times that everybody knew was coming. Financial pundits have been writing about the industry’s certain doom for years. We all knew the notion of satellite radio was based around a shaky-at-best business model.
Not only did the industry’s originators have to shoot multi-million dollar satellites into the sky, they also had to convince millions of Americans to pay for something they were already getting for free.
XM and Sirius were vicious competitors at first, but quickly realized they could not survive without permanently joining forces. They petitioned the FCC for permission to merge and waited for nearly two years before they received a verdict.
Eventually, the airways regulator gave its blessing and Sirius XM Radio (NASDAQ:SIRI) was born in July of this year. The company may not make it out of its infancy.
Build it and they “may” come
It turns out the pundits were right. Few folks are willing to pay to listen to the radio. Sure, subscribers at Sirius grew like wild grass for the first few years, but the novelty quickly subsided and the supply of early adopters that propelled the industry through its first few years quickly dried up. Now, the burden of an immense plunge in consumer spending is about to force the company into bankruptcy.
*** MAKE SURE you also read our special report The 3 Hottest Stem Cell Stocks under $5!
The subscriber growth figures tell the whole story. In 2006, Sirius saw its subscriber base grow by 82%. In 2007, that figures was 38%. This year, it will be lucky to lock in growth of 10%. And next year, the company optimistically expects to expand its base by just 8%.
Those are the kinds of growth figures you would expect to find in a mature industry, not one with less than 20 million subscribers.
What is worse than the company’s declining revenue base is its monumental debt load. In the next twelve months, Sirius has over $1 billion in debt coming due. $210 million of it must be paid in February. Unfortunately, the company’s balance sheet shows no way for it to find the liquidity needed to pay its bills.
Combine huge debt, incredible talent contracts (Howard Stern has a $500 million, five-year deal) and a consumer base that is going broke and it is easy to see why shares of the company are trading at all-time lows.
With share price at just $0.15, shares of Sirius XM have plunged by more than 90% this year.
Bankruptcy and an equity valuation of zero should be a serious concern for investors. Unless the company can re-structure, find the investors and subscribers it needs and can lower refinance its debt, there is no way it is going to stay in business for more than a year or two.
Finally… some potential
But speculative investors finally have a shot at rewards with the company. In late December, Sirius shareholders will get together to vote on some very important issues.
First, executives are asking investors to approve a major dilution of their positions. The company wants to boost the number of shares outstanding from 4.5 billion to 8 billion in an effort to bring in much-needed capital. The move, while essential to the company’s future, would hammer the valuations of today’s shareholders.
To help make shares more attractive to potential shareholders, management would also like voters to approve a major reverse stock split, ranging from 1 for 10 to 1 for 50. If approved, shareholders would own dramatically fewer shares of the company, but those shares would be worth much more.
With so much negativity priced into this company, it is hard not to be at least a tad optimistic.
For investors getting in at today’s prices, the upcoming shareholder meeting could lead to profits. After all, it is bound to bring increased press coverage and any good news could lead to short-term price spikes.
Volatility will be the key to this stock over the next few months. If you can stomach the ride and the very real threat of bankruptcy, there will be some shots at fairly large profits.
I will let you decide if such a risky play is for you.
*** MAKE SURE you also read our special report The 3 Hottest Stem Cell Stocks under $5!
Next Article: Homebuilder bailout: You can’t be serious
8 Responses to “Sirius XM (NYSE:SIRI): Is this a buying opportunity?”
Your comments are welcome
Follow TFN via RSS or Twitter |
 |
 |
 |
Advertisement
Latest Headlines
- The Big Picture for Sinobiopharma, Inc. (SNBP)
- Beazer Homes USA, Inc. (BZH) and Hovnanian Enterprises, Inc. (HOV) up despite horrid housing news
- The FDA catalyst: 2010 moves in MannKind (MNKD), Roche Holding (RHHBY), Acorda Therapeutics (ACOR) show it still works!
- Steepest drop since Feb. 2009: Here we go again!
- Is the silver run over? Coeur d’Alene Mines (CDE), Silver Wheaton (SLW), Alto Group (ALTO), Hecla Mining (HL), Endeavour Silver (EXK) close down
November 25th, 2008 at 2:07 pm
Stern was signed on for 5 years, not 3. Sirius XM owes 210 million in February, not 220. Yet another well researched article.
November 25th, 2008 at 2:22 pm
I concur with the above comment. You may also want to consider proof reading before you post.
November 26th, 2008 at 1:32 pm
only comcast has more subscribers. Sirius is young but it has reached 20 million faster then anyone. A slowdown in sub rates is to expected, not criticized. Only 2o million…Fios only wishes they had this problem
November 26th, 2008 at 4:59 pm
Not to mention $400 mil+ in merger savings; increased auto penetration rates; new radios and new subscription plans. And an increase in subscribers when almost everyone else is seeing decreases. There is no question it is going to be tough on Sirius XM to survive. But I think they have a chance if this recession is not a long one.
November 26th, 2008 at 5:29 pm
Not to mention that Stern takes more time off than Jonny Carson ever did, and I for one will not renew!
November 26th, 2008 at 10:21 pm
I am loosin about 100,000.00 and that isnt funny I say NO NO NO on REV and NO on boosting shares and NO NO NO on any more power to the board of Directors infact withold the vote From them.
November 26th, 2008 at 10:28 pm
NO on Reverse Split Get Rid of the board of sirius XM and NO NO NO on the delution of shares don't add any more Shares And FIRE MEL. I have lost my Retirement Cash on SIRI Stock 22,500@3.77 Thanks Mel.
December 6th, 2008 at 9:27 am
Has read with the pleasure, very interesting post, write still, good luck to you!