I bought some penny stocks of Sirius XM – it’s a recession. This is an investment thesis.
Background
TV replaced radio, like a century ago. Now newspapers seems at sunset, thanks to the Internet – the free Internet. It happened even before the recession. Call it human progress.
That said, it may well surprise you that some guys opened some radio stations and collect money from listeners. They launched satellites for broadcasting.
There were two operators, Sirius and XM. It was a cage fight from the very beginning. After 10 years, both of them never recorded a single profit, but the stock price shot through the roof until the tech bubble busted. So the two decided for a merger last year. The new name is naturally Sirius XM.
How it works
They signed up Rush Limbaugh, NFL, etc., licensed all genres of Music, launched five satellites covering North America, sells radios at Best Buy or thru pre-installation on cars, and bill subscribers for $10 a month.
It should be a sales / customer relationship driven business, and it well accumulated 19 million subscribers (6% of U.S. population), which became the CEO’s bragging rights. well deserved.
The problem was with that many fans and $1.6 billion revenue last year, it barely broke even. It has lost over $11 billion over years and $3 billion in debt – the 3-page list of debt on its 10Q reads like a textbook. With $1.3 billion due this year, it doesn’t stand a chance without taking another mortgage – a $2 billion some one.
Great timing.
What’s its worth
Last Friday's close price labeled it at $368 million, short of $20 per subscriber. My gut feeling is it should be worth a lot more than that.
Risks
- It could file for bankruptcy in a few days.
- The churn rate is too high at 25% last year. If it’s about the car radio installation, it’s bad news these days.
- It has almost $1 billion deferred revenue on its book. I don’t know what it is.
- Its subsidiaries of equity interest is losing money.
- A lot of convertibles. You may have problem counting shares.
- People may find out that they don’t need a radio to listen to radios, and Sirius XM becomes an icon.
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