SIRI - Sirius XM Radio

[Jurgis]

I find this company bizarre.  It seems to do everything right and yet barely goes anywhere.  Who is selling this stock? What were they hoping the company to do that they haven't done?  Day after day there's 40m odd shares getting sold into a massive capital return program, a company that seems to have a lock on +10% ebitda growth for a long time, 65% of the float held by a non seller, a predictable fairly addictive business, long term oem contracts, long term content contracts, low churn - all in this low interest rate environment.  I've felt puzzled before with a stock versus mr market - but we have never been at odds for so long where my thesis seems to be playing out better than i expected and yet the market just continues as it was.

 

Buy more then? ;)

[KJP]

I find this company bizarre.  It seems to do everything right and yet barely goes anywhere.  Who is selling this stock? What were they hoping the company to do that they haven't done?  Day after day there's 40m odd shares getting sold into a massive capital return program, a company that seems to have a lock on +10% ebitda growth for a long time, 65% of the float held by a non seller, a predictable fairly addictive business, long term oem contracts, long term content contracts, low churn - all in this low interest rate environment.  I've felt puzzled before with a stock versus mr market - but we have never been at odds for so long where my thesis seems to be playing out better than i expected and yet the market just continues as it was.

 

Current market cap is about $20 billion.  If you subtract $1 billion from to account for the PV of remaining tax assets, you get $19 billion.  Against that you have about $1.1 billion of FCF (I've subtracted the amount of reported FCF currently attributable to the tax benefits that I capitalized).  That's about 17x FCF, without including any reserve for lumpy CapEx.  What is the correct multiple?

[thefatbaboon]

Not sure I find static multiples that useful, better to look out certain blocks of time. Say 5 years.

 

Continue current churn, penetration, conversion they will grow your tax adjusted FCF number more than 60% over that period to $1.7bn.

Also they will return $10bn via repurchase.  Say share price increases 10% pa.  Thats a 40% share shrink to 2.9bn shares.

 

Personally I like it for a good fcf multiple in 5 years as I think the business is above average for long after.  But put a 14 or 15 multiple if you want.

So $25bn. $8.60 per share.  Thats a double from today.  15% cagr

 

Buy in via Liberty you buy in for approx 50 cents less per siri equivalent.  About a double and a half from today. 20% cagr. 

 

And a nice long runway has value to the investor who can look out at a double, and probably a great deal more after, without worrying about banking gains or redeploying for the forceable future.  i.e. its not 20% or 40% minus a whole bunch of capital gains.

 

 

 

 

 

 

 

[KJP]

Not sure I find static multiples that useful, better to look out certain blocks of time. Say 5 years.

 

Continue current churn, penetration, conversion they will grow your tax adjusted FCF number more than 60% over that period to $1.7bn.

Also they will return $10bn via repurchase.  Say share price increases 10% pa.  Thats a 40% share shrink to 2.9bn shares.

 

Personally I like it for a good fcf multiple in 5 years as I think the business is above average for long after.  But put a 14 or 15 multiple if you want.

So $25bn. $8.60 per share.  Thats a double from today.  15% cagr

 

Buy in via Liberty you buy in for approx 50 cents less per siri equivalent.  About a double and a half from today. 20% cagr. 

 

And a nice long runway has value to the investor who can look out at a double, and probably a great deal more after, without worrying about banking gains or redeploying for the forceable future.  i.e. its not 20% or 40% minus a whole bunch of capital gains.

 

Sounds like you think 23x - 24x FCF today is a fair price today (that's about $5.34 per share, which would give you a 10% CAGR return if the share price was $8.60 in five years).  Maybe that's right -- high free cash flow businesses that allocate capital wisely are very valuable.  But it's to your benefit that the price stay lower for longer if that's the thesis.

[thefatbaboon]

I am happy it remains low. Both in that I have been able to buy quite number of times and of course for the company's own repurchases.

 

It's just the first time me and mr market have been this far apart on something for this long without an obvious point we disagree about. We were apart on tobacco companies for a long time around 15 years ago - but had an obvious point of disagreement in regulation/litigation risk that played out over quite a few years. 

 

Not only can't I point to such an obvious point of disagreement, but Sirius share dynamics make this case even weirder:

 

- two thirds of the stock not even available,

- 40m shares changing hands daily out of a 1.6bn free float means the free float turns over every two months...or six times every year. 

- the company is in the market for around 100m shares per quarter and should buy out everyone in 4 years.

 

A double digit growing, predictable, well managed, fc flowing company with a vanishing free float that no one seems to want to own and every one seems to want to trade! 

 

I'm very happy, but slightly unnerved that maybe I'm the idiot.

[ScottHall]

I'm in on this too Baboon, but I own through the Liberty version.

[bonkers]

Not only can't I point to such an obvious point of disagreement, but Sirius share dynamics make this case even weirder

...

I'm very happy, but slightly unnerved that maybe I'm the idiot.

I'm with you, baboon. Perhaps due to the apparent predictability of the business even my valuation is almost identical to yours. So here's one more idiot.  ;)

 

I have no idea who trades this, but I assume there are three overhangs to valuation, all of which have become more prevalent in the last year or two:

 

1. The future of car technology: all this connected car chat might make some feel that SIRI technology is under threat

2. Increasing tax rate: this will depress FCF substantially, and even if easy to factor in, some may find it still "unpleasant"

3. Big Liberty ownership: holders of SIRI might feel they get mistreated, or at least will not get any significant premium

 

Anyway, I don't think these are big issues. I own SIRI via LSXMK, that also trades with a discount.

 

P.S. Do any of you know, has Liberty team been able to acquire NOLs successfully in the past? I just wonder could they do that for SIRI as well? That would totally change the future returns...

[Sunrider]

Hold on - if you owned most of a stock and wanted to buy more would t you be happy to lend it out to short sellers? Two clips at the ticket ...

 

 

I am happy it remains low. Both in that I have been able to buy quite number of times and of course for the company's own repurchases.

 

It's just the first time me and mr market have been this far apart on something for this long without an obvious point we disagree about. We were apart on tobacco companies for a long time around 15 years ago - but had an obvious point of disagreement in regulation/litigation risk that played out over quite a few years. 

 

Not only can't I point to such an obvious point of disagreement, but Sirius share dynamics make this case even weirder:

 

- two thirds of the stock not even available,

- 40m shares changing hands daily out of a 1.6bn free float means the free float turns over every two months...or six times every year. 

- the company is in the market for around 100m shares per quarter and should buy out everyone in 4 years.

 

A double digit growing, predictable, well managed, fc flowing company with a vanishing free float that no one seems to want to own and every one seems to want to trade! 

 

I'm very happy, but slightly unnerved that maybe I'm the idiot.

[dwy000]

I'm trying to figure out the logic behind bidding for Pandora.  Maffei has been pretty explicit in his condemnation for streaming music.  Even in the last investor he made some insightful comments about it being a business with no moat (everyone has the exact same product with a different user interface) and a number of competitors who are willing to operate at a loss to attract people to other businesses.

 

The tax losses would be really attractive. As is the user base.  And if they can reduce the royalties to the music companies to the rates Sirius pays it could improve the economics.  But it doesn't provide anything that Sirius couldn't offer on its own.

 

This is where I shake my head a bit but ultimately put faith in John and Greg.

[thefatbaboon]

I think its Pandora's adsupported radio that Greg has said he likes.

[Liberty]

Might be a positive effect on churn at Sirius from bundling better quality internet streaming + siri content.

[Liberty]

Some 2016 numbers released, along with 2017 guidance:

 

http://investor.siriusxm.com/investor-overview/press-releases/press-release-details/2017/SiriusXM-Exceeds-2016-Subscriber-Guidance-Issues-2017-Subscriber-and-Financial-Guidance/default.aspx

 

SiriusXM today announced that it ended 2016 with over 31.3 million subscribers, adding more than 1.7 million net subscriber additions in the year, exceeding the company's increased guidance of 1.7 million net subscriber additions. Self-pay net subscriber additions in 2016 were 1.66 million, exceeding the company's increased guidance of 1.6 million and resulting in self-pay subscriptions of approximately 26 million at year end.

 

The company also announced that it expects to meet or exceed its 2016 guidance for revenue, adjusted EBITDA and free cash flow. [...]

 

The company also issued 2017 guidance for self-pay net subscriber additions, revenue, adjusted EBITDA and free cash flow:

 

Self-pay net subscriber additions of approximately 1.3 million,

Revenue of approximately $5.3 billion,

Adjusted EBITDA of approximately $2.025 billion, and

Free cash flow of approximately $1.5 billion.

 

So SIRI is currently trading at approximately 14.5x next year’s FCF guidance. LSXMA has a further discount to that.

[muscleman]

Some 2016 numbers released, along with 2017 guidance:

 

http://investor.siriusxm.com/investor-overview/press-releases/press-release-details/2017/SiriusXM-Exceeds-2016-Subscriber-Guidance-Issues-2017-Subscriber-and-Financial-Guidance/default.aspx

 

SiriusXM today announced that it ended 2016 with over 31.3 million subscribers, adding more than 1.7 million net subscriber additions in the year, exceeding the company's increased guidance of 1.7 million net subscriber additions. Self-pay net subscriber additions in 2016 were 1.66 million, exceeding the company's increased guidance of 1.6 million and resulting in self-pay subscriptions of approximately 26 million at year end.

 

The company also announced that it expects to meet or exceed its 2016 guidance for revenue, adjusted EBITDA and free cash flow. [...]

 

The company also issued 2017 guidance for self-pay net subscriber additions, revenue, adjusted EBITDA and free cash flow:

 

Self-pay net subscriber additions of approximately 1.3 million,

Revenue of approximately $5.3 billion,

Adjusted EBITDA of approximately $2.025 billion, and

Free cash flow of approximately $1.5 billion.

 

So SIRI is currently trading at approximately 14.5x next year’s FCF guidance. LSXMA has a further discount to that.

 

As I said before, the FCF number is highly misleading.

XM spent a lot of capex for the satellites. When Siri acquired XM, it made a one time cash out flow from finance instead of capex which is cash outflow from investment. Then for the next 10-20 years, SIRI can keep reporting artificially high FCF numbers. I went through their past few years of cash flow statements and found out this is how there is the significant mismatch between FCF and net income. Satellites are NOT real estates which you only spent maintenance capex. You have to replace them every 10-20 years.

 

 

[Liberty]

I know. They've given some guidance on spend for satellites in the future. They're expensive, but not nearly as expensive, relatively, to the company today as they were to the much smaller and less profitable company that first launched these satellites. It'll also be interesting to see how much lower the price of launches will go over the next few years as companies like SpaceX add competition to the launch market.

 

The NOLs will also run out at some point. It'll be interesting to see if the US corporate tax rate is much lower than it is now by then, and if Malone and Maffei can pull their usually tricks to stay tax efficient.

[rohitc99]

If you look at the capex versus depreciation since 2007, they have expensed 2.4 Bn as depreciation v/s 1.5 Bn has been spent on capex. If we look at the trend in all kind of hardware costs - radios, satellites etc, they seem to be on a downward trend. we can already see that from the reducing SAC/ sub and the management in the last 10Q has also stated the same. also it appears that the company has been able to extract some extra years out of the satellites ..for example SIRIUS FM-1 had an end of life in 2013, but was finally decommissioned early last year.

 

Conservatively, depreciation does not seem to be understating maintenance capex. i would be more concerned with the rising cost of content and the ability of the company to pass this increase and still maintain its churn rates

[Liberty]

Speaking of content, there was this bit of news late last month:

 

http://www.reuters.com/article/us-sirius-xm-holdgs-ruling-turtles-idUSKBN1492G9

[giofranchi]

Some 2016 numbers released, along with 2017 guidance:

 

http://investor.siriusxm.com/investor-overview/press-releases/press-release-details/2017/SiriusXM-Exceeds-2016-Subscriber-Guidance-Issues-2017-Subscriber-and-Financial-Guidance/default.aspx

 

SiriusXM today announced that it ended 2016 with over 31.3 million subscribers, adding more than 1.7 million net subscriber additions in the year, exceeding the company's increased guidance of 1.7 million net subscriber additions. Self-pay net subscriber additions in 2016 were 1.66 million, exceeding the company's increased guidance of 1.6 million and resulting in self-pay subscriptions of approximately 26 million at year end.

 

The company also announced that it expects to meet or exceed its 2016 guidance for revenue, adjusted EBITDA and free cash flow. [...]

 

The company also issued 2017 guidance for self-pay net subscriber additions, revenue, adjusted EBITDA and free cash flow:

 

Self-pay net subscriber additions of approximately 1.3 million,

Revenue of approximately $5.3 billion,

Adjusted EBITDA of approximately $2.025 billion, and

Free cash flow of approximately $1.5 billion.

 

So SIRI is currently trading at approximately 14.5x next year’s FCF guidance. LSXMA has a further discount to that.

 

They believe enabled vehicles might double by 2025. If true, anyone has an idea of what cagr in fcf should they be able to sustain? I mean: is revenue directly proportional to enabled vehicles? If so, have they means to grow fcf more rapidly than sales?

 

Cheers,

 

Gio

[giofranchi]

A double digit growing, predictable, well managed, fc flowing company with a vanishing free float that no one seems to want to own and every one seems to want to trade! 

 

Have you thought about reasons why no one seems to want to own it? Would like to know your point of view about this.

 

Cheers,

 

Gio

[Liberty]

Some 2016 numbers released, along with 2017 guidance:

 

http://investor.siriusxm.com/investor-overview/press-releases/press-release-details/2017/SiriusXM-Exceeds-2016-Subscriber-Guidance-Issues-2017-Subscriber-and-Financial-Guidance/default.aspx

 

SiriusXM today announced that it ended 2016 with over 31.3 million subscribers, adding more than 1.7 million net subscriber additions in the year, exceeding the company's increased guidance of 1.7 million net subscriber additions. Self-pay net subscriber additions in 2016 were 1.66 million, exceeding the company's increased guidance of 1.6 million and resulting in self-pay subscriptions of approximately 26 million at year end.

 

The company also announced that it expects to meet or exceed its 2016 guidance for revenue, adjusted EBITDA and free cash flow. [...]

 

The company also issued 2017 guidance for self-pay net subscriber additions, revenue, adjusted EBITDA and free cash flow:

 

Self-pay net subscriber additions of approximately 1.3 million,

Revenue of approximately $5.3 billion,

Adjusted EBITDA of approximately $2.025 billion, and

Free cash flow of approximately $1.5 billion.

 

So SIRI is currently trading at approximately 14.5x next year’s FCF guidance. LSXMA has a further discount to that.

 

They believe enabled vehicles might double by 2025. If true, anyone has an idea of what cagr in fcf should they be able to sustain? I mean: is revenue directly proportional to enabled vehicles? If so, have they means to grow fcf more rapidly than sales?

 

Cheers,

 

Gio

 

There's a lot of operating leverage. Each new subscriber is their most profitable subscriber.

[giofranchi]

Thank you Liberty!

I have opened a position today (LSXMA). And I would like to buy more in the future.

 

Cheers,

 

Gio

[Liberty]

SIRI Q4:

 

http://s2.q4cdn.com/835250846/files/doc_news/SiriusXM-Reports-Fourth-Quarter-and-Full-Year-2016-Results.pdf

 

FULL-YEAR 2016 HIGHLIGHTS

SiriusXM Subscribers Exceed 31 Million. The company added over 1.75 million net new subscribers during

2016 to end the year with approximately 31.3 million subscribers. Self-pay net additions were 1.66 million

during the year, resulting in self-pay subscribers of nearly 26 million at December 31, 2016.

 

Strong Revenue Growth and Record ARPU. Annual revenue climbed 10% to a record $5.0 billion. The growth was driven by a 6% increase in subscribers and a 3% increase in average revenue per user (ARPU) to $12.91.

 

Record Adjusted EBITDA. Adjusted EBITDA in 2016 totaled $1.88 billion, a record high, and up 13% from $1.66

billion in 2015. Adjusted EBITDA margin was 37.3% in 2016, a 110 basis point increase from 36.2% in 2015.

 

Free Cash Flow Tops $1.5 Billion. Free cash flow for 2016 totaled $1.51 billion, up 15% from $1.32 billion in

2015. Operating cash flow for 2016 totaled $1.72 billion, up 38% from 2015.

 

"During 2016, we spent approximately $1.67 billion to repurchase 420 million shares of our common stock.

SiriusXM's average share count in 2016 declined by 9% from 2015

[EricSchleien]

Any insight into why Berkshire would own both Liberty Sirius and Sirius? Seems like they initiated a new position in Sirius while already owning Liberty Sirius. Any thoughts?

[thefatbaboon]

Any insight into why Berkshire would own both Liberty Sirius and Sirius? Seems like they initiated a new position in Sirius while already owning Liberty Sirius. Any thoughts?

 

they're at just under 10% on LSXMA & K, maybe they preferred to not go over

[Liberty]

They now own about 7.5% of the non-Liberty float of SIRI, and about 7% of the whole company if you combine both stakes.

[thefatbaboon]

Liberty, not sure about your look through math.

 

LSXM have 3162m shares of SIRI.  BRK has 9.3% of LSXM after taking into account the Bs and dilution, so 295m proportionate, plus the 166m direct.  Thats 461m total, out of total 4710m outstanding.  About 9.8% look through.