Sirius XM: Radio Ga Ga

This post appeared earlier today on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.

Over the years, I have frequently been asked by friends, colleagues, and acquaintances to weigh in on their portfolios. And I can't tell you how often Sirius or XM (prior to the merger) cropped up as a holding. Typically, the reasons for purchase were the same: Someone subscribed to the product, either in their car, or at home, or both, and was blown away by what these companies were providing. They equated a great and somewhat addictive product that would take world by storm with a boatload of money to be made by buying the stock. Now, I can't completely fault this logic -- I've been guilty of it myself -- but it does show that there's often a great disconnect between what is seen as a must-have product and a must-have stock.

For me, the numbers just don't add up. While Sirius XM (SIRI Quote) has shown improvement in the top line and has generated operating earnings the past two quarters, the fact remains that this company is swimming in debt. Now, that's not surprising, given the capital-intensive nature of such a business, but it's still a huge hurdle that might ultimately be this company's undoing. That's not to say that satellite radio is not a legitimate business; I just don't see how Sirius XM will ever consistently make money.

Granted, last quarter's results may have been encouraging; as Sirius XM losses narrowed to $149 million, excluding one-time items, the company came very close to breaking even. But the level of debt is also increasing, and the burden of the swelling interest expense makes me queasy about the longer-term prospects for this company.

Sirius XM ended the third quarter with $286 million in short-term debt, $3.03 billion in long-term debt and $542 million in cash, giving net debt of $2.77 billion, up slightly from the second quarter's $2.72 billion. The interest expense was nearly $96 million in the third quarter, up from about $66 million in Q2.