Every time I look at this company, I can hear Walter Schloss in his talk at Columbia University. "I don't like debt," the legendary investor repeated throughout the speech. Sirius on the other hand loves debt, to the tune of over $3 billion. Liberty Media stepped in earlier this year with a $530 million cash infusion. Sirius has repaid the loan from Liberty, but it had to dilute shareholders' equity by 40% just to stay alive. Given the CCC rating on its outstanding debt, it is not impossible that it may approach the precipice again.
When I go through the actual earnings release, I see a lot not to like. Over 3 million subscribers chose not to renew their subscription. While total subscriptions were up about 180,000 from the second quarter, I suspect that the number would have fallen without Cash for Clunkers in the quarter. On a year-over-year basis, the total subscriber count was down. Interest expense was up about 60%. Long-term debt outstanding inched up in the quarter as well. All the company accomplished was to extend the day of reckoning, in my opinion.
To believe that this stock has long-term value, you have to think that the economy gets better sooner rather than later. The company is heavily dependent on auto sales, and I suspect that Cash for Clunkers bought forward an enormous amount of vehicle demand. If I am right, then the forecasts for 2010 car sales are far too optimistic. Consumers are cutting back across the board, and satellite radio is the ultimate discretionary expense. Nobody needs to listen to Howard Stern. In most markets you can hear ballgames on free radio, and NPR and the all-news stations are a viable alternative to laying out subscription fees for talk shows. Individuals who are worried about their jobs are going to be very content with free radio content.
The combination of a weak economy, competing technologies and way too much debt will doom this company, in my opinion. The companies that have other media technology are far better financed than Sirius, and that will eventually be the end of this company.
Eventually somebody, most likely John Malone, ends up with a very nice collection of satellites bought cheaply during the bankruptcy.