Sirius XM Holdings Inc. (NASDAQ:SIRI) investors in 2017 will have to account for Liberty Sirius XM Group (NASDAQ:LSXMA).
Created in April by Liberty Media and owning a 61% stake in Sirius, LSXMA has generally been outperformed by SIRI stock. But the fate of the latter is dependent entirely on the whims of LSXMA chairman John Malone, so Malone’s ideas must be accounted for by Sirius stock investors.
Right now, Malone is interested in buying the Formula 1 race circuit, and changing the name of his Liberty Media Group (NASDAQ:LMCA) to reflect that. Last month Malone seemed interested in buying Pandora Media Inc. (NYSE:P), a deal our Lucas Hahn says makes sense because it would “future proof” Sirius, giving it a streaming music offering beyond its current pay radio offerings. But Pandora rejected Sirius’ latest offer, and nothing more has been forthcoming.
The real question is not whether Sirius XM has a future, but whether John Malone can capitalize on it. It’s something you can speculate on, if you have speculative money.
Me, I’ve got my retirement money on this market, so I’ll pass.
Sirius, Past and Future
Right now, SiriusXM is growing at 10% per year, selling for three times its revenue with a market cap of $12 billion. It usually brings about 12% of that revenue to the net income line, although it should beat that in 2016, as it beat that figure in just three quarters this year.
Sirius XM was created through the merger of two competing satellite radio networks in 2008, regulators deciding that there was ample competition for them from other technologies. It has been trying to get into Internet streaming since 2011, and reports it was close to a deal with Pandora sent those shares up 10% at the start of December.
They haven’t looked back even as Pandora has sought other suitors.
Sirius did incumbents in the streaming business a solid service last month by paying $25-40 million to settle a lawsuit by The Turtles, an old rock group, which sets a price for music published before 1972 and could help keep competitors out of the market.
But a recent deal with AT&T Inc. (NYSE:T) could turn the company into a must-have for car owners interested in security or who, like me, tend to lose their keys.
The offering not only brings in cash, but creates a business relationship with car owners that may cause many to maintain their Sirius subscriptions. Cars with the necessary equipment built-in are often sold with free six-month subscriptions to Sirius services, and getting more to maintain that service would be very valuable.
Analysts Divided on SIRI Stock
Analysts are divided on whether Sirius XM is a buy or a sell.
Jan Morris of Jackdaw Research says Sirius has hit a sweet spot, where it can get a premium price for content without paying even 30% of revenue for it. On the other hand, Zacks Investment Research has put a “sell” rating on the stock, as well as on the tracking shares.
The vast difference in view involves the value of the frequency spectrum. Based just on present service revenues and profit outlook, Sirius XM looks fully priced. But there are other services coming out, so why not pay a premium?
Still, if things are so good, why are insiders selling? Pandora chief technology officer Christopher Martin has been selling shares in that company since summer and Malone has been selling non-voting tracking shares in Sirius since November.
The Bottom Line
The Sirius business would seem to have seriously good prospects. What matters with spectrum isn’t the asset, but what you do with it, and Sirius has a growing business.
Malone also has a stellar reputation for squeezing the most out of a company’s value, but from my personal perspective that is mostly for Malone. If he’s selling, I’m not buying.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
