Sirius XM Is Not Alone Anymore
While at the time it was meant as a slight against the wannabe know-it-alls who roam Wall Street, I'm beginning to realize that it was actually the company's own investors who have misread the stock all along.
Warren Buffett once said that when a business does well, the stock will eventually follow. There have been very few things that Buffett has been wrong about, much less the basic fundamental principle of cause and effect.
So for all of the great things Sirius has been able to do within its business -- while enjoying the benefit of what investors like to say as having "no competition" -- it is unable to explain why the stock continues to plummet, even with the so-called "catalyst" of Liberty Media
"Competition" and "monopoly" are two concepts that Sirius investors have never been able to fully grasp, even though Internet radio giant Pandora
Yet, investors remain convinced Sirius XM has no competition and is a monopoly. But I wonder what will be made of the news that came out on Tuesday from Samsung?
Samsung is in a neck-to-neck race with tech giant Apple
While analysts were quick to focus on its impact on iTunes and possibly Pandora, I think the real victim from any success of this service will be Sirius XM.
For investors who continue to be impressed by satellite delivery platform, Samsung is about to demonstrate exactly why I have been insisting for quite some time that the IP standard is the future. Although the company will initially offer the service for free through the customers of the new Galaxy phones, it said that it will make it available to any competing device. Music that is purchased through the service will be stored on the cloud and will then appear on all devices owned by the consumer, both on the cloud and locally for off-line listening.
The best part of all of this is that Samsung will allow users to upload and store their own music to the cloud so it can be accessed from either their personal computers or smartphones.
So the question is, what will be the motivation for customers to continue to pay more money for a one-way satellite music service? With Sirius reporting 7 million cancellations for 2011 and 4 million the year before, I wonder what type of impact this new competition will have on its service. That's assuming investors consider Samsung a threat to Sirius' so-called "monopoly."
What exactly is the future of satellite radio? It is hard to say at this point that it has one, absent a cloud strategy.
The satellite delivery mechanism is limited in its ability to engage the 21st century consumer. Sirius XM would have been a good idea in 1995. However, in 2012 and beyond, unless you have a cloud strategy and are based on the IP platform you are a dinosaur or, as Rocco Pendola recently suggested, you become extinct.
However, the winner of all of this continues to be Liberty Media, which seems to care very little about Sirius' business and appears interested in acquiring the company solely for its assets, which include $8 billion in future tax benefits. Remarkably, Sirius NOLs, or Net Operating Losses, which are currently valued at $8 billion, are more valuable now than the entire company, whose market cap has fallen to $7 billion.
So, in essence, its failures are now worth more than its successes. If that is not an indictment of any company, I don't know what is.
For investors who continue to think Liberty cares about the stock, as I have said recently it has already gotten the cake. The stock will likely continue to fall and Liberty will continue to (as retailers like to say) "back up the truck" -- except, it has little to no risk in when it buys.
The Bottom Line
Underestimating the competition is one of the biggest mistakes that any investor can make, second only to not fully understanding the business of what you are buying.
Remarkably, Sirius investors continue to show a complete disregard for these two concepts and forget they are buying a business, not just a stock. So going back to Buffett's quote suggesting a stock will do well if a business does well, investors need to ask themselves: How well has Sirius really been doing?
Does it matter where it counts? What's the point of subscriber growth and rising FCF that yield little in profits? If the service is so great, why have 11 million people canceled over the past two years while net subscribers have only grown by 3 million since 2009?
Is the business really doing well? We'll find out once Samsung gets going.