LIBERTY MEDIA SIRIUSXM GROUP LSXMA
May 11, 2021 - 10:47pm EST by
goirish
2021 2022
Price: 41.99 EPS 0 0
Shares Out. (in M): 336 P/E 0 0
Market Cap (in $M): 14,158 P/FCF 0 0
Net Debt (in $M): 3,368 EBIT 0 0
TEV ($): 17,525 TEV/EBIT 0 0

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Description

LSXMA is far from a unique idea – one can look at the various write-ups the past 5 years highlighting the same opportunity.  While the LSXMA shares have increased over this time span, the discount to NAV has ballooned.  While down slightly during 2021, and considerably narrower relative to some of the crazy Reddit days in January, it still looks far too wide at just over 30 percent currently.  As has been widely reported, LSXMA will likely own over 80 percent sometime this year (roughly 77% as of 03/31/21).  Post the 80 percent threshold, SIRI will likely pay a larger dividend and LSXMA will likely use most of the proceeds to repurchase stock.  SIRI will continue repurchasing shares, and LSXMA hinted it may sell into the repurchases to retire LSXMA shares.  While a short-term merger is possible beyond 90 percent, arbitrage players specializing in appraisal rights could make a deal difficult.  Additionally, current and former SIRI executives own large amounts of SIRI stock and it could be awkward to cram current/former management.   Whatever the path, it seems highly that Liberty will close the discount over time.  Assuming 2022E free cash flow per share somewhere between $0.36-$.40, LSXMA is buying back its SIRI shares at an implied “look through” price of 10-11x free cash flow.  This seems remarkably cheap for a quality business.  I own SIRI unhedged, believing SIRI can continue to generate slow but steady top-line/free cash flow growth, that LSXMA will continue narrowing the underlying discount to SIRI shares.  Additionally, there may be some positive optionality on what the ultimately LSXMA/SIRI entity does with the free cash flow.  

Owned Sirius

$17,858 

Exchangeable Sirius

$293 

Exchangeable Sirius

$411 

Cash

$971 

   

Live Nation Owned Shares

$4,391 

Live Nation Exchangeable Shares

$476 

Live Nation Exchangeable Shares

$837 

iHeart  (7mm shares)

$158 

   

BATRA Shares Behind 1.375% Convertible Note

$63 

LSXMA Shares Behind 1.375% Convertible Note

$80 

FWONA Shares Behind 1.375% Convertible Note

$205 

   

LYV Call Spread

($384)

1.375% convertible note call spread

$90 

   

Overhead

$0 

   

Asset Value

$25,448 

   

Margin Loan 12/31/20

($875)

Exchangeable Sirius 1

($293)

Exchangeable Sirius 2 

($411)

1.375% Basket Convertible Note

($1,153)

2.25% 2048 exchangeable bond (LYV Exchangeable)

($476)

2050 0.5% Exchangeable (LYV)

($837)

   

NAV

$21,404 

   

Market Cap

$14,158 

   

Shares Outstanding

335.6

   

NAV Share1

$63.78 

   

LSXMA

$41.99

LSXMA

$42.19

   

% of NAV

65.8%

 

(Equal Weight Discount)

 

Implied SIRI Price Per LSXMA Share

$35.20 

Number of LSXMA Shares

335.6 

Implied Value of SIRI Stake

$11,812 

Non-Exchan. SIRI Shares Held by LSXMA

3,042.3 

Value of SIRI per LSXMA Share

$3.88 

 

From the time of the first iPhone through the current SPOT offering, there have been substantial questions about numerous services replacing the basic satellite radio service.  Yet, despite the rise of listening options/improved cell phone service/etc., SIRI has continued to grow subscribers, maintain conversion rates and reduce churn.  Additionally, with the recent addition of Toyota, and expanded agreements with GM, BMW and KIA, SIRI new car penetration has now risen to above 80 percent in 2021.  The new and expanded car deals do beg the question that if satellite radio is clearly in decline, why have OEMs chosen to expand their relationship with SIRI?  And despite a pandemic greatly limiting car commutes, SIRI still managed to grow self-pay additions during 2020.



From telephone books to video connections, there are admittedly several examples of stable telecom businesses that were disrupted by new technologies and it is still possible such a change occurs here.  Critics can also argue that a domestic only service will be unable to compete with a service that can spread content costs over a global footprint.  But, there just does not seem to be a lot of evidence this is occurring.  

 

2018

2019

2020

Pro-Forma Revenue

$7,348 

$7,921 

$8,046 

Proforma EBITDA

$2,131 

$2,427 

$2,575 

FCF

$1,517 

$1,647 

$1,660 

       

SIRI WA Subs

$33,345 

$34,314 

$34,523 

SIRI Self-Pay Additions

1,402 

1,063 

909 

       

SIRI ARPU

$13.31

$13.82

$14.10

SIRI Churn

1.7%

1.7%

1.7%

       

SPOT MAU

207

271

345

SPOT Premium Subscribers

96

124

155

 

In addition to the raw company KPIs, various customer service surveys suggest customer satisfaction results remain high.  Morgan Stanley does annual survey work (~2000 total participants, splits for gender, income levels, urban versus suburban, etc.).  While one can discuss sample size/other issues, I think the survey works generally paints a picture that:

  • SIRI users are a satisfied group, spend a good chunk of their “listening time” using SIRI and use the service outside the car (~60%) more frequently than one might expect – encouraging, given the company’s efforts to expands its base of streaming customers.  Again, all of this has occurred despite the rise of SPOT over the past several years.  

  • Lots of Apple, SPOT, and AMZN users seem to also use SIRI and the percentage has increased over the past couple of years.

  • Surprise, surprise, the typical SIRI skews older than other streaming services