No. of Recommendations: 6
Great summary of SIRI EarlyRetiree
I bought it for the arbitrage, which didn’t work out for me and I’m now a long term investor! Think I’m down 25% at this point. Certainly great to see Berkshire continuing to hover up shares.
The price is certainly cheap and the market clearly hates it and is worried it’s in terminal decline. I will play it out as long as Berkshire is an owner. I have no insight into subscription numbers 10 years from now for this technology but imagine it’s not quite as bad as the market thinks.
I’m not in the US but this sounds like a premium service. No adds. If I can afford it I would use it. I like the DJ lead consumption especially while driving. I like how streaming services have to pay per play but SIRI doesn’t and has higher margins. I like the relationships with car manufacturers and the free promotion offers to get customers onboarded. I like the high retention rate. I like that consumers spend more time with it than anything else, even YouTube. I like the sports franchise. I like the connectivity provided by satellite. Would love to hear why Berkshire owns it.
I don’t like that it’s technology and things can change quickly. The receiver in the car looks clunky and dated from pictures I’ve seen online and that worries me. Would prefer if it was more integrated with the car (not sure about this point??).
Addition to the index is perhaps the biggest high probability event that would bring buyers in and you could see the SP substantially higher very quickly. Certainly not why Berkshire is buying but I’d take it personally.
Big reduction in capex program that management have discussed seems controllable and high probability. Berkshire would like that a lot I imagine.
If I had to guess I would say Berkshire knows consumer behaviour is unlikely to change rapidly. And Berkshire’s insights in car dealerships is comforting.
Possible outcomes look like.
1. Subscriber numbers decline significantly, making the business unviable within 7 to 10 years. Maybe new technology makes it obsolete, or car manufacturers take a different route. Consumer behaviour switches dramatically to streaming. That makes it a huge dud. I’ll guess the probability of this at 10%. The market thinks it’s a lot higher.
2. Subscriber numbers decline at a slow rate, say 2% a year and 15 years from now the business is still around and doing ok but suffering from an ageing customer base. That would be a pleasant outcome. FCF over that period would be substantially in excess of the current market cap. A 50 year old customer today will still be a customer at 65. Maybe a 30 year old today can’t afford it but might become a customer at 45 as their wealth grows. Probability 80%.
3. Management really execute with content, retention. Maybe less distracted by the reorganisation. If they could report any improvement in subscription numbers the share price could move higher by a lot. 12 X FCF would not be an unreasonable valuation. Will give this a 20% probability.
4. Takeover by private equity or even Berkshire. Probably a bit early after the reorganisation for management to throw in the towel yet, especially at current valuation. But could happen in a year or two. Impossible to predict but the longer it stays cheap the higher the probability of receiving an offer. Berkshire certainly has loads of these low growth cash cows and plenty of previous interest in media investments.
