This is not investment advice. Do your research before taking a position in any of the securities mentioned in the post below.
For those based in Aus, Liberty SiriusXM is a fairly US-centric business. Nonetheless, the below is an interesting read from the perspective of incentives & markets.
Entangled Liberty businesses
Liberty SiriusXM (LSXM) comprises SiriusXM (SIRI) and Live Nation, as well as smaller intergroup interests in the Formula One Group and the Braves Group. Whilst the F1/Braves part is cool, the majority of the value of this business is the c.81% of SIRI that LSXM owns, which operates two complementary audio entertainment businesses, SiriusXM and Pandora.
The Live Nation (including TicketMaster) business is also notable (worth about $5.5bn when you include different share classes and iHeart). However, for the sake of this article, I will focus on SiriusXM
Without going into too much detail on John Malone's Liberty Media Group,it is well known to be an entangled group of businesses. Their complex structure was in part to mitigate tax but it was equally to maintain optionality when they want to raise funds/make acquisitions
LSXM Media’s value proposition is twofold;
when you take into account the share value of $SIRI - there is a c.40% gap between NAV and share price; but for a raft of tax/structuring reasons LSXM won't necessarily buy out SIRI
the traditional satellite radio business is not THAT bad (as shown below). Whilst Spotify is an obvious leader, Pandora/SiriusXM have a strong market share in car-based radio streaming, 80% of new cars in 2021 had SiriusXM/Pandora and their customer churn is very low (c.10%)
Market share vs. SPOT/AAPL/AMZN
Absolute users are huge but fairly static
Getting into the weeds of that "discount"
The Market NAV of Liberty Sirius XM is c.$25bn vs. market cap of $14bn. However, since SIRI shares arent held at their share price on the LSXM books (its a subsidiary that is not fair valued) it is not apparent from immediate P/NTA metrics
Because there is absolutely NO certainty on the timing of when SIRI will be bought out, it is not appealing for traditional "arb" funds to try to buy-up LSXM shares & bid up the difference between SIRI/LSXM
From LSXM's perspective, it is likely that for a combination of tax/debt reasons that they will take their time
LSXM's dividends from SIRI are largely debt free
Liberty has c.$3bn falling due in the next 1-2yrs
Surely SIRI is going to become obsolete though?
I could probably write 10,000 words on the SIRI business & its competitors and lose you all pretty quickly. The simple facts are
SIRI generate c.$8.7bn of revenue ($14 ARPU; blended over ads and c.35m fee-paying users)
That topline translates to EBITDA $2.7bn / FCF $1.7bn so cash conversion is strong even if Liberty has reported some impairments in the Pandora acquisition
Their demographic is generally older listeners and >40% of their listening happens in the car
New car penetration is >80% (which is surprisingly high)
They have been very low on the roll-out of targetted ads (now launching a product called 360L) but this requires bigger 360L hardware adoption which is too soon to know
SIRI thinks SPOT has vastly overpaid for its exclusive content and hence SIRI's lower cash burn but this is all spin as SPOT has more users
Conclusion: I would not, in isolation, be overly excited to invest in SIRI at $6.90/share because I think the business is quite fairly valued and whilst the earnings are more resilient than you would expect, technology/SPOT etc could displace them.
Nonetheless, the 40% discount to NAV that LSXMK offers is incredibly compelling, particularly because the only people that can take advantage of this discount are those who can wait many years (likely +2yrs). I would not be surprised if all of SIRI is bought out in a longer timeframe but I am willing to wait given the inbuilt discount and Malone's owner-type mentality
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