Investment Idea – Liberty SiriusXM Group

Liberty SiriusXM Group is a holding company that holds primarily SiriusXM (Sirius, Pandora, Stitcher, etc…) and some LiveNation (concerts, Ticketmaster, etc…). I heard this as a bull case on the Meb Faber podcast and thought it might be worth diving into.

The Elevator Bull Case

The short/sweet bull case:

1. Sirius XM isn’t a terrible business
   • Churn is healthy at both Sirius XM and Pandora
2. A 35% gap exists between Sirius XM stock and Liberty Holdings Sirius XM Group.

The Bear Case

• When the bull case is Sirius XM isn’t a terrible business, the bear case isn’t that hard.
• The stock also just got wrecked on lower than expected guidance. Part of the reason for the poor guide was a weak ad market, but could something larger be at play? It’s also worth noting that their CFO just left the company as well, after 2 years on the job.
• In regards to the NAV gap, it is real and likely will close at some point, but it’s existed for years. Why would it close now? Also – sometimes discounts to NAV are rational. The financials of this deal are extremely complicated, which could explain some of the gap.

The Slightly Longer Bull Case

• To be completely honest – I think this is a dying company. It will just be a slow, drawn out, profitable death. The key there is how the profits balance vs the death.
• SiriusXM has been buying back significant amounts of stock, while Liberty owns a serious amount of the stock. This creates an effect where within a few years – Liberty will own all of SiriusXM or SiriusXM will have an extremely small float.
• Let’s just assume that the NAV gap won’t change and eliminate that bull case for the time being. Everything comes down to how do SiriusXM/LiveNation perform. I think it’s relatively easy to track how many users will leave SiriusXM – churn is healthy and has been healthy. Pricing is strong. The subscription business model is beautiful. The main concern would be how many new users are coming in to offset the churn. Apple CarPlay is a concern, but I don’t think this is a major concern.
• The real bull case might be the limited bear case.

A Sound Idea?

Overall, I think this is a fun trade idea. I’m not going to move forward with it – I’m still learning more here and the finance structure here is incredibly complex.