Lets take a lesson from this market and focus on what is important.
I have friends and relatives who subscribe to the axiom that you can never be too skinny or too wealthy. Conversations drift towards these subjects like leaves to the ground. It is inevitable and tiresome. The holiday season this year was an exercise in self-restraint capped with my wife pleading out loud that we talk about something other than money.
Jason Zweig has written What a Bear Market Might Teach Us which I found both humorous and uplifting. If I thought my relatives would recognize the message, I would send it to them – but I suspect the point would be lost.
“Money is not wealth.”
The economic downturn is lowering the economic tide for all companies, but some industries and companies are impacted more than others. Highly leveraged companies like Sirius XM are in great peril as their debt obligations come due and banks struggle to contain risk.
A story entitled Satellite Radio Still Reaches for the Payday published on December 26th, 2008 describes the challenges facing Sirius XM. There are several interesting insights shared in the article. If you’ve read some of my other material here, you know this is a subject I care about.
Before the merger, I did not pay that much attention to Sirius. I enjoyed the service XM provided and wasn’t really concerned with the business decisions being made by its competitor. Not that it would have mattered – but I should have paid more attention. Some of the significant numbers:
- In 2005, Sirius secured the exclusive services of Howard Stern for 500 million dollars.
- It costs between 250 and 300 million dollars to put a satellite in space.
- The company earned 613 million dollars in the third quarter of 2008
- The company has 1 billion dollars in debt due in 2009
That’s alot of large numbers. But to balance the equation, the stock price of the company currently sits at 16 cents per share. InfoWorld believes satellite radio will not survive the recession. Add on that the combined company has let go approximately 25% of the company’s associates and you are left with few options. The company’s chief assets appear to be its satellites and Howard Stern (based on the value they placed on his contract).
I like the service – but it looks like some banks are going to hold some more useless paper here pretty soon.