Empty Spaces
Space: the final frontier.
It's glamorous. It's mysterious. It's… mostly empty.
It's in the name—"space." It's not called "full" for a reason.
Space is as full of profits as it's full of stuff. There have been plenty of high and low profile blow ups from investors trying to make money in space. LCM's own track record of space investment includes some that don’t look great. Here's a rough chart of all the profit in history earned from space-related things versus non-space-related things.
You might think odds favor finding profit here on earth. You'd be right.
Null and Void
Space, though, isn't completely void of profits. There are some particles of cash that blink into existence in space from time to time.
Space, generally speaking, is good for reaching large expanses of the earth. DirecTV and DISH have done this for a long time with TV from space. This is sort of what Elon is doing with internet from space. It's what Planet is doing with pictures from space. It's also what SiriusXM has done with radio from space.
The fact that your radio stations are beamed to you from space is beside the point. Space isn’t a product. The product is that you get your favorite radio stations, podcasts and music anywhere, anytime.
Services back on earth do this too, like Spotify. Spotify has been notoriously crap at earning cash even while vacuuming up subscribers. Sirius, though, has a few things going for it though. It's built into a lot of cars, where a lot of people spend a lot of time listening, and it’s more radio rather than on-demand. This makes it a bit less expensive to broadcast.
Unlike Spotify and most space adventures, Sirius has a long history of making money. Here’s a picture of the cumulative cash the business has generated over the last five years.
It’s also a pretty stable business—not too many of its subscribers cancel each month. Investors like this, so treat the stock a bit like a bond. It's yielding a bond-y amount of 3% each year at the moment in cash. It's not a growth business, though, so the angle here is really just to collect the cash.
Management does its part and has shelled out about 60% of the value of the company in dividends and share repurchases since 2018. It’s also promised cost cuts to make sure the gravy train keeps going. Most of the shareholders are good with that.
Safe Spaces
One shareholder though, Sirius XM’s largest shareholder, has some gripes. The shareholder is Liberty Media, another public company. Liberty isn’t upset about Sirius’ business, it’s upset that it doesn’t get value for its ownership.
Liberty lists its Sirius XM holdings separately in a tracking stock that represents just its ownership in Sirius XM. It represents the same slice of value as the shares of Sirius XM that trade directly.
It should trade at the same price. It doesn’t. The Liberty crew are salty because the tracking stock has been worth about 45% less than the value of the shares that it owns of Sirius XM. Hm.
Sirius XM has been a good investment for them, so they're not that salty, but if you own a thing that is priced at $100 in one corner of the bazaar, but only $55 in your corner, you'd rather move to the other corner and sell it where you can get $100.
So, that's what they're doing.
Later this year, each share of Liberty's Sirius tracking stock will flip to direct ownership of Sirius. That will eliminate the gap—there will only be one Sirius stock on the market.
Whether it will launch up to the level of Sirius today or whether it will settle somewhere in between is to be seen. But there are good reasons to believe higher is more likely. Some investors prohibited from owning tracking stock, while there's a full market for the shares of Sirius, for instance.
This is exactly the space that Lamplighter looks for to find good investments: a favorable situation surrounding a profitable and predictable business.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.