LSXMK

 The spread of 8.4 shares of SIRI to one share of various Liberty Sirius trackers has narrowed to 5%. When I buy, I am not buying for the arbitrage opportunity that is suppose to collapse the spread come the end of 3q this year. I am buying because I think the Sirius radio has a decent prospect going forward. Yes, this started off as a thesis of most likely Ted Weschler who I look up to as an investing model, but I have grown comfortable as its valuation has continued to drop from arbitrage to undervalued thesis. I have think the fcf and unit economics of the business model weighed against the negatives of terminal value and increased competition favor the former.

SiriusXM had $1.2 billion of FCF of which they returned half ($650 million) through dividend/buybacks to shareholders last year. In the current year, costs are suppose to be cut by another $300 million. This leads to $1.5 billion in fcf on a market cap of 12.5 billion of market cap and 21.5 billion in enterprise value. The FCF yields are 12% and 7%. They will have a cycle of capex coming up with the launching of satellites, but this might be a scaled business that will cash in on the high fixed cost. The $9.5 billion of debt they have is manageable and at a 5% rate that will stagger in maturity dates vs. a lump sum soon.

The 34 million subscriptions with minimal churn is attractive as long as the churn does indeed remain minimal. Spotify and Apple is scary, but there does seem to be a differentiator when they are installed in so many new vehicles as a base and the conversions of 40% of trials seems to suppor that. The US will sell around 15 million new vehicles a year.

I have grown comfortable with the thesis although I am not sure what Ted still sees. I see the fcf and the unit economics and think it's worth a roll of the dice with the bonus of Ted being in too.