7 Comments

My 2 cents: As you mention car sales have been at historical lows and same with inventory (check FRED auto sales and Inventory/Sales ratio).

It is logical they will return to the mean. Historically, conversion rate from promotional subs was at 40% and is now at mid 30s.

If car sales increase 10% (which is what most big brand companies are estimated to grow; GM, Ford, Toyota, Hyundai, Tesla and a couple others when I did the maths with next years estimates) then 30% conversion will lead to an increase of 3% of sales (just to add context).

There will be no price increase this year and 1$/month increase next. Assuming the increase gets offset by higher streaming only subs (which would increase volume on the other hand but let’s assume only 3% increase as per the example above) then ARPU stays constant 2024 & 2025.

So sales constant or +3%. On the satellite CAPEX front it should get to 0 by 2028 so 300M run rate CAPEX (I agree on increase CAPEX later on but we should have 3-4 years of lower sat CAPEX from 2028 onwards)

2024 should be slightly less than 1200 because of transaction costs + interest expense.

With Car sales + lower CAPEX, should be at 1300M-1500M FCF for 2025-2028.

So buying Siri at around 8-9.5x FCF doesn’t seem insane, even for a 0 growth business, specially when churn is very low at 1.6-1.7%.

BTW share of ear report by Edison Research shows more modern cars (ie better phone connectivity, car play etc) have Siri increasing market share (at the same rate as Spotify) at the expense of traditional radio. So that’s a nice plus too.

Heads merger goes through and you get a nice ~40% upside to current prices. Tails merger goes through but Siri tanks to 3.6$/shr at 8-10x FCF or lowest valuation in its history and you break even, can it drop further? Sure 🤷🏻‍♂️ but historically it’s lowest has been x11, can it stop growing suddenly finally? Yes, guess that’s the bear thesis of the last decade.

Risks I see:

-Royalty Costs going higher (Spotify would have the same problem as far as I know so both of them would need to increase pricing)

-They start to lose subs rapidly and somehow the thesis everyone has been arguing for a decade actually starts playing out 🤷🏻‍♂️.

I like the bet but that’s just my two cents. Sorry for the rant!

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Feb 18·edited Feb 18

is liberty really exiting? or are they just optimizing their ownership of siri and closing the discount? can you really argue that this optimization transaction is a signal that they believe siri is starting to melt? for the last several years the structure has been a huge impediment to creating value on the liberty side. the structure was holding back siri too, so there was likely big push back from that side of the table to get this done now.

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As a $brk.b shareholder, I wish Tim Cook would show Warren how to use Appleplay in his car rather than the Siriusly Sinatra channel, so that WEB could better understand the terminal value issue.

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Excellent summary; I really appreciate the focus on underlying business question (potential secular shift in growth) in addition to the ‘arb’ and statistically cheap valuation. I think a lot of very smart people have big long positions (Baupost I think?). But this concise summary made me wonder whether LSXMK short is worth considering. What is the positive surprise from here?

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Shorting SIRI directly is a big no but hedging SIRI with a Bear Call Spread, avoids the full impact of a short squeeze, protects to the downside and allows you to get paid a premium today? If we consider a more dynamic hedge is this still not a arb in your opinion?

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I like it as a trade, the likelihood of the value collapsing with all the index funds buying is low. As a true arb no obviously.

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