Motley Fool and Bear Stories

November 1, 2006

In a Motley Fool story by Matthew Koppenheffer titled “How To Survive a Bear Attack”, he outlines sever bear scenarios which could befall an equity. The author uses real life bear analogies to describe situations that equities and investors in those equities may find themselves in. Koppenheffer includes XM satellite Radio in a category called the Polar Bear.

Is it fair to lump XM satellite Radio into this category? In order to obtain the answer, let’s first look at what was written:

“The polar bearThe last type of bear is the polar bear, a massive predator that has been seen to grow as large as twelve feet long and weigh 2,200 pounds. These killing machines can easily outrun a human, and they swim like champs. Unfortunately, there is really very little you can do when a polar bear comes to visit -- unless you happen to have a few hand grenades. Luckily, polar bears live in areas like Alaska, Siberia, and Greenland, away from areas heavily populated by humans

A polar bear encounter in the stock market is likewise extremely dangerous. Most of these attacks are on stocks like Webvan, Pets.com, or MiniScribe that are never heard from again. The stocks that get hit like this are backed up by companies that could never find a way to produce shareholder value, which allows the bears to have the final say. While it's tough to say for sure what stocks are following the dodo into extinction, some stocks out there, such as Pegasus Wireless and Credence Systems, are likely well on their way. Of course, larger issues aren't all safe, and well-known companies like XM Satellite Radio and Blockbuster could likewise get dragged down by the big white bear if they can't find a way to stem the cash burn.”

In my opinion, while the satellite radio sector has clearly had a down year, XM Satellite Radio is not in “Polar Bear” territory. The equity has had a run of stiff competition coupled with bad news, coupled with groups such as the NAB nipping at their proverbial heels. Despite all of this, XM has done some great moves in the financing department (restructuring GM debt) to create a better cash flow situation.

XM Satellite Radio is on the cusp of reaching Cash Flow Break Even. They have restructured management, and retooled their marketing campaign. They have toned down from “big” spending and have shown constraint in spending. The company just had a successful satellite launch and has some great deals already in place.

In my opinion XM was more a victim of the “BAD NEWS BEARS” rather than a POLAR BEAR. Bad news happens from time to time in the life of a company. The measure of success rests with the companies ability to respond and work through the bad news. There have been some decisions by XM management that I do not fully agree with, but overall they seem to be concentrating on weathering the storms, and keeping their bow faced in the proper direction as a company. At this point there are a few “bad news” items that linger, but those are now far easier to deal with now that other issues are behind XM.

To lump XM in with Blockbuster seems a bit of a slap in the face. Movie rentals from brick and mortar locations has a “old school” connotation these days. XM is far from “old school”. Satellite Radio is on the cutting edge of delivering entertainment to their subscribers. While Blockbusters rental sales disappear by the day, XM is still in a growth mode.

Did XM (and satellite radio as a whole) get a visit from a bear? They sure did, and in fact, the bear still lingers around today. XM has been resilient though, and given that Q4 is the strong quarter for satellite radio, can fight off this “BAD NEWS BEAR” with strong sales, and financial metrics that point to CFBE coming soon.

11/01/2006 04:21:00 PM

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