NEW YORK - The enterprise valuation of Sirius Satellite radio has risen considerably over the last two years. The valuation at its low in 2009, before being saved by Liberty Media was approximately $3.2 billion but today it is over $12.8 billion which means it a higher valuation than Netflix.
Enterprise value, though seldom used is the best true indicator of the value of a company. Enterprise value is calculated by market capitalization + Debt + Preferred shares. For instance General Motors had a market capitalization of $1 billion but it debt in excess of $100 billion meaning the company's true value was $101 billion. This means the shareholders owned a tiny fraction of the company's value.
According to the contract between Sirius and Liberty Media, which signed in 2009; Liberty Media has the right to be issued up to 40% of the outstanding common shares of Sirius.
Considering the company has 3.9 billion shares outstanding a 40% piece of the common shares would balloon the share count to 5.4 billion (3.9*1.4). The Liberty Media stake will be converted into common shares, since the liquidation preference on the preferred share stake is 0.001 cent and the shares are worth close to $3 billion.
This gives Sirius a true market capitalization of $10 billion and with debt of $2.8 billion the company's enterprise value is $12.8 billion. Netflix which is overvalued has a market capitalization of $12.6 billion.
Netflix has quadruple the earnings power and is expecting 41% growth compared to 6% for Sirius in 2011.
To see the full Sirius report click here.
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