Shorting Sirius (continued)

A little over a year ago, I proposed a hedged trade that I did not actually make.

I proposed going short Sirius and going long Clear Channel because I felt, through my involvement with iBiquity (I am an investor and board member), that HD Radio was going to get its act together and start to give the traditional radio broadcasters the tools to fight back against satellite, just as cable TV went digital and fought back against satellite television.

Specifically, I proposed selling Sirius short at $6.90/share and using the proceeds to go long Clear Channel at $33.92/share.

So how has that trade worked out so far?  Pretty boring actually.  The long bet on Clear Channel is down $3.50/share and I proposed buying 15 shares so that works out to be a paper loss of $52.50.  But the Sirius stock is down as well, $0.62 per share.  I proposed shorting 75 shares, so that is a paper gain of $46.50.  Basically the two even each other out.

But Clear Channel has an enterprise value of $24bn and revenues of almost $10bn and trades at 10.5x EBITDA.

Sirius has an enterprise value of $8.9bn and revenues of $187 million and posted an EBITDA loss of $500 million in the past 12 months.

So I like my chances on this hedged trade.  It just seems that Sirius’ valuation is hard to justify while Clear Channel’s is pretty rational.  Unless you think broadcast radio is going to have its lunch eaten by satellite.  And I don’t think that’s going to happen.

Neither does Business Week which had a really good piece on the challenges facing satellite radio last week, which include a big broadcaster push on HD radio.

And this investor isn’t particularly bullish on Sirius either.  He proposes a hedged trade of a different sort.  Go short Sirius and go long XM.

I like mine better, but either one seems like a good bet.  Sirius’ valuation just makes no sense.