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May 09, 2014

Quiet Quarter at Liberty Media

Liberty Media (LMCA) had a quiet March quarter earnings report. Earnings do not really matter to LMCA as the stock trades relative to its asset value. As a reminder about 2/3rds of the asset value is a 51% stake in Sirius XM (SIRI). Another 25% is a 26% stake in Charter Communications (CHTR). The other large investments are a 30% stake in Live Nation Ticketmaster (LYV) and ownership of the Atlanta Braves baseball team. By the time LMCA reports each of its publicly held investments has already reported so focus is more on commentary plans for those investments or for the structure of LMCA.

SIRI reported a good quarter that seemed to offset recent investor worries about the company’s growth trajectory. Financial metrics were good but the focus is on subscriber metrics and those were mixed but did not produce some hoped for upside in net subscriber guidance. LMCA indicated that SIRI would be buying back its own stock aggressively and that LMCA would not be participating in the sales. This is a nice vote of confidence in SIRI.

CHTR and LYV reported good results as well in the past few weeks so it appears that the core assets of LMCA are good shape. This means focus can be on the future of LMCA. Earlier this year, management announced a plan to create two tracking stocks: Liberty Broadband for CHTR and associated smaller investments and Liberty Media for SIR, LYV, the Braves and other remaining investments. In a slight adjustment to the plan, Liberty Broadband will now be a separate company rather than a tracking stock. I see little impact from this change as there are plusses and minuses to the tracking stock structure.
LMCA shares have dropped 12% this year mostly reflecting a sharp decline in SIRI doe to the aforementioned fears about is future growth. A recovery in SIRI shares is necessary to get LMCA moving again to the upside. I think continued good earnings reports from SIRI, including a pickup in subscriber growth will be the catalyst. SIRI’s massive share buyback will also help. SIRI is not unlike DirecTV (DTV) which has thrived a a stock even as the growth rate slowed because management used the high free cash flow to fund a consistent, large share buyback over many years. SIRI shares are still more highly valued than DTV on traditional measures which creates some of the controversy. But DTV does now have 20% plus growth in free cash flow in its profile, something for which SIRI deserves a premium valuation.

Ultimately, an investment in LMCA is an investment in John Malone, oe of the most successful investors in recent history, especially when it comes to media investors. I have said it before but here it goes again: In Malone We Trust.

LMCA is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. Northlake’s regulatory filings can be found at www.sec.gov. LMCA is a net long position in the Entermedia Funds. Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.

Posted by Steve Birenberg at May 9, 2014 01:54 PM in LCAPA