Liberty Media and Liberty Sirius reported earnings and held their annual analyst meetings last week.  We attended the analyst meeting, one of our favorite events of the year given Liberty’s broad reach into the world of media and communications that is a focus of our investment strategy,

The big news at Liberty Media has been the acquisition of the Formula One auto racing series.  Announced a few months ago, the acquisition has been very well received by investors with LMCA/LMCK shares trading up nearly 40%.  Partially what has happened is that Liberty Media shifted from a collection of assets with an uncertain future to an operating company.  Sports rights have gained value as TV viewing has fragmented and Formula One is unusual given its massive global popularity and the ability for a company to own the entire series.  You can’t buy the entire NFL or NBA.  Liberty Media used its quarterly earnings and analyst meeting to outline its plans for Formula One.  The company sees a lot of upside given its experience developing media properties and its view that Formula One’s economics have not been maximized.  Liberty Media will change its name to Formula One next spring following closing of the second phase of the acquisition.  Northlake plans to hold LMCA/LMCK shares in most cases and sees upside to the mid-$30s over the next year.

Liberty Sirius (LSXMA/LSXMK) is a tracking stock that holds a 65% controlling interest in Sirius XM Satellite Radio (SIRI).  LSXM’s earnings report came after SIRI had already reported another set of strong results.  Subscriber growth, operating cash flow, and free cash flow all at least matched Wall Street estimates.  SIRI shares have rebounded about 4% since the report and since LSXM has no other assets besides SIRI it has gone up in value similarly.  There are two things at SIRI that investors are keeping their eye on.  First, the company is increasingly focused on the used car market.  There are tens of millions of cars driving around with second or third owners that had a Sirius radio installed at the factory when new.  Management seems to be having success reaching used car buyers.  This will be more important with new car sales appearing to be a plateau, albeit still at a high level.  Second, SIRI is rolling out 360L, which effectively makes the Sirius product two way rather than just a downstream beam.  Enhanced products and services could follow but maybe more importantly, the company will gain a much better understanding of its subscribers which could reduce churn.  Large subscription businesses face a big challenge with churn, much of it just being natural — someone sells their car, a cable customer moves, etc.  One other item of interest at LSXM is when LSXM and SIRI will combine.  LSXM trade around a 15% discount to SIRI, which seems crazy to us but a path to narrowing this discount in the short-term is hard to discern.  We think SIRI can move toward $5.00, up about 15%, with a similar rise in LSXMA and LSXMK.  Should the discount on the LSXMs narrow, they will receive an added boost to their return.

LMCA. LMCK, LSXMA, and LSXMK are 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. LMCK, LSXMA, and LSXMK are net long positions 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.