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Fellow Motleys!

C'mon, we know better. Why haven't I seen a post yet regarding the GMH share offering that has some hard numbers/analysis in it? Here's my attempt at it.

First off, I'm a LTBH in GM. I got in via the Foolish 4, but honestly more of my money has been going lately into the Foolish 8 and the Rule Breaker portfolios, which is where I've been starting to apply some metrics to the data.

As far as I understand tracking stocks (which is a paraphrasing of two excellent prior posts on this board), a parent company (GM) decides to offer a tracking stock. All owners of this tracking stock will share in a pool of a percent of the earnings of that wholly owned subsidary (Hughes), like 30%, or 60%, etc. The stockholders of that tracking stock (GMH), don't really own a share in the company, just a piece of its earnings.

So, I would guess that the value of that tracking stock is all about earnings (kind of like most stocks, really). Its value should be tied to
1.Current earnings
2. Perceived current value of future earnings.

So, let's look at what we get w/GM and GMH. First off, let's look at GM.

LTG=7.44 (8.3 yahooo)
YPEG(2001Earnings)=1.11 a good number.

Flow Ratio 98 0.656, 99 0.574. Really good number, and getting better.

Total revenue in 98 decreased 10%, in 99 increased 13.6%
Cost of Revenue in 98 decreased 8.7%, in 99 increased 11%
Total Revenue/Cost of Revenue in 97 was 1.046, in 98 1.033, in 99 1.054. Always > 1

Dividends paid, about 2%

and GMH


Cash Flow in 98 2.296, in 99 1.735 getting better, but still above the preferred 1.25 or less of quality companies.

Total Revenue in 98 increased 23%, and in 99 60%
Cost of Revenue in 98 increased 26%, and in 99 70%

Ouch! Your costs are increasing more than your sales. Tough to get any earnings if that keeps up!

So, for about the same current value (ignoring for the moment the 1.065 multiplier in the tradein), I can get either a company that is earning about $10 per share, or -0.88 to -0.27 per share. Oh, and the 10$ per share is also paying me dividends!

So, the GMH appeal is not about the current earnings, and therefore must be about the future earnings. After all, the Long Term growth is at 34%, vs the 8% of GM.

GMH's main hold is Direct TV, a digital satellite TV service. To me, you have to believe that that's where the 34% Growth is going to come from. And yet, satellites are bandwidth limited, and are therefore increasingly getting passed over in favor of DSL and cable (esp fiber optic) in the communications sector. Heck, I'm typing this now via RoadRunner, a cable modem service. And I know a lot of cable companies are laying down large fiber optic networks, to provide large bandwidth for not just TV and computers, but your home phone as well. Is this going to cut in to satellite TV market in a few years?

From what I see, GMH's current earnings aren't great, they have yet to be able to generate more total revenues than the cost of those revenues, and their main holding is in a technology that is bandwidth limited and will be facing severe competition in the future.

Let's look at some hard technical analysis, and leave the speculation, momentum, etc to the Wise.

Fool on !
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Wasn't Hughes the entire reason that someone was interested in a takeover of GM last month? They were interested in buying the company, keeping Hughes and spinning off the rest (Rupert Murdock (sp) et al). At least those were the rumors reported in IBD. Why can't GM just spin off Hughes and grant each current shareholder shares in the new entity? This whole thing seems like a huge waste of shareholder(my) cash.
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>>GMH's main hold is Direct TV, a digital satellite TV service...And yet, satellites are bandwidth limited, and are therefore increasingly getting passed over in favor of DSL and cable (esp fiber optic) in the communications sector. Heck, I'm typing this now via RoadRunner, a cable modem service. And I know a lot of cable companies are laying down large fiber optic networks, to provide large bandwidth for not just TV and computers, but your home phone as well. Is this going to cut in to satellite TV market in a few years?<<

Speaking off the cuff here:

I believe the real value of DirecTV is its subscriber base and potential for integrating various mobile services. I'm pretty sure that possible acquirers are less concerned with the bandwidth issue and more so with access. The point of buying Hughes would be to control access (i.e. programming) onto it's satellites and subscribers. By cutting out the middleman (cable providers) a media conglomerate could "force" people to watch their programming. Net access is a secondary you can always put another bird in orbit to increase capacity (esp. after Iridium's burn up ;) ). Again, the value of Hughes is tied to its satellites and network. Having satellites allows people to access the network from anywhere. For instance, it could be quite possible to install some sort of reciever in your car to get directions to some place en route, find out where the nearest petrol station is, etc... Cable and Telephones can't quite do that. But a satellite system can. Who knows what kind of synergies are possible. So Hughes is a growth story and not an earnings one; which is not to say that a value can not be placed on it. However, whatever valuation model you use will probably be highly input sensitive and provide a wide range of values given small changes in inputs.

BTW- I think you meant to say "Let's look at some hard FUNDAMENTAL analysis..."

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Well I hate to add rampant speculation to mgriehle's appeal to fundamental analysis...but, here comes speculation.I see two major issues regarding the birds and the wires, as SugarMags alludes to: a) mobile access, and b) programming content control. To me it boils down the former, but first let me briefly address the latter.Content control is going to be an extremely interesting process of evolution. There are battles in progress between old media and new media, and publishers are rightly concerned -- the first major battle, that between the push and pull paradigms for content has already won. It is a foregone conclusion that the future will be comprised of pulling consumers, rather than captive broadcast targets. The second major battle is shaping up as we speak -- the various issues surrounding copyright, fair use, and free speech. That's a quagmire of debate, and although extremely interesting, does not address my primary point of why I think the mobile access issue is the more important one.Content control requires the ability to limit the channels of access to your information; preferably, it also includes the ability to limit access to competing sources of information. So, send up a bunch of satellites, use exclusive mobile access as bait, and voila, you have your content control, right? Wrong.The reasons why this will not be the case is identical to the reasons why *satellite* based mobile access is also not a guranteed bonanza.Let's back up for a moment and look at other mobile access options. Cellular modem access is the most common. This is not as fast as might be desired, but works fairly reliably and will probably get better with time. Another oft overlooked option is wireless, non cellular access. This currently exists -- buy a couple of wireless cards for any pc and you are networked. This might not seem significant -- after all, it's just LAN access right now. But that will no doubt change as it becomes more popular -- the big blocker is the FCC and similar animals in other countries. The satellite bandits had better hope that the FCC does not further relax frequency range restrictions on these sort of wireless cards, because as soon as they do the first thing you will see is wireless repeaters. Boom. Wireles WAN...even driving along in your car, assuming that the local municipality has caught up with the times and installed wireless net access.(BTW, the cellular folks will no doubt be right on top of that...if not, they will soon be faced with internet phone traffic just like the current phone companies are...better to be a provider of the medium)Anyway, what all this boils down to is this. The "content providers", in the sense of the media conglomerates, will already be providing their content on the traditional internet access points. The only difference with the satellites will be the mobile access issue. If mobile access becomes a commodity via celluar and wireless, then the satellites might remain preferable, but not essential. The only way to ensure dedicated access to your satellites is to control the client devices themselves.Who is going to buy a client device that does not have standard access to the internet?Eventually, nobody. Why should you? Go with the wireless WAN option, and you can not only get to the content that the same providers are *already* providing to the internet, but also to the rest of the internet.To cripple the access ability of these devices is the kiss of death. Therefore, in order for the devices to retain any sort of relevance, they must retain access to the rest of the internet. At that point, the satellites have become nothing more than hubs. And if a hub goes away, the internet routes around it.Summary: kiss *exclusive* content control goodbye, no matter what. Mobile access is the issue that has the potential, and if you enter into that market that you had better make your client device the best on the market.Mojotoad
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I like your analysis.
What do you read for information re these issues? Where would you suggest I start and continue to gain knowledge in this area?
Your vote is clearly no on the GM->GMW exchange from the fundamental position of view you present.
Are you going to hold GM or do the exchange, if I may ask?
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I don't have any particular source of information, just years of idle interest in the technology.

If you are interested in Wireless WAN technologies, feel free to inspect this treasure trove of links: . And, although it's a bit dated, I found this paper ( which has a concise overview of the various technologies involved, including satellite based techs.

The key aspect missing from what is already in place is the "roaming" ability of the client receivers, which would allow your laptop to automatically tap into the WWAN of whichever city you happen to be in. This is a solvable problem, especially considering that cell phones do it all of the time. There is a Wireless LAN Interoperability Forum (WLIF at that is supposed to be addressing some of these issues, but their web site seems to be MIA.


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My last post looked a bit noisy since the paragraphs got stripped away (mozilla still has a way to go as a browser...)

Anyway, here are the major points of my post:

1) Two major issues: content control and mobile access.

2) The "push" paradigm of content will be (and is currently being) replaced by on-demand "pull" modes of distribution.

3) The "pull" methods of distribution will be available via regular internet access points, whether they be wireless or not.

4) Wireless WAN, plus roaming abilities for the client devices, represents significant competition to satellite based wireless access. (see below for some more thoughts on that).

5) Wireless consumers will require regular internet access in addition to whatever else their unit provides.

6) If spread-spectrum wireless WAN is competitive in both cost and bandwidth, there is no reason to use a dedicated satellite-based unit since the content will be available through regular internet access.

This is why it is a grave mistake to tightly bind your content product with your wireless access infrastructure. Since internet access will be pervasive for your product (it had better be, unless you want to lose market share immediately), your content business will have to subscription based, portal based, or some combination of the two.

The infrastructure of wireless access has tremendous potential, but it should be considered just that. This is the realm of ISP's, or even Cisco type companies. They make money from providing backbones.

Will satellite based access points or backbones be viable? I really don't know, but consider the following:

Sats are handicapped in that their hardware is far more expensive, deployment costs are obviously enormous, and upgrades and repairs are extremely costly. This is the price you pay for *immediate* global coverage.

A network of cell towers has cheaper hardware (does not have to be shock resistant, space-hardened, or as redundant), cheaper deployment, and cheaper access for upgrades and repairs. However, you require more units for more localized coverage. (I really wish I had some hard numbers on what these costs really add up to once all units are tallied...but it's the upgrade aspect that concern me the most, since your hardware will be inadequate within 5 years of deployment).

Currently, most of the market is going to be clustered around metropolitan areas and jet setting. Access from remote locales, although really cool, is a small segment of the market. Wireless WAN networks will be going head to head with satellite based access in these metropolitan markets.

When we talk about end-user applications, it's only that first connection that is the important one. Once you're on the net, how you "dialed in" is irrelevant.

One possibility that I don't see discussed that often is providing backbones via satellite. Rather than concentrate on the end user, provide backbone infrastructure to remote areas of the globe in lieu of running land lines...oh, wait, I think they call those telecommunications satellites! ;-)

Personally, I would love to have wireless satellite access anywhere on the planet. I just don't see it effectively happening with the market reality being what it is today -- it will take a cultural shift. Once telecommuting becomes more widespread, there will have to be a diaspora away from the major metropolitan areas. Satellites might look downright cheap once you are faced with the prospect of setting up cell towers in every hamlet and berg on the planet.


P.S. I don't own GM stock -- I've just been researching it lately. But if I did own it, I would not convert to GMH -- in the short term, mgriehle's analysis is dead on. In the long term...well, reflect on the issues I've touched on above. At this point it seems sketchy to me, even though I would personally love to see it happen.
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