Why Billionaire Investors Love John Malone

459502419I love writing about Liberty Media Corp. (NASDAQ: LMCA) and Liberty Interactive (NASDAQ: QVCA) because it means I get to see how John Malone and Greg Maffei manage their holding companies . . . usually, brilliantly.
Quarterly earnings came out and, as usual, their business threw off tons of free cash flow, which describes their modus operandi. It’s always been about cash flow for Liberty, so those are the numbers to focus on.
For Liberty Media Corp., quarterly profit was $143.1 million, up from last year’s of $65.2 million. That’s all well and good, but because earnings can be inconsistent with Liberty’s businesses, the number I want to look at is adjusted operating income before depreciation and amortization, or OIBDA. It climbed $40 million to $359 million in the quarter, while operating income rose $17 million to $206 million.
Much of Liberty’s structure consists of Sirius XM Holdings (NASDAQ: SIRI), of which Liberty owns 57%. The subscriber base grew to 27.3 million, with revenue of $1.09 billion and $4.18 billion for Q4 and FY14, respectively.
Adjusted EBITDA, which is the number I look at for Sirius’ success, grew 17% to $381 million for the fourth quarter and 26% to $1.47 billion for FY14. Free cash flow reached a record $1.16 billion, up 25%.
This says that Liberty’s plan with Sirius continues to play out as expected. Liberty tends to buy companies and leave management to do its thing. They have been more hands-on with Sirius in order to maximize the cash flow that they obviously saw was possible when they first bought in.
Net income for Sirius increased 31% to $493 million. True to form, Malone takes as much free cash flow as he can find and uses it to repurchase stock — $2.5 billion worth in 2014.
As for 2015, Liberty sees net subscriber additions of 1.2 million, revenue of $4.4 billion, adjusted EBITDA of $1.6 billion, and free cash flow of $1.25 billion.
And yet, the market has never been kind to Sirius. The stock itself has barely moved over the years.
Liberty Interactive is the e-commerce arm of Liberty. The company made several strategic purchases of first-in-class online businesses over the years, including Bodybuilding.com, Backcountry.com, EommerceHub, Evite, Right Start, and interests in other media names.
Fourth quarter net income came in at $120 million or 25 cents per share compared with $113 million or 22 cents per share last year.
Revenue of $2.33 billion was up 4.7% , which led to an increase in operating income —
$247 million compared with $202 million. Again, we want to look at the cash flow numbers, and they are stellar for the first nine months of the fiscal year.
Liberty Interactive generated $1.1 billion of cash from operations, doubling last year’s $535 million. Free cash flow exploded to $966 million versus $359 million in the prior-year period. This demonstrates fantastic execution.
Growth was seen primarily in QVC, the big kahuna, along with a 38% stake in HSN, Inc. (NASDAQ: HSNI). Its other ventures are struggling a bit. Quarterly adjusted OIBDA was a negative $2 million, up a substantial 60% year over year. Operating loss was $14 million as against an operating loss of $43 million in the year-ago quarter.
Liberty Interactive is flush with $3.43 billion in cash, and has low-cost debt of $7.5 billion.
There’s no way to interpret these numbers other than to note that cash flow continues to roar through the Liberty machine, just as Malone intends. The stock price is still somehow only 90% of NAV. I will never understand why the market doesn’t reward Sirius.
I think you can buy either of these amazing companies and do quite well over the long term.

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