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Before I start, dont get me wrong but I like XMSR as an investment right now as well. I am speaking from the shear mechanics of WallSt.

I just dont understand it. XM recieves bad news that it is going to court, SIRI drops. XM recieves good news that it renewed two contracts, SIRI drops.

Did anyone take into account that NEITHER of these two peices of news negatively affects SIRI in any way shape or form? Yet the stock has dropped nearly 13% in the past three weeks.

The XM lawsuit does not affect SIRI in any way, because regardless of the outcome, SIRI already has an agreement with the music companies for the portable recording of music. Not only that, these agreements have already been priced into SIRI quarterly income figures. XM on the other hand, if they loose the lawsuit, will have to pay a settlement PLUS obtain an agreement for a price with the music companies, which Im sure will be higher than SIRI's, all of which has not been priced into anything. So why does this hurt SIRI?

XM recieves the good news that two of its contracts have been extended for factory installations. They were companies that XM already had agreements with, they were contracts that were not set to expire until 2010 anyway, and one of the companies still has SIRI installed in an aftermarket deal with SIRI which does not change. I can see where it would be disappointing for SIRI stockholders, but it should not come as that big of a surprise, especially considering Honda has nearly a 7% stake in XMSR with over 20 million shares. It should also be no surprise when GM renews it's contract, for the same reason.

So what is it that makes people hate SIRI? Is it the fact that so many people lost a lot of money on the stock? Is it the fact that analysts had their nose rubbed in the dirt by their customers because of the huge drop in stock price?

There are so many compelling reasons to own Sirius Satellite Radio.
1) SIRI's subscriber growth is much better than XMs.
2) SIRI and XM reported positive cash flow in the same quarter;
even through SIRI is behind on the "business line" being 2
years "younger".
3) SIRI managment is well known in the mergers and aquisitions dept.
4) While still heavily in debt, it is begining to take steps at cost
control. While still behind XM, it is also 2 years behind on the
business line and will catch up quickly.
5) XM is owned by institutions. Institutions hold nearly 90% of the
company. SIRI on the other hand, is only 28% owned by institutions.
The biggest reason for this is many institutions have a rule that
states they cannot own a company that has a stock price under $5.
When/If SIRI hits the $5 mark and maintains that, you will see many
more institutions buying in, which will drive the stock up further.
6) In a curious sign of loyalty, SIRI's short sellers abandoned ship
last month. December showed 141.09 million short shares, but January
saw that number drop to 118.87 million. This 22 million drop
represents 15.75% drop in shorts. Compare that to XMSR who went from
December number of 33.11 million to January number of 33.98 million,
a nearly 3% GAIN of shorts.
7) In the flurry of recent upgrades and downgrades of SIRI and XMSR,
more than one analyst has already PUBLICLY stated that SIRI will
surpass XMSR by 2009 in total subscribers, making SIRI that "best
of breed" in the industry, something that most of us knew already.
8) Speaking strictly as a customer, SIRI broadcasting is far superior
to that of XM. In the places where customers have a CHOICE of which
SatRad to go with (i.e. Retail) people choose SIRI over 60% of the
time. This customer loyalty and brand recognition will be the key
driver to SIRI's success.
9) Howard Stern, as much as I personally detest him, has done wanders
for SIRI. I think it was the best move they could have made, and I
dont think the price tag was too high for what he was able to do.
10) Hugh Panero sucks. Mel Karmazin rules. Mel is a real go-getter and
someone that makes things happen. I just dont see that from Panero.
I see Mel taking over when/if the SIRI/XMSR merger happens, with
Hugh being pacified with a board seat and an executive title and a
nice buyout.
11) Hugh Panero has a total of 155k shares in XMSR, ALL of which were
GIVEN TO HIM. The only stock purchased by him was via stock options,
which he turned around and sold the entire lot the same day (not
paperless trade). Mel on the otherhand, over the last two years has
never recieved free stock from SIRI. He has PURCHASED 2 million
shares for a combined cost of almsot 11 million dollars out of his
pocket. Mel owns a total of 6.5 million shares. Who has confidence in
their company?

Ok, enough of a rant. I've said my peice. I will also be posting this in the SIRI forum, as well as my personal blog. Feel free to come comment, good or bad. I want to see the other side of the argument.
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My husband would be proud of you. He has been badgering me to take another look at SIRI and XM and dive in. I haven't. Your post however, reminds me that a risk is sometimes a good thing.

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I couldn't agree with you more. Its the only stock in the riskier side of my portfolio that I still actively add shares of, with the exception of IRBT- I am convinced that over the next few years it is going to take off from under the shadows of XM
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everyone does not hate SIRI. the only reason it reacts to everything negatively is that you & I own shares. if we sell them, watch it rise.

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Here are some short responses that may shed some light on XM and Siri.....or maybe not, but an attempt none the less........

1) Both companies are very expensive considering that both are losing a lot of money with no certainty that either of the services will "ever" be profitable.....thus it is sheer speculation by investors that either will ultimately be a good investment.

SIRI is valued at >5B while XMSR is far cheaper at around 3.5B and XM has a substantial subscriber lead (7.5m vs 5M). I'm not sure how big the satellite market may be but that is still a substantial advantage even given the growth rates they are projecting, which I feel are grossly optimistic.

2) Bad news for one (court) could foretell trouble for the other, while good news of a renewed K means SIRI won't be wooing those customers to them. This is especially true in a class that has only 2 real competitors.

3) SIRI has been in a long term downtrend since it peaked in late 04 and only recently has begun building a base that could signal a change in that trend. XM on the other hand seemed to change trend back in early Nov and since has been creeping upward though recently it has fallen back along it's declining 200 day MA and this is not a good sign.

4) Unless there is a substantial upward change in growth rates over the next year and reduction of losses I would expect that these stocks will continue to decline to more reasonable valuations. I just can't imagine that either of these companies is worth anywhere near their current valuations without some heady subscriber growth and substantial loss reductions.

just my 2 cents......

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I will respond to a few of your points:

1) Purley a speculative play, I agree. Market cap for SIRI is 5.25b. Market cap for XMSR is 3.72b. XM currently has more subscribers, but SIRI has been winning the subscriber acquisition battle by about 60% for the last 5 quarters. In Q4, XM added 442,000 subscriptions, as compared to SIRI's 905,000 . That is a difference of 463,000 subscribers, advantage to SIRI. With the current subscriber gap of 1.61 million subscribers (7.63 million for XM vs 6.02 million for SIRI), if current aquisition levels remain consistant, SIRI will top XM with total number of subscribers by the end of 2007. That is 12 months. Not to mention, XM holds more debt than SIRI.

2) You say bad news for one could spell trouble for the other. The reason that XM is in court is because they would not agree to pay the music association the same fee that SIRI agreed to pay. Thus, SIRI is not in danger of facing the same lawsuit because they already have a contract with the group and are paying them royalties. These royalties are already priced into the SIRI stock. The settlement XM will have to pay will no doubt be larger, and is not yet priced into the stock.

As far as contracts, I can see how it is DISAPPOINTING, but I dont know how anyone could have assumed anything different, considering Honda owns nearly 20.4 MILLION shares in XMSR, totaling nearly 12% of the company. It should also not be a surprise when GM renews, for the exact same reason. But the fact is that these contracts change ABSOLUTELY NOTHING. It was the same way before it was announced, and SIRI was still picking up more subscribers.

3) In the past year, SIRI has had maybe 2 bits of bad news. FCC holding their radios and their downgrade of subscriber numbers after thanksgiving. The reason they have been in such a steep trend is because they are being drug down by XMSR, who has been all over the news with bad news, from law suits, to the FCC, to lowering subscriber forcasts, to board members jumping ship to.... Need I go on?

4) When I hear people talking about XMSR and SIRI being over valued, I think of GOOGLE. You are talking about a 47 trailing P/E. You do not buy Google because it is undervalued. You buy google because of its growth. You cannot touch google on growth, and XM and SIRI are the same way. They are one of the fastest growing new technologies out there. You do not invest in a company, you invest in their future.

To me the future of Satallite Radio is bright.
(BTW: Wedbush Morgan just initiated coverage on both XMSR and SIRI. SIRI as a buy, XMSR as a hold. Growth was the primary reason for the difference.)
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>>>1) Both companies are very expensive considering that both are losing a lot of money with no certainty that either of the services will "ever" be profitable.....thus it is sheer speculation by investors that either will ultimately be a good investment.

Exactly. I think many naive investors in high-tech are hoping that because this is leading-edge satellite technology, these stocks will do well. I would reference them to the Iridium project, a similar attempt by Motorola in the '90's. It failed miserably. While satellite radio won't fail, I seriously doubted it will be very profitable for many years. Therefore, it is currently way over-priced and a terrible investment.

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SIRI is the bad guy, don't you get it? The American way is free enterprise, not bullying the competition to its knees. I bought both of these stocks because I love the service. The thought of the two combining the only two available licenses in the country made me think- only in BUSHamerica could this even be considered. Since SIRI was the presumed predator, I hate 'em. Our governmental controls are so laughable that this merger was a blatant insult to the American public.
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Diane, would you care to provide any data to support your argument? Are you claiming that the combined entity would constitute a monopoly?

If so, I pose this question to you: Are there not other options competing for your listening time? Companies all have varying business models, but end the end every single one of them go broke if there are no listeners. So what competes for your listening time? If both services were to go out of business today, would you switch to something else or just stop listening to music all together?

When AT&T and all the baby bells are allowed to merge back together, how is the Satellite Radio merger getting any press at all? This should have been an open and shut case from the begining. The fact is, they compete with each other as well as every other source of music out there. They compete for LISTENERS, plain and simple. Would you argue that Pizza Hut does not compete with McDonalds because one sells pizza and the other has burgers? Of course not.
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Speak for yourself, not the American public. I subscribe to SIRI and love it. Allowing the 2 to merge would be a great thing. The original vision of satelite radio required the bandwidth alloted before it got split in two. T
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" if current aquisition levels remain consistant, SIRI will top XM with total number of subscribers by the end of 2007."

Getting close to the end of 2007 now.

What do you think of the news that SIRI claims subscribers based on cars sent to dealers with a unit installed rather than XMSR's way of counting a subscriber when they actually activiate the service (after the trial)? If this is the case, how many people just let the SIRI trial lapse and go on without ever becoming a subscriber? That's got to make a dent in the "alleged" counts.

Just playing devils advocate here, I neither own stock in nor subscribe to SIRI or XMSR.

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That is not news, at least not NEW news.

Here is the thing: Sirius counts subscribers when the vehichle is delivered to the dealership. Why? Because all of their "trials" are paid for by either the consumer or the dealer. In XMs case, the trial is just that, a trial. It is provided to the customer for FREE. There is no charge to the dealership or the customer. Thus, Sirius counts their trials as subscribers because they have BEEN PAID for the service. XM does not count their trials because they HAVE NOT BEEN PAID for the service. It makes sence. They are counting PAID subscribers. If someone doesnt renew at the end of the trial for sirius, they add that into their churn. If someone doesnt renew for XM, it does not get added into their churn.

As far as subscriber numbers:
As of the end of the 2nd quarter of 2007, exceeded 7.1 million subscribers with subscriber additions of 561,493 (over 1.1 million additions for the first half of 2007).
XM had announced 8.25 million customers with subscriber additions of 338,000 (an addition of 620,000 fir the first half, barely more than what Sirus added for the last QUARTER). This puts the difference in subscriber count at 1.15 million subscribers, down from the 1.61 million subscriber gap that I mentioned when I wrote the peice back in February. That is nearly half a million subscribers that Sirius has gained on XM, or 1/3 of the gap, and SIRI is still gaining market share. The unknown factor here is how the OEMs will ramp up their installs, but as far as retail goes, most are expecting minimal additions for XM, and possibly even a retail LOSS of customers. Sirius is still gaining ground there as well. They may not make it by the end of 2007 (only two more quarters to go) but they have put in one hell of a dent in the gap. I can almost guarentee that they will be virtually even by end of first or second quarter 2008 if the merger does not go through.
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From the 2006 SIRI 10K...

In certain cases, automakers include a subscription to our radio service in the sale or lease price of vehicles. The length of these prepaid subscriptions vary, but is typically six months to one year. In many cases, we receive subscription payments from automakers in advance of the activation of our service. We also reimburse various automakers for certain costs associated with SIRIUS radios installed in their vehicles.

In other words, Sirius gives the automaker a "free" radio in exchange for a "prepaid" 6-12 month subscription. I'd venture to say this is a "break-even" proposition at best, but Sirius still counts a "paying" subscriber. You are free to draw your own conclusions.

Subscriber count is irrelevant anyway, the only number that matters is the bottom line.
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It doesnt say that they "give them a free radio" it says they reimburse the manufactures for certain costs associated with the installation.

At the price of 12.95 per month, for a 6 month subscription, the auto maker would be paying Sirius $77. For a one year subscription, the automaker would be paying $155.40. Assuming a discounted price of 9.95 per month, Sirius would still be getting $60 and $120 respectively.

How much do you think those radios, or more accurately, the "certain costs associated with the installation" run? I very seriously doubt that it is that high.

You are right, the bottom line is what counts, and it is improving rapidly. One thing that so many people fail (or refuse) to realize is that it costs a lot of money to start a company like Sirius. Literally, it is in the billions of dollars. Building and launching satellites, infrastructure, research and development, on air talent, programming, etc, etc, etc, etc, etc, etc. The list goes on and on. It takes TIME to develope the listener and subscriber basis to be able to generate the revenue the overcome these costs, let alone the day to day operational costs. Numbers are ugly right now, I will admit that to anyone that asks. That is what makes investment into these two stocks highly speculative. But when Sirius is growing its subscription base by over a million PAYING customers per year, and this year it is looking like that number will be well over 2 million, and those numbers are growing EVERY SINGLE QUARTER. A number of analysts and industry experts have placed the "break even" point at around 9.5 million subscribers. Sirius is projecting to have 8.1 by the end of 2007 after adding 2 million + subscribers for the YEAR. When do you think they will hit that 9.5 million mark? More or less by Q2 2008, and definately over that by end of 08. The bottom line is improving, and the top line will be growing shortly.
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How much do you think those radios, or more accurately, the "certain costs associated with the installation" run? I very seriously doubt that it is that high.

I find it very hard to believe the auto manufacturers pay the satellites anything. It's more likely that the the satellites "sell" the automakers a radio and associated subscription for a pittance -- pennies on the dollar -- in exchange for the distribution, publicity, and the hope that the consumer re-up's the subscription when the trial period runs out. (and this is ignoring the warrants granted the OEMs to buy stock) The notion that Sirius or XM is making money on this arrangement seems very unlikely to me. If they were, they would trumpet the fact. Of course, I could be wrong.

One thing that so many people fail (or refuse) to realize is that it costs a lot of money to start a company like Sirius.

Sirius has been in business for 17 years. They've been publicly traded for 13. They've yet to make a dime, although they are willing to pay their top officers over a $million a year, and their talent even more. And while revenue has been going up, so has the cost of generating that revenue. They continue to lose money, and they can't seem to turn the corner.

I actually like the product but, as I've posted before, I believe this stock is worth no more than a dollar a share, and that's assuming they succeed. I'm not convinced they will.
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I believe this stock is worth no more than a dollar a share,

OCD: Sirius stock, not XM
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I beleive XM and Sirius are making money off of those deals. It is not nearly what a normal subscriber would pay, but I am sure they are making money.

I am sure the deal goes something like this: Even though the SatRad is "standard" equipment, there is no such thing as a free lunch. The price of the radio and subscription are built into the sticker price of the vehicle. Assuming a 6 month subscription at 9.95 per month, that would be revenue of 59.70, plus the cost of the radio paid to Sirius or XM. In return for the factory install, Sirius turns around and pays the manufacturure/dealership 25%, or about $15 per unit. The car company pays absolutely nothing, and is making $15 out of the deal. Sounds pretty sweet to me. It may not sound like much, but take into account GM saying that over 2.5 million vehicles will be produced with XM over the next year, and you are looking at nearly 40 million dollars in "free" revenue. I know GM doesnt have Sirius, but I dont have any firm numbers to go by for any of the Sirius partners.

Look at the numbers in the SAC - Subscriber Aquisition Costs. XM is running with an SAC right now in the low $70s if memory serves correctly, and SIRIs is quite a bit higher at around $110. That means that to aquire each customer, Sirius is putting out around $110 per customer and XM is putting around $70 per customer. This number is the average what it costs to attract one subscribing customer and it includes the costs of the non-subscribers that they failed to attract.

A one year subscription at the discounted annual rate of 9.95 per month is $120 if they subscribe. Considering both XM and Sirius have stated that about 55% of OEM installs turn into subscribing customers, that means that they are putting out between 70 and 110 dollars to attract a subscribing customer who turns around and pays 120 per year. Your first year is a wash. Every year after that, you are banking the difference. And if they dont resign? Well, you collected your 120 for the year and covered your aquisition costs.

How could you not like that business model knowing that they have only reached a market penetration so far of less than 7%?
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ok, since you went through the effort to post a reply clarifiying you meant Sirius and not XM, what makes XM that much better?

They too have been loosing money for years. They too have never made a penny. They too have similar agreements as SIRI with car manufacturures, and from all accounts, they pay much more than Sirius does to their dealers (at least to GM, the BIGGEST of their OEMs).

So exactly the point of my main thread... Why is XM better than Sirius? Honest response requested. Im not dogging, I seriously want to know why you think XM is better. (Or more accurately: Worth more than $1 per share)
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ok, since you went through the effort to post a reply clarifying you meant Sirius and not XM, what makes XM that much better?

I didn't mean to imply XM was better, only that my $1 estimate applied to Sirus stock, not XM -- I realized after I posted that this is the XM board and I was talking about Sirius stock, so I thought I should clarify. I posted a DCF analysis some time ago assuming SIRI was earning 1c per share and growing at 15% YoY, and that's where I came up with my $1 estimate. FWIW, I think XM's situation is very similar.

XM is worth more per share only because there are far fewer shares outstanding. I'd place the overall value of the two companies relatively close. I haven't done a DCF on XM, but I'd take a SWAG at about $4 or $5 per share? Siri is growing faster, but it's easier to post multiples when you're smaller. I think XM is more conservative and manages their money better. However, XM seems to have thrown in the towel and acquiesced to Sirius since the merger announcement.

I think they're both toast if they don't merge, so it doesn't really matter. Even with a merger, I don't see enough growth in the industry to justify the multiples at which these companies trade. As I've honestly said in all my posts, I may be wrong. I just don't see any compelling evidence to change my opinion - the numbers come out every quarter.

I'm actually not a satellite hater - I like the service (though I don't subscribe) and I looked seriously into investing when Stern signed, but after living through the NASDAQ meltdown, I rely very heavily on financial analysis rather than hunches and emotions, and I just can't justify the current valuations. Your mileage may vary, and that's what makes these boards interesting.
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Justify the current valuations? No one can.

Can you justify the current valuation of google? Of course not, but it continues to blow the roof off of their quarterly earnings and outpacing all of the analysts numbers, and thus the stock keeps on growing.

You say multiples are easy to get when you are smaller. That is true. But when you look at the numbers, sirius is still growing faster. Last quarter, XM grew its revenue by about 200 million while Sirus grew their revenue by about 400 million. This put them at 1.04 billion and 790 million respecitvely (a difference of slightly more than 300 million). Q2 has always been the "slow" quarter for satrad. If these numbers are repeated in Q3, then XM will be at 1.24b and Sirius will be at 1.19b. Then what about the 4th quarter?

I am not a stock guru. You say DFC analysis, I say "HUH?" I understand that Sirius stock is much more diluted than I would like. I understand that they have never made money. I understand that investment into both stocks is considered "extremely speculative". I agree with these sentaments whole-heartedly. I am 28 years old right now, so I can deal with speculation and the possible losses that come with it. I know enough not to put all my eggs in one basket.

The initial post here was not to promote Sirius. It was to find out why people seem to like XM better than Sirius. I am glad however that I am getting some very insightful posts from knowledgable people. For that, I thank you LakeEffect. Keep on posting here.

Disclaimer: I own shares of XM and Sirius (as if you couldnt tell)
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Ok, 2007Q3 is out, so I will update my numbers as I said I would.
(numbers are rounded for easier calculating)

as of 2006Q4:
XMSR: 7.6 million
SIRI: 5.9 million
Difference: 1.7 million
as of 2007Q2:
XMSR: 8.25 million, sub adds of 338,00.
SIRI: 7.1 million, sub adds of 561,493
Difference: 1.15 million
as of 2007Q3:
XMSR: 8.6 million, sub adds of 315,000
SIRI: 7.7 million, sub adds of 524,938
Difference: 0.9 million

XMSR: Plans to finish the year with between 9-9.2 million subs.
SIRI: Plans to finish the year with "over 8 million" subs.

Deeper Look: Q3 is seasonally the slow season for SatRad, while Q4 is the holiday season, and seasonally very strong. Considering this fact, Sirius guided to only over 8 million? That is only another 300k adds, little over half of what they put in during their slow season. I think XM is right on in their estimates. I think they will add about 4-500k subs, putting them at 9.1 million. Looking at the historical difference in subscriber numbers, Sirius is adding about 66% more subs than XM. Figuring this in, I think Sirius will add about 665,000 subs, boosting them to nearly 8.4 million, bringing the difference down yet again to 0.7 million at year's end.

Now all we have to do is wait and see... unless they merge first, then we will never know =)
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