Thursday, April 06, 2006

Another Look at Growth

April 6, 2006

Satellite Standard Group (SSG) received a request to discuss once again growth in satellite radio. An XMSR investor felt that a previous article titled Satellite Radio Grows - Sirius Benefits shed an unfavorable light on XM. The article dealt with year over year (YOY) growth in satellite radio, and illustrated that on a YOY basis that Sirius Satellite Radio has seen the majority of the growth. This is factual. Sirius has already received 93% of the YOY growth in the sector with the current subscriber announcements. When Sirius does issue their final numbers for the first quarter, that 93% will be over 95%.

One has to consider though that the two companies are at differing phases in their growth. SSG did another article titled Subscriber Types and Growth about this subject as well. Year over year growth is a common metric used when companies are starting out. It demonstrates that the company is expanding quickly.

There does come a point however when the YOY metric slows down. This is a natural process that happens as the base grows. This is where XM Satellite Radio is now. Last year (2005) XM got about 2.7 million NET subscribers. This year XM is projecting 3.0 million subscribers. This means that XM is projecting YOY growth this year of 11%. In the first quarter, XM’s YOY growth was roughly 11%. This puts them on a pace to achieve their goals for the year.

There are some factors that need to be considered from last year. In the 2nd and 3rd quarter of 2005, XM benefited in the OEM channel from a very successful sales promotion introduced by GM. That sales promotion gave XM about 200,000 more OEM subscribers (total for both quarters) than they typically would have seen in those quarters.

This factor presents a challenge for XM. They will need to see a strong ramp-up from some of their other OEM partners, or gain those subscribers in the retail channel. XM has maintained their guidance of 3.0 million subscribers in 2006. Some analysts have expressed that they feel this target is to aggressive, and are projecting lower subscriber tally’s for XM. SSG is of the opinion that XM can hit their goals of 3.0 million subscribers if they have a successful 2nd quarter, and get some additional non-GM volume from the OEM channel.

Sirius will present more impressive YOY numbers simply based on where they are in their growth cycle. Currently Sirius has projected 2.7 million subscriber additions in 2006.

Long term guidance for both companies shows a smaller year over year growth for 2007 and beyond. In closing, both XM and Sirius are growing nicely.

SSG would like to thank you for your interest.

The link for this write up is http://tinyurl.com/myrtt

Satellite Standard Group is not a financial advisor. SSG fullyencourages anyone to seek the advice of a Certified Financial Plannerprior to making any investment decisions.

4/06/2006 10:04:00 PM

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