Monday, October 09, 2006

An Interesting Look at an Article About Sirius

October 9, 2006

If you follow the satellite radio sector you are sure to get a wide range of opinions regarding the sector as a whole, or one of the two equities that make up the sector. Today, NewYorkBusiness.com posted an article relating to Sirius Satellite Radio Their article can be read HERE.

We will take a look at some excerpts from the article below:

The Article States
"Sirius Satellite Radio Inc.'s stock may be cheap, but there are uncertainties about reaching subscriber targets that should keep investors at bay."

SSG Take
New York Business fails to note that with their release of Q3 subscriber numbers that Sirius reiterated their guidance of 6.3 million subscribers by the end of the year. Yes, It may seem to be a lofty goal to some, but investors should also be aware that Mel K. Has a very good track record of meeting and exceeding guidance.

The Article States
"That's because the company picked up fewer subscribers in the third quarter than it had projected."

SSG Take

This one is almost humorous. One does not have to follow this sector very long to understand that neither Sirius nor XM offer quarterly projections for subscribers. Consensus on the street for Sirius was between 420,000 and 430,000. Sirius came in at 441,000. It seems that Sirius beat the street estimate, yet New York Business treats it as if Sirius missed.

The Article States
"Among other things, that means that the company will now have a harder time hitting its full-year numbers, projections, especially because fourth-quarter gains are likely to pale in comparison to the figures from the same period last year."

SSG Take
This comment is very interesting. This year, Sirius has seen consistent year over year comparison GROWTH. Somehow New York Business comes to the opinion that this year sales will "pale in comparison" to last year. Have they not seen the numbers so far this year? Have they not seen that Sirius' retail share has been dominant this year? Have they missed that brand awareness for Sirius is higher now than it was last year? Have they not seen that Sirius' OEM numbers are substantially higher this year? Have they missed the news about Sirius Internet Radio and devices that can be subscribed to it? Were they aware that S.I.R. makes Sirius available globally?

The Article States
"We think competition from XM and competing technologies will keep the costs of programming, marketing and acquiring subscribers higher than our previous expectations," Morningstar analyst Michael Corty wrote in a recent report. In fact, Sirius' per-customer acquisition costs are soaring. The company spent $131 per subscriber for marketing in the second quarter of this year, versus $113 in both of the previous quarters, according to adjusted numbers it reported in SEC filings."

SSG Take
A classic use of a component of a report taken from the context of the whole report. New York Business does not anywhere in their story bring up what current year end guidance is. For the record year end guidance stands at $110. Anyone who has followed these equities closely knows that there is ALWAYS and bump upward in SAC during Q2 and Q3, and that in Q4 the SAC number for Sirius comes down substantially. This is because Sirius is paying out subsidies earlier in the year to build and contract for radios sold in Q4. Additionally, it is common knowledge that the SAC for Sirius' OEM subscribers is higher than the retail SAC. The offset comes in the way the deal is structured, where Sirius gets a substantial payment for a subscription from the OEM. The structure of these OEM deals is about CASH FLOW. To look at only SAC is a foolish mistake. The BIG Picture is something we here at SSG often speak about. The BIG PICTURE is what New York Business is missing.

Is New York Business full of hot air? No, not really. They raise some decent points that deserve investor consideration. What they are failing to do is look at the BIG PICTURE. They are putting a focus on a small portion of the business, and accentuating the negatives that are associated with those negatives. They could have just as easily put a big focus on retail share, OEM ramp-up, advertising revenue, etc., but chose not to. Is there an agenda with New York Business?????? Who knows........We may know more if they write about other aspects of Sirius if they hit their numbers.

Remember..........Take in as much information as you can......Good bad or indifferent. Use ALL information to form an opinion. Do not be afraid to focus on specific aspects of these equities, but always remember to keep an eye on the BIG PICTURE.

10/09/2006 11:26:00 AM

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