Monday, April 23, 2007

Bear Stearns On Sirius

April 23, 2007

Bob Peck of Bear Sterns published a preview note on Sirius:

Sirius Satellite Radio

Looking Forward to 2H; Street Growth Ests for 1Q Conservative

Investment Thesis. Both satellite radio stocks have declined significantly since they announced the agreement to merge as the merger outcome remains uncertain and visibility on the merger process (especially at the more important DOJ level) remains limited and the retail environment remains challenging even as the OEMs are likely to pick up speed only towards 2H07 and going into 2008. While OEM will determine LT valuations, NT retail outlook remains tepid. As such, we think investor interest remains limited until there is more visibility into either the merger outcome or the YoY sales comps improve.

1Q07 Preview. Conf call scheduled for 5/1 at 8 ET at www.Sirius.com. We are tweaking our 1Q estimates marginally; key changes include the following:

• Gross Sub Adds. We are tweaking gross sub adds from the retail channel to 472k, down ~30%YoY from 659k in 1Q06, likely a reflection of the market environment that remains challenging for both the satellite radio operators, and tough YoY comps to the Howard Stern transition last year, although offset by the NASCAR transition to Sirius this year. Note, our similar YoY decline in gross adds from the retail channel for XM was 25%. From the OEM channels, we expect 501k gross adds, up about 65% YoY from the 302k level in 1Q06. In aggregate, we are projecting 973k gross adds during the quarter.

• Net Sub Adds HIGHER than Consensus. We are maintaining our net sub adds estimate of 546k, which is higher than street consensus of about 500k, based primarily on the expectation that the street has failed to incorporate the positive impact of the NASCAR transition. We are tweaking up churn to 2.3% from 2.2% previously, reflecting the one-year anniversary of Howard Stern, and higher potential churn from OEM.

• Financials. We are marginally reducing SAC est to $107, and CPGA to $141, as the company transitions to the next gen chipsets. We are projecting revenues and adjusted EBITDA of $220 mn and $(80) mn, respectively.

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4/23/2007 09:44:00 AM

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