Sirius Goes To The Dogs (SIRI)

May.18.06 | About: Sirius XM (SIRI)

One man's misfortune may not be another's gain. XM Radio (NASD:XMSR) has had its share of bad news with shareholder suits and legal issues with the recording companies and their umbrella, the Recording Industry Association of America.

In the shadow of all this activity at XM, the shares of Sirius Satellite Radio (NASD:SIRI) continue their fall. The stock hit an new 52-week low at $3.99 in intraday trading. It has dropped from its $7.98 high for the year. The stock has not been this low since late 2004.

The reason for this drop is that the Sirius story is still seriously flawed. Revenue for the quarter ending March 31 was $126.7 million, up from $43.2 million a year ago. But losses from operations rose to $446.2 million from $190.3 million. The company's long-term debt is still over $1 billion. The company also has over $1 billion in cash obligations for contracts including items like lease obligations, content, and technology development. The company had almost 4.1 million subscribers at the end of the quarter, still well behind XM.

Average subscriber growth for the last four quarters was 29.8 percent for Sirius, but, in the most recent reported quarter growth slowed to 22%. Average monthly churn has risen to 1.8% and the company had 199,423 subscriber deactivations in the March quarter up from 124,034 in the immediately previous quarter. Average total earnings per subscriber for the quarter were $10.80. The number peaked two quarters ago at $11.15.

During the period, cash and cash equivalents dropped $131,000. Including interest, debt and contract obligations, Sirius now has $2.6 billion in total obligations.

When Sirius started in the satellite radio business, there were no iPods, or MP-3 players of any sort. Radio stations were not streaming their content over the internet. The record companies had not become determined to find models for internet distribution.

In short, Sirius now has a very large number of competitors, a huge amount of debt, and a business model that still needs to demonstrate that it can generate iPod-like usage levels. Also, according to the metrics at Yahoo!Finance, the company still trades at 18 times sales. XM is at 6.8 times.

Subscriber numbers in the low tens of millions are still a long way off, as is the likelihood that the stock will rise soon.

SIRI 1-yr chart



Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.