cos1000

Analysts on Sirius: Merrill, Goldman See Gloom, Barclays Sees Upside

The problem that the company is going to have with analysts trying to assess future financial performance based on total subscribers will be the three metrics currently used that are not GAAP, but rather operating metrics for the purpose of reflecting general company performance. Those metrics are CHURN, ARPU, and SAC.

Churn being subscriber deactivation measured against total subscribers, which ran at 2.8% for Sirius in the 6 months ending June 30, 2008, a significant increase YOY from 2.1% in 2007. ARPU being Average Revenue Per Unit subscribed was $10.45 vs $10.59 for the same YOY period. SAC being Subscription Acquisition Cost was $84 vs $104 for the same 6 month YOY period. These numbers are for Sirius Stand alone. Each company, SIRI and XM, counted subscribers differently and it is not clear how they will count them moving forward. Using pre-merger churn to evaluate future performance is a non starter and then to apply it to both set of OEM contracts gets you further down the rabbit hole to nowhere.

My point is that each analyst is going to be dependent on the company's detailed reporting over the next year to be able to adjust these past metrics to future performance metrics of the combined company. Unfortunately the analysts motivated towards negative reviews will confuse these differences, trying to drive the SP down.

With all of the new programs for generating revenue, these metrics may become irrelevant from a YOY viewpoint. Today the merged company is not the stand alone companies they were competing for revenue, content providers, and subscribers. These companies have always been difficult for analysts to fairly compare performance in the past due to their reporting and OEM contract differences.

The future company reporting will be confusing to those not willing to do their homework to understand how revenue from new programming ideas will effect these metrics, both positively and negatively in the future. Also the actual metric numbers may become totally irrelevant depending on the revenue generating directions the company takes. Regardless of their effect it will be David Frear's job to clearly define how changes will impact the bottom line.

In my opinion there aren't any good formulas available for accurately projecting how subscriber growth alone will be able to forecast revenue growth, expense reduction, and in the end profitability until the company defines it's new accounting and operating metrics. Probably why changing Accounting Firms was a good idea at this time.