Sirius XM Radio (SIRI)

Srius Radio has a profitable business model that will do well as the economy slows down even if it does not merge with XM. At first glance their financials look bad. They are loosing money ($-.39 per share in 2007 or $565 million). This is the smallest loss it has had since 2003 when its revenue was less than 2% of 2007's.

But, the question is whether it will turn a profit, and how much will that be. I began by looking at their income statement in a per subscriber bases. Sirius collected $922 million in revenue in 2007 and had $1435 million in expenses for an operating loss of $513 million. They ended 2007 with 8.2 million subscribers and started with 6 million. That implies that they collected $110 per subscriber, paid $172 per subscriber, and lost $62 per subscriber.

The key to this is understanding why their expenses are so much larger than revenue. The largest single expense line is "subscriber acquisition costs" (SAC, the incentives to partners) at $49 per subscriber. Next is programming content at $28 per subscriber. Then sales and marketing at $21 per subscriber. The other costs add up to $74 per subscriber.

So, most of their costs are associated with getting more subscribers and they increased the number of subscribers by 37%. What happens when the market is finally saturated and everyone has a radio that would want one? Marketing costs and to a greater extent SAC will be significantly cut. Programming costs do not increase with the number of subscribers. Lets assume (very conservatively) that the number of subscribers grows by 100%, marketing gets cut to 50% ,and SAC goes to 20%. In this scenario, Sirius Radio is profitable with an expense of $96 per subscriber and income of $110 per subscriber. Sirius is trying to grab as much of the market as it can. Once the market becomes saturated, it can shift gears and become more profitable.

Sirius also has the opportunity to do especially well in the coming years if the economy continues to slow down. Slowing economy leads to decreased advertising. Sirius does not receive a significant amount of its revenue from advertisements. But, advertising is a significant cost. So if advertising declines, Sirius wins. Also, because terrestrial radio stations advertising revenues would be down, the cost of programming throughout the industry may decrease.

Satellite radio is seen to have two competitors: terrestrial digital radio, and MP3 players. Neither will significantly damage Sirius. Unlike satellite radio, terrestrial digital radio has advertisements and greatly reduced programming content. However, terrestrial radio does have local content. If the economy slows, terrestrial radio will not have the cash to spend on capital to convert to digital radio.

Almost everyone already has an MP3 player. Yet, both Sirius and XM continue to grow their subscriber base by leaps and bounds. Satellite radio provides the listener with music that they do not already have and may not know about. It also provides live information and news. If anything, they should be viewed ascomplementary goods instead of competitors.

With Satalite TV in the pipeline and the SIRI takeover of XMSR and the population of pre equiped vehicles being mfg'ed each year it is bound to make a strong return and go beyond the S&P 500.

*I originally wrote the below as a pitch for my first red-thumb of SIRI way back in May 2006.*

This battle is about *content*, period.

Who one the war VCR war, VHS or Beta? Who had the superior technology?

Who one the operating system war, Microsoft or Apple? Who had the superior technology?

Content, content, content - I'll grant you that Howard Stern is a unique commidity, but it's not enough. As for the rest of traditional radio fare, music is music, sports is sports, news is news. Where is the *content* advantage that can't be duplicated and can't be done with pretty much the same effectiveness as syndication?

This Fool just doesn't see it.

A disruptive technology? If these guys don't win the *content* battle, satellite radio will join Betamax and the long list of other failed technologies. Without superior and differentiated content, the only disruption this technology will bring is to its shareholders' portfolios.

Sirius (SIRI) and XM Satellite Radio (XMSR) are on the verge of a merger decision by the FCC and DOJ. Judging from recent activity of the FCC it appears that the merger will be approved, but with some conditions. If those conditions are too strict, it is likely that SIRI and XMSR will withdraw from the merger, or take it to court. If that happens, XMSR will have a near collapse and SIRI will be hurt as well. Sirius has the upper hand, contrary to an opinion just released by the Fool (see Short Sirius, Go Long XM), because of superior programming (Howard Stern, NFL) and fantastic management. If the conditions are small, which I predict, both stocks will likely double within a few days as investors race to pick up these stocks early on.

The CEO of Siri, Mel Karmizan, has been keeping its promises of various tasks the company wants to accoumplish. Howard Stern started earlier this year, yet subscribers are still flowing in quite rapidly. Let me mention siri subscribers are coming in much faster than Xmsr. But this is the most important factor, Mel believes they will be cash flow positive on Siri's fourth quarter this year with 6.2 million subscribers, while Xmsr will said it will be cash flow positive on the same period but with 8.5 million subscribers. It means Siri is more cost effecienct and seem to know how to hanld its business. Early next year Siri will perhaps be trading double today's trading range, which is $4.30.

People are going to flock to Sirius and XM continues its decline. Sirius will pick up some "serious" programming to compliment its current entertainment program. All told, there will be as little incentive for makers and users to go to XM as there was for video machines to be made for -- what's that Sony brand from way back?

Sirius... XM... they'll be the same before too long no matter what the FCC says... Satellite radio is way too cool for it to go away all together... one of them will survive... have you tried satellite radio?? pretty soon it will be relatively standard for all new cars as will a free 3, 6, or maybe even 12 month subscription... anyone who thinks they can go for 6 months w/ Satellite radio and then drop it, I DARE you to buy it for 1 year... you'll be hooked and never go back... buy at $2.64 / share and in 3-5 years you'll have @ least quadrupled your money... try to invest in a bond or CD and do that

eesh. anyone got gauze? catching this falling knife has left me bleeding out...getting tired. maybe i'll just take a nap right here...

Waiting for the anticipated merger of XM radio and sirius radio.

Todos los huevos en una cesta

I'm agnostic long-term between the players, so you'll see the same pitch for both Sirius and XM. I've subscribed to XM since late 2003 and I would never go back to terrestrial radio. Terrestrial radio can't compete with zero commercials, they can't compete with the vast array of content, and they can't compete with a nation-wide signal. Disclaimer: I am a big audiophile, but I believe that once you pop, you can't stop on satrad.

This is the time to take Sirius. It is as low as it has ever been. If the merger with XM is completed, cost will go down, profits will rise. This stock at least double within the next year.

Finally merged. 1-2 years of shaking out the details and aligning the management teams before this thing takes off. combining debts and leveraging assets with XM was the final selling point. satellite radio is not going away

Price ot Sales over 15. It makes me want to vomit, remembering what happened in the internet bubble. We won't get fooled again...

When the deal is approved by DOJ SIRI will trade up to $5 or $6. When the deal is approved by the FCC SIRI will trade up to $12. And there it will sit, probably trading in a range from $10-15 until such time as it actually shows a profit. That's why I'm buying any time it gets round $3 and I'll be selling at $12 so I can move my money somewhere more productive.

with Americans switching to fuel efficient (smaller) cars there will be a compulsion to add luxury to compensate loss of the suv thus satalite radio. This does not hinder fuel comsumption and will come into a must have option

The merger between Siri and XM is gonna happen, its been approved and is pending final approval. With the recent announcement on CNBC that a decision will be made soon, I speculate two things, 1. a mad rush of investors hitching up to the bandwagon before the final details are released, and 2. The final details to be favorable for the new and only satellite radio company.

$2.25 are you kidding me. The Merger will be approved. This thing can't go any lower, and if it does it will come back up. THE ONLY REASON growth has slowed is because everyone is waiting for merger approval and interoperable radios. If I had sirius music and XM sports, I never ever would have canceled my sub. I only did to wait for the merger.

Speculative, yes. But with only one other competetor, excellent share price, decent financials, and a good business plan, worth the risk. Also, they have delivered so far on major projects like signing the NFL and Howard Stern. Finally, they project to be profiable within 6-9 months and are beginning to show some seperation from XM. Yes, well worth the risk.