Saturday, May 20, 2006

Analysts Weigh in On Satellite Radio -- Again

The debate over whether or not satellite radio's a viable and profitable alternative to terrestial radio remains widely contested. This week was no exception, with several analysts firing away once more.

Morgan Stanley Research "...We believe that at current price points, XM is trading on the value of its subscriber base projected for 2010. Profitable subscription growth beyond 2010, we believe, is not reflected in the current share price. We base our $31 price target on a bullish long-term view that the industry can reach 25% penetration of registered vehicles ultimately (i.e., our terminal year) and that terrestrial-based networks will remain inferior for robust entertainment delivery to the car....We continue to believe that the satellite radio platform and the duopoly structure of the industry should lead to superior long-term growth and returns. We estimate churn would have to grow to 4.5% monthly for cumulative subscriber cash flows to fall below cost per gross addition. We believe that the industry will move from heavily free-cash-flow negative to free-cash-flow positive in 2008 for XM. Both XM and Sirius are well capitalized and fully funded to reach free-cash-flow positive..."

Douglas McIntyre/SeekingAlpha Research "...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...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%...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. 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. Subscriber numbers in the low tens of millions are still a long way off, as is the likelihood that the stock will rise soon..."

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