Cubsfan

Thought maybe I'd throw out a stock to talk about (this is the one I know a little about. I do not own any of this stock)

XMSR: XM Satillite Radio

Closed today at 25.03, up about 1%

What I think is very interesting here is the chart for the last year:

http://cbs.marketwatch.com/tools/quo...=8&siteid=mktw

About $2.00 a year ago, now up to $25.03. Very good growth, the the very interesting thing is that XM as a company is not making any money, and in fact is burning cash at a relatively high rate.

According to: http://www.xmradio.com/newsroom/scre...003_11_06.html
It looks like they lost about $145 million last quarter, yet their stock has skyrocketed.

I think that the stock is overvalued at $25, and wouldn't buy it. (Sadly enough, I was encouraging others to buy it at $6)

Here's their main competitor, Sirius, in the same year:
http://cbs.marketwatch.com/tools/quo...=8&siteid=mktw

ray

I have been tracking both XMSR and SIRI for nearly 6 months now. The biggest difference between the two companies is the following:

XMSR: over 1 million subscribers
SIRI: 200,000 subscribers

In the end, subscribers will drive the revenue up. Since Sirius has very limited commercials and advertisements, they are not generating the same kind of revenue that traditional radio stations generate. That is why these satellite radio firms must charge a subscription fee.

From a consumer standpoint, I have heard both goods and bads about XMSR and SIRI. Sirius is a few dollars more per month, but less advertisements and i hear the programming is a bit better. XMSR, on the other hand, has better reception and less dropped signals.

If you look at the companies' financials, you will notice the following:


XMSR as of Q3:
Total Cash: 456.63M
Total Debt: 773.4M
Changes in AR: -7.1M
Changes in Liabilities: 40.8M
Change in Cash and Cash Equiv: has declined the past 2 Quarters

SIRI as of Q3:
Total Cash: 479.11M
Total Debt: 259.69M
Changes in AR: 16.9M
Changes in Liabilities: -5.2M
Change in Cash and Cash Equiv: Declined in the past Quarter


There is so much more that one should look at when they're researching the financial viability of the company, but I decided to just pick these out to discuss.

XMSR has 20x the revenue of SIRI, but their overall available Cash is lower than Sirius and their changes in liabilities are obviously greater, most likely from their rapid growth in subscribers. However, it really does bother me that their available Cash is so low. They have 1 million subscribers, yet XMSR's account receivables declined by 7.1 million last quarter, while Sirius' change in AR increased by nearly 17 million.

I like to look at historical trends and I usually spend more than 3 months researching a stock before I invest. With XMSR I could have jumped on when it was trading at $10, but the technology was too new and I was skeptical as to the viability of a subscription radio service. XMSR's growth has been absolutely incredible this year, but I think their bubble will burst when their debt and expenses overwhelm their profit. Revenue is one thing, but the bottom line is the most important.

Many analysts are predicting that both XMSR and Sirius will run out of cash in the next year or two, and with a subscription base of 1 million subscribers, XMSR would actually get hurt more than Sirius.

If I had to pick one of these companies to invest in, I would actually pick Sirius because their overall financial package seems healthier, despite the lackluster subscriber levels. However, I think that you may be able to find some better investments at this time. This industry is definitely one to monitor, but their future is just too volatile for my taste.

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Cubsfan

Agreed. A couple of more interesting tidbits I've picked up, so I won't be able to site.

Subscriber turnover is somewhere near 0% for both companies. What this generally means is that once someone chooses a provider, then they stick with them. Basically, the first one to the customers has them for good. This would mean that XM's lead in subscribers is significant.

XM's two satillites (Rock and Roll ) are some Boeing model which apparently is not very reliable. If one of those puppies goes down, XM could be screwed.

However, I think there's one big wildcard in the mix. XM comes in GM's, Honda's, Acura, and a couple other cars. Sirius comes in Chryslers, Fords, etc... I believe a big part of the investors for each company are these auto companies. Do you think that Ford would just let Sirius die and put their customers out in the cold? (Or GM/XM) Be interesting to see what happens.

At any rate, I think that it's a good point to make, as lilbigblue did, that when buying stocks you are concerned not only with the company's financial numbers, but also market factors as well as anything that could effect the company. New products, more compition, uncertain customer base, etc... To make informed decisions requires a lot of work.

coleslaw

I'm sure that a lot of the debt for each company came from deploying the satellites used in their broadcasts. They're still trying to dig themselves out of that hole - but I do believe that they will eventually make it back into the black. Satellite radio should take off more than "digial" radio broadcasts because radio companies don't have the money to spend on digital equipment.

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LegendKiller

I wonder 2 things about your analysis.

1. What was the long term trend in the AR's for each company. While XM does have a decreasing AR and SIRI an increasing, this could point out, if a trend, that SIRI is having problems collecting on accounts and is digging itself in further. As a % of sales, their AR could indicate these problems.

2. Changes in liabilities does not inherently point out problems. First off, the SIRI decline in lia might indicate that the company has not found an optimal debt/equity mix, again, it would be interesting to look at the trends in this category.

All in all, comparison of absolute numbers is almost worthless. Common sized statements and % trends quarter to quarter and year to year show a better picture. Since these are the only two companies to compare it is also harder to determine what a good industry average should be.

My last question would be what type of investor you are? What is the average hold time for a stock. This is more of a curious question.


LK

Merlin

fyi...

IBES Estimates for the company project a loss of about $4.85 per share in 2003 and of $3.70 in 2004. Estimate trends for 2004 have been showing a positive trend over the last 6 weeks.

Cash flow estimates are -2.51 per share in 2003 and -1.61 in 2004. Not a bad improvement year over year. But given the stock run up of more than doubling since Aug. and the fact that the business model has yet to be validated, I'd say the risk/return characteristics of this stock are not really in your favor at this moment. I'd pass and reconsider when they are closer to being cash flow break even.


Sound advise here.

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LegendKiller

It would be interesting to do a full analysis on them with DCF, DROE and DAE, but those also rely on heavy assumptions that can be colored by opinion. I doubt that those would show such an extreme price premium for the stock.

I remember doing that stuff on Adelphia pre-scandal when their stock was flying high. Their cash flows sucked, along with everything else for that company. The stock was valued at anywhere from -80 to -30 with those models.

I think the business model is somewhat reasonable, it is surely much better than many of the .bombs. However, whether they can keep satellites up while keeping costs down IS unproven. It is not like GPS that is run by the gubment.

LK

Merlin

In my experience DCF analysis will indicate that about 95% of the stocks out there are overpriced.

ray

Yes, a comparison of absolute numbers usually does not give one enough information about the company, however, just briefly glancing at their latest earnings reports, those are the numbers that stuck out to me.

I definitely agree that studying % trends quarter to quarter (moreso than year to year) are the best way to show a better analysis. Also, it is difficult to determine whether or not XMSR is performing well against that industry since there are only 2 main companies right now, which is why I am staying away at this point.

What kind of investor am I?

After taking a look at my portfolio this morning I would estimate that about 70% of my holdings are in the form of blue-chip stocks that I have held for over 2 years and a couple mutual funds. The other 30% I have put into high-risk, high-growth investments.

If I double any stock, I almost always sell it, whether I've only had it for 1 month or 1 year. I feel that if I can double my investment, then I have beaten the Street (especially in this economy).

yo

Sirius is expanding its services now?
http://biz.yahoo.com/prnews/031202/nytu175_1.html

cheapchinese

haha... i own both these stocks ^^
started xmsr around 4
siri around 50 cent

best choice i made to start my stock porfolio ^^

raimin

me too
XMSR about 5.
siri at .48

VTGreg

Sirius just signed a contract with the NFL. Now Sirius is the offical satellite radio provider of the NFL. Not a huge development, but something to watch when the two major providers are competing over market share.

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ray

XMSR can actually still sign a contract with the NFL, but the Sirius contract stipulates that a licensing agreement with a competitor would be for a large amount of money.

ray

Cubsfan

More bad news:
http://www.fool.com/News/mft/2003/mf...ln001999&npu=y

Cubsfan

Just as perhaps one data point, I was just at Best Buy getting XM Radio for my girlfriend, and the sales guy said he had been selling about 5 XM's for every Sirius, which would seem to be the same as their current subscriber rates.

ray

You know, everyone's buying into XMSR, but my friend works at Circuit City and he stands by Sirius. Despite the success of XMSR, he said that most of the employees at CC would actually prefer to have Sirius and pay the few extra bucks a month.

Cubsfan

You know, I think most of the time it's really just personal preference. The guy at BB said he switched to XM from Sirius about 6 months ago. I generally just tell people to go with the one that they like the programming on more. Also, believe it or not, the $3 less a month is actually a big factor for a lot of people.

ray

I agree. It's just psychological...oh look, i would be saving $3/month if i chose XMSR over Sirius...

Sirius is 1 year younger than XMSR, but i'm sure many were expecting a closer competition at this stage of growth.

VTGreg

I think this is a huge factor when buyers make a decision. Sirius needs to have significantly better content on the radio to charge the $3 premium. If people are sitting on the fence about it they will tend to go with the cheaper service.

Cubsfan

So I think I'd still say that I wouldn't buy either stock, but for different reasons. I think that XM is the stronger company that has the best chance of survival, but I think its stock is priced higher than it's worth, so I'd avoid it. I'd be more inclined to buy it at $12-$14.

I think Sirius is going to have problems with subscriber growth, which leads to financial problems. Therefore I wouldn't have a lot of faith that SIRI is going to be around in 5 years. However, in the short term the stock might perform well.

Cubsfan

XM just announced that:

1) A few new stations will be added
2) As of 2/1 they will be 100% commercial free

Seems like this takes away Sirius' biggest selling point now. Plus XM is $3 cheaper. You guys think this has any effect on the "Satellite Radio Wars"?

http://www.xmradio.com/index.jsp