Replies to post #107283 on Zeev's Turnips Patch-No Politics (ZEEV)

[kron7777]

Zeev.
They need between 3 and 4 mln subs to break even.

What do you think about SIRI ?
They need just 2 mln to break even.

Both XM and SIRI will need money next year, but it won't be a problem for them to get money. There are estimates that there can be up to 30 mln subs in US in 4-5 years and there are only 2 companies out there. Those numbers can never be achieved , but who cares if investing public will beleive in those numbers.

[alt0151]

Zeev,

I don't know what is their expense growth model that says they can be profitable with 3-4MM subscribers. Right now, their 12 month expenses are "starting" to level off at around $550MM. This number combines Total Operating Expenses and Interest Expense from the Income statement. This number for the last 8 quarters and the corresponding sequential growth rates are:
550 5.3%
522 6.1%
492 10.9%
444 22.1%
363 25.6%
289 66.2%
174 30.3%
134 27.7%

Revenue growth: The most recent 10-K quotes a study that projects 15MM subscribers by end of 2006. This would average 25.7% sequential growth per quarter or 150% per year. That rate is slightly slower than the rate that would put them at 1.2MM subscribers by the end of this year, which is management's most recent target. Sticking with the more "conservative" growth rate and allowing for revenues of $34.50 per subscriber per quarter (I'm taking account of 15% additional for advertising and equipment, the recent average per the Income statements), here's 4 timeframe scenarios to breakeven, varying the rate of expense growth:

Expenses grow at a rate of 2.5% per year: 4Q 2005, 6MM subs
Expenses grow at a rate of 5% per year: 1Q 2006, 7.5MM subs
Expenses grow at a rate of 10% per year: 1Q 2006 7.5MM subs
Expenses grow at a rate of 20% per year: 3Q 2006 12MM subs

Of course, it doesn't look good for SIRI, growing very slowly and trading at a small fraction of book value, so XMSR will probably have the market to themselves (which they substantially already do), and may possibly inherit some cheap satellites to boot.

XM makes these notes in their 10-K regarding cable, digital and satellite TV penetration in the US:

Penetration data relating to cable, satellite television, and premium movie channels suggest that consumers are willing to pay for services that dramatically expand programming choice or enhance quality. There are more than 19.2 million digital cable subscribers and 20 million satellite television subscribers as of 2002. As of 2002, 69% of TV households subscribe to basic cable television, and 18.5% of TV households subscribe to satellite television (National Cable Television Association website and skyreport.com website).

Like I say, I have no idea what would be a valid expense growth model for this company, so I have no opinion what their chances are, and who knows whether current subscriber growth rates are sustainable out to 2006 and whether they'll run out of cash before then--hope this info is helpful to someone (hope it's accurate too <g>).