Replies to post #324986 on Zeev's Turnips Patch-No Politics (ZEEV)

[kron7777]

<< Now lets assume a net profit margin on 7% (high) to come up with a revenue figure. That would be $17.7 billion in revenues.>>

And now lets assume a net profit margin of 70%. Would it make sense then?

What you don't realize is that the costs of doing business for the company is almost the same if they have 1 million subs or 20 million subs. The only difference is that they would need to add more customer service people as number of subs grows. The other expences will stay at current level.

The cost of doing business is appr. $400 mln a year. Average sub brings them $120 a year. Which means that 3.5 mln sub would cover all the cost of doing business. Now every new sub above that will bring $120 into their coffers. Ok, $20 would go to cover the customer service. $100 of profits from every sub.
So if they have 20 million subs in 5 years they will have some $2 bln in revenues (I am not counting ad revenues and other new services which will be provided then).
Their cost of doing business will be some $.5 bln. Which will result in $1.5 bln in profits. 1.5 bln shares. Means appr. $1 per share in profits.
So $30 is very reasonable. And I don't see any other technology competing with them in cars. People want simplicity. So what if you will be able to get internet in you car. You still will want to switch a channel by pushing a button, not by typing in the address. And even if you have a TV in your car - you still can't watch it since you are driving. So radio is still going to be a number 1 entertainment device in cars.

[jeffsaxx]

SIRI --- your numbers are a perfect example of indisputably correct logic --- however, in the meantime SIRI will probably go to $20 before everybody realizes it doesn't deserve to reach $30 ---- in this dificult and treacherous game emotions usually trump the numbers --- as a trader and speculator I prefer to trade along with the emotions and keep a finger on the trigger and then just shoot 'em when they quit laughing or crying

[Zeev Hed]

I am not sure if assuming 7% net profits is accurate, in that business there is a fixed cost of about $500 MM per year (look at XMSR for instance), then there are "gross margins", these should increase as the number of units in the field increases (in essence the units sold are a loss leader), XMSR gross margins are currently at 20% but these could easily increase to 33% (lets be generous). Thus the break even point (under these assumptions) would be yearly revenues of $1.5 B, or assuming revenues of $150/subscriber, we will get a breakeven at 10 MM subscribers. Every subscriber above that level should bring to the bottom line $50 pretax, and maybe $30 after tax. To get your 1.2 B earnings would thus require an additional 40 MM subscribers or a total of 50 MM subscribers. Even if we assume that SIRI will share with XMSR the market evenly, that means a market of 100 MM subscribers. That is close to a 100% penetration of all households (I think that if a family gets systems for multiple cars they get a deep discount on the second unit?). The cable industry took 30 years to achieve that kind of penetration.

The question is , if you want to ride this wave and have faith in the concept, which stock would you rather ride, XMSR or SIRI, they both have market cap in the $6 to $7 B except that XMSR has about three times more subscribers already. Personally, I would rather bet that NVEC indeed succeeds in getting a major handle on MRAM and that MRAM would indeed become bigger than DRAM and flash combined, than bet on radio satellite reaching 100 MM subscribers in 10 years.