The Sorry Tale of XMRS and SIRI
from http://theaveragejoeinvestor.blogspot.com/
Why oh why everyone is so fascinated with XM Satellite Radio Holdings (ticker: XMSR) and Sirius Satellite Radio (ticker: SIRI) is beyond me. After being propped up by hopeful souls for a long time, it's nice to see that at the very least the two are starting to come down a bit in price (for the last twelve months XMSR is down 55% and SIRI is down 27%), but I think they still have a long way to go. Here are two companies delivering a product that people want - as evidenced by Sirius' 300%+ compound annual growth from '03 to '05 - but just can't seem to get their operating model to where they can bring home a profit for their shareholders.
So what's holding these two back? Getting and keeping customers. Though revenue has been growing at a breakneck pace, so has customer acquisition costs: in the first quarter of 2006 Sirius spent an impressive 94% of their revenue on customer acquisitions! XM doesn't break it out quite as nicely as Sirius, but their "subsidies & distribution" (basically offering free services and marking down merchandise) has been growing around 70% per year. Are these guys just competing with each other too hard or are people really not all that interested in satellite radio unless someone gives them an unbelievable (and unprofitable for the company) deal?
As far as I can tell, it looks like a lot of institutional support has moved away from these two, but there is still obviously support out there as they are trading at very high multiples of price to sales and price to book value. And this support is in the face of some solid pressure from short sellers - according to Yahoo!Finance XMSR has nearly 16% of outstanding shares shorted, while SIRI has about 9%. Even worse for shareholders, as these guys continue to blow through cash they are hammering their shareholders by issuing lots of debt and issuing shares. Right now, both companies have over $1B of debt on their books and SIRI has sold an additional $650m worth of stock over the past three years.
These guys need to do something and do it fast. I don't know whether it's to completely restructure or to pursue a combination for the two companies (heck, at least they wouldn't have to compete with each other), but, at least according to current analyst estimates, the way things stand right now positive profits are still no where in sight.
For readers that own these stocks, please feel free to email me, give me a reason why you think there's hope for these stocks. Give me something! But also consider this: psychological research has shown that investors have a distinct tendency to hold onto losing investments hoping for a comeback while being more comfortable selling off investments that have made them money. The key in investing is to really keep a cap on your losses so that your winners can have an effect on your bottom line. So think hard about SIRI and XMSR and where they are right now (regardless of where you bought them), if you really think that there's good reason that the stock price should come back then great, hold on to them. If not, dump the dogs and find something that has some real meat to it.
Just remember, in the stock market what goes down does not always come back up.
-AvgJoe
Why oh why everyone is so fascinated with XM Satellite Radio Holdings (ticker: XMSR) and Sirius Satellite Radio (ticker: SIRI) is beyond me. After being propped up by hopeful souls for a long time, it's nice to see that at the very least the two are starting to come down a bit in price (for the last twelve months XMSR is down 55% and SIRI is down 27%), but I think they still have a long way to go. Here are two companies delivering a product that people want - as evidenced by Sirius' 300%+ compound annual growth from '03 to '05 - but just can't seem to get their operating model to where they can bring home a profit for their shareholders.
So what's holding these two back? Getting and keeping customers. Though revenue has been growing at a breakneck pace, so has customer acquisition costs: in the first quarter of 2006 Sirius spent an impressive 94% of their revenue on customer acquisitions! XM doesn't break it out quite as nicely as Sirius, but their "subsidies & distribution" (basically offering free services and marking down merchandise) has been growing around 70% per year. Are these guys just competing with each other too hard or are people really not all that interested in satellite radio unless someone gives them an unbelievable (and unprofitable for the company) deal?
As far as I can tell, it looks like a lot of institutional support has moved away from these two, but there is still obviously support out there as they are trading at very high multiples of price to sales and price to book value. And this support is in the face of some solid pressure from short sellers - according to Yahoo!Finance XMSR has nearly 16% of outstanding shares shorted, while SIRI has about 9%. Even worse for shareholders, as these guys continue to blow through cash they are hammering their shareholders by issuing lots of debt and issuing shares. Right now, both companies have over $1B of debt on their books and SIRI has sold an additional $650m worth of stock over the past three years.
These guys need to do something and do it fast. I don't know whether it's to completely restructure or to pursue a combination for the two companies (heck, at least they wouldn't have to compete with each other), but, at least according to current analyst estimates, the way things stand right now positive profits are still no where in sight.
For readers that own these stocks, please feel free to email me, give me a reason why you think there's hope for these stocks. Give me something! But also consider this: psychological research has shown that investors have a distinct tendency to hold onto losing investments hoping for a comeback while being more comfortable selling off investments that have made them money. The key in investing is to really keep a cap on your losses so that your winners can have an effect on your bottom line. So think hard about SIRI and XMSR and where they are right now (regardless of where you bought them), if you really think that there's good reason that the stock price should come back then great, hold on to them. If not, dump the dogs and find something that has some real meat to it.
Just remember, in the stock market what goes down does not always come back up.
-AvgJoe
posted by douglas mcintyre at 8:03 AM
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